Economics business cycle
How do you calculate the unemployment rate?
(Number of unemployed)/(labor force) X 100
Example of structural unemployment
A new technology is created and we no longer need some person with those skills because we have machines
Contraction
A period where real GDP is falling -generally described as two consecutive quarters of falling real GDP -if prolonged or deep enough it is called a depression
Expansion
A period where real GDP is growing
Example of seasonal unemployment
A snowplow driver during the summer has no job
How is GDP calculated?
C+I+G+(X-M)
A French company based in the US sells 1 million worth of its project; is this counted or not counted in GDP?
Counted
Miguel bought a new house after he got married; this is counted or not counted in GDP?
Counted
Nominal income
Part of your salary that is paid out in cash. It is your income in actual currency terms unadjusted for what is termed as inflation
Example of cyclical unemployment
Selena lost her job as an architect during the recession as businesses cut back on their spending (job loss due to contraction or recession in the business cycle)
Investment spending (I)
Money spent by businesses
Government spending (G)
Money spent by government
Consumer spending(C)
Money spent by households/consumers
Is GDP always 100% accurate?
No
Bob makes $85 at a yard sale on one weekend. Will this cause GDP to increase decrease or have no effect?
No effect
Business cycle
The periodic rise and fall and economic activity and can be measured by changes in real GDP
Unemployment rate
The ratio of unemployment to total labor force (LF=E+U)
What is our unemployment rate?
4-6%
Consumer price index(CPI)
A measure of the average of the prices paid by consumers for a fixed market basket of consumer goods and services
How are GDP CPI and unemployment all related?
All of these things let you know how well off economically a country is
Seasonal unemployment
An elevated level of unemployment that is expected to occur at certain parts of the year
What is the equation for CPI?
CPI=(cost of cpi basket at cUrrent period Prices)/ (cost of cpi basket at base period Prices) X 100
What are the different types of unemployment?
Cyclical frictional and structural
If GDP rises the unemployment rate will probably...
Decrease
The government increases taxes on citizens which means people have less money to spend. Will this cause GDP to increase decrease or have no effect?
Decrease
The United States GDP does or does not include goods made in the US by foreign companies?
Does
The United States GDP does or does not include goods made by US companies in other countries?
Does not
Intermediate goods
Goods used to produce the final good Ex: tomatoes are produced but used to make ketchup so only ketchup would count towards GDP
Net exports (X)
Grose exports- Grose imports (X-M)
Underground economy
Illegal or under the table practices
Preparing for war the military orders more fighter jets from US-based companies for defense. Will this cause GDP to increase decrease or have no effect?
Increase
To fight unemployment the government decides to hire more people to staff public libraries. Will this cause GDP to increase decrease or have no effect?
Increase
Double counting
Item sold more than once in a production year Ex: PS3 is purchased but then resold on eBay resales do not count
Labor force participation rate =
Labor force / adult population ×100
AUS own company based in Italy makes 10 million over the summer; is this counted or not counted in GDP?
Not counted
Charles sold a used car to Barry for $5000; is this counted or not counted in GDP?
Not counted
Sharon makes $100 at a flea market on Saturday; is this counted or not counted in GDP?
Not counted
Tatiana earns $150 a week keeping a child in her home while her mother works; is this counted or not counted in GDP?
Not counted
Labor force =
Number of employed + number of unemployed
Discourage workers
People out of work and not looking for job -no longer considered unemployed
Outs of labor force
People who are not seeking employment
Unemployed
People who are out of work but looking for work
Employed
People who work for pay at least one hour a week
Nominal or real GDP is more accurate because it takes into account inflation?
Real
Example of frictional unemployment
Someone who leaves their current job to look for another and until they successfully find another job they are temporarily unemployed
Trough
The bottom of the cycle where a contraction has stopped and is about to turn up
Peak
The top of the cycle where an expansion has run its course and is about to turn down
What is GDP?
The value of all final goods and services produced within a nation in a year
Natural rate of unemployment
There will always be workers switching jobs working seasonally or being replaced by technology so the employment rate can never be zero
Structural unemployment
Unemployment arising from technical change such as auto nation
Frictional unemployment
Unemployment that occurs because of people moving or changing occupations
Non-market transactions
Unpaid labor done by yourself or others
It is beneficial for an economy when the GDP is going...
Up
Cyclical unemployment
Workers losing their jobs due to business cycle fluctuations in output
Real income
inflation adjusted income