econ unit 5

expansionary fiscal policy

goal is to increase total spending/demand in economy and reduce unemployment, increase gov spending or decrease taxes if rgdp is too low and there is high unemployment need to expand economy, aggregate demand will shift to the right when gov spending and consumption go up, this causes RGDP to increase and price level/inflation to increase and unemployment to decrease gov controls gov spending through spending and influences consumption through taxation- if taxes go up we have less disposable income also investment- if taxes go down, some money will be put in a savings account which banks loan out, when there is lots to loan out from savings accounts they will charge lower interest rates which makes people take out more loans and invest can increase gov spending through unemployment insurance for example, gov gives back basic income which gives people purchasing power so consumption goes up which makes RGDP go up special example- for natural disasters, increasing gov spending would be much more efficient than lowering taxes- FEMA, food and medical aid, focus more on community investment demand side policies- stimulate consumer spending on goods and services aka demand, cut taxes or increase federal spending to put money into people's hands like the new deal, then businesses or suppliers will increase output to meet the seams thus increasing real GDP and economic growth supply side policies- first stimulate production/supply to promote business investment, cut taxes on businesses, cut gov regulations, businesses will invest and expand which creates more jobs and decreases unemployment which increases income and spending (trickle down economics or reaganomics- increasing investment and productivity will lead to an increase in output or real gdp)

discouraged worker effecf

those who want a job but are too discouraged by the state of the economy so they give up looking for one, these people are not included in the workforce when you stop looking for a job you're not considered unemployed ex- african americans leave workforce after 2008 and 20% haven't returned also undocumented immigrants and underemployed does not take into account what is happening in the economy

frictional unemployment

unemployment that occurs when people take time to find a job, quit fired or right out of college/not right skill set Frictional unemployment occurs when people voluntarily leave one job in search of a different job. These people are unemployed because they are temporarily between jobs. In some ways, frictional unemployment can be beneficial to both workers and employers. Workers get the jobs that best fit their skills and interests. Employers find employees that best fit the company's needs.

hyperinflation

A very rapid rise in the price level; an extremely high rate of inflation. inflation occurs when there is too much money circulating in the economy, get surplus money out of economy by giving people incentives to put it in the bank, less spending, high interest rates

human development index

Indicator of level of development for each country, constructed by United Nations, combining income, literacy, education, and life expectancy, created to emphasize that people and their capabilities should be the ultimate criteria for assessing development of a country, long and healthy life, knowledge/schooling, decent standard of living (gross national income per capita) encompasses human factors of economy which is run by middle class people, does not reflect inequality poverty human society or empowerment low inequality not factored into this

unemployment

Measures the number of people who are able to work, but do not have a job during a period of time. percent population not working

expansion

RGDP is increasing past the original peak, inflation may be on the rise and unemployment is low, economy is experiencing economic growth, people have more disposable income, leads to demand pull inflation, RGDP grows rapidly and reaches highest at peak

civilian workforce

adults over 16, people not in an institution (military since there is no market interactions and they have a stable job for 7 years- want more ppl in military so its government based demand; hospitals; school; prison people in non military jobs people actively seeking work

non discretionary spending

automatic changes that occur in our economy when there is a recession/expansion automatic stabilizers- automatically kick in once you qualify, start affecting people once they qualify for them ex- personal income tax, social security, medicare, food stamps, disability insurance mostly social security unemployment and labor, then medicare which will take up more space as baby boomers retire

underground economy

buying and selling of goods and services that is concealed from the government to avoid taxes or regulations or because the goods and services are illegal

cpi

consumer price index, basket of goods that consumers buy covers: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, other goods and services limitations- tech and agriculture ex- energy price decreased (solar panels); gone up in price (lettuce b/c ecoli so production costs more, baby food, veggies), gone down in price (tv- use other electronics, toys- kids use electronics, watches- use phones, caused by substitutes- effect demand bc we are a demand driven society)

deflation

decrease in prices, demand goes down

discretionary spending

deliberate actions by policy makers to affect change in the economy, changes in taxes and gov spending, ex is WPA under FDR mostly military

depression

extended period of high unemployment and reduced business activity, more severe than a recession the great depression ended because of FDR's new deal programs which created direct gov spending and WWII- gov spending on military

contractionary fiscal policy

goal is to reduce total spending/demand in the economy in order to reduce inflation, decrease gov spending or increase taxes if prices are too high from inflation, decrease inflation in this way, aggregate demand shifts to the left since this happens when gov spending goes down or consumption goes down, this causes a decrease in GDP and price level/inflation but could raise unemployment

disposable personal income

income remaining for people to spend or save after all taxes have been paid

full employment

no cyclical unemployment, frictional structural and seasonal are unavoidable, full employment rate referred to as natural rate of unemployment, currently 4-5%

stagflation

persistent high inflation combined with high unemployment and stagnant demand in a country's economy. a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)

ppi

producer price index, basket of goods that producers buy, prices of resources, doesn't take taxes into account

economic growth (gdp growth)

real gdp growth: (rate at which real gdp increases from year to year) real gdp later year-real gdp earlier year/real gdp earlier year x 100 growth caused by growing labor force and increased labor productivity (more output with less input0

supply side inflation/cost push

rising cost of resources is increasing price level, production cost increases- supply curve shifts to left, produce less, price increases and quantity decreases, stagflation since quantity isn't increasing ex- great depression, post natural disasters, oil crisis in 70s- halt production, involves increase in resource prices

cost wage spiral/wage price spiral

rising wages-> rising production costs->increased prices->demands for higher wages argument against min wage

nominal gdp

states gdp in terms of current value of goods and services p x q=ngdp as price goes up ngdp also increases, if just one of them goes up ngdp increases, could reflect increase in price, inflation- not actually producing more useful to know when analyzing gdp- average price for goods/inflation, what goods/services contribute the most, what is included in calculating it, how much we're producing per person, cost of living, type of industry, compare other countries, growth rate/rate of change from year to year china is highest, most countries with large populations have highest GDP, doesn't take into account comparisons with other years or inflation if output remained the same a year of falling prices would make NGDP fall, increases faster than RGDP since it doesn't take into account price increases

fiscal policy

the federal governments attempt to stabilize the economy through taxing and government spending economy needs to be stabilized when reaching a peak of an expansion or in a contraction gov tries to solve unemployment and RGDP in a contraction and also inflation (shouldn't overheat, importance of prices and wages, watched when reaching a peak) these policies are designed to either increase or decrease aggregate supply or demand

unemployment rate

the percentage of the civilian labor force that is unemployed, not all of the us population is capable of working, the labor force are people working or actively looking for work, must be 16+, those who are unemployed are those without a job and who have been actively looking for work in the last 4 weeks # of unemployed / entire labor force x 100 people can move out of the labor force which makes unemployment go down, if more people enter the labor force unemployment rate goes up highest in 2009- time lag with unemployment rate, time for economy to react ideally 4-5%

aggregate supply

the total amount of goods and services that producers will provide at each and every price level upward sloping curve with price level on y axis and real gdp on x axis as aggregate supply decreases price level increases and real GDP decreases which is stagflation, unemployment also goes up as aggregate supply increases, price level decreases and real GDP increases, unemployment also goes up

seasonal unemployment

unemployment that occurs as a result of harvest schedules or vacations, or when industries slow or shut down for a season, christmas retail jobs, snowboarding lessons Seasonal unemployment occurs because some jobs, by their very nature, are tied to the seasons of the year. A ski instructor would have difficulty finding a job in Denver in July. Likewise, many jobs on farms and in construction are tied to the seasons. The Bureau of Labor Statistics tries to account for these seasonal jobs when it uses the term "seasonally adjusted."

underemployed

working at a job for which one is overqualified, or working part-time when full-time work is desired, working where you are not paid enough to live

gdp

Gross Domestic Product- the total market value of all final goods and services produced annually in an economy, measures economic growth target rate- 3-5% growth from year to year depends on population, larger populated countries/states have more tech and big businesses households (consumption), businesses (investments), government spending, net exports (value of exports minus imports) real- what we produce and earn as a nation and how that changes over time value of all the goods and services produced in the country in a year, measures economy never intended to measure overall well being or a nations standard of living started after great depression- didn't have any way of identifying changes, concept and not hard info, quantitative account of production, misleading dollar value of all final goods services and structures produced for the marketplace during a given year within a nations border final- don't want to double count, avoid intermediate goods during a given year- changes overtime, see trends, ex- used textbooks don;t count, don't include used goods within a nation's border- specific to country, domestically made goods total= quantity x price items included- final goods and services that are purchased for final use by the consumer not for resale or for further processing or manufacturing things not included- intermediate goods (these are goods and services that are purchased for resale or further processing, ex- jamba juice buying strawberries), purely financial transactions (this includes public transfer payments like social security private transfer payments like student loans and unemployment insurance and stock market transactions, ex- gov check for scholarship), second hand sales, underground economy, nonmarket transactions (if you clean your own house this is not included, chores or stay at home parent), technically imports are excluded since they're subtracted solely measures production and not welfare or happiness analysis over years: booked with the internet in 2000s but then dropped as people invested too much and they hire too many people too fast resulting in a crash in 2001, recover until housing boom in 2005 but then crashed in 2008 (year on x axis and real gdp on y axis)

gdp per capita

Gross domestic product divided by the number of people in the population. how much we produce per person, average income highest in places with small populations, lower in places with lots of taxes

gini

a mathematical formula that measures the amount of economic inequality in a society, 0 is no inequality where everyone has the same income, 1 or 100 is complete inequality where one person has all the wealth, countries fall somewhere in between ex- large inequality in largely agricultural places with lots of poverty and human rights violations whereas places with lots of tourism and good trade relations currently inequality is rising, creates less ability to spend so GDP goes down countries with high GINI also have low life expectancy and countries with less inequality have high life expectancy

recession

a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. unofficially RGDP falls for 2 consecutive quarters aka contraction- producers cut back, RGDP is falling, inflation may fall and unemployment is rising, real GDP declines and ends in a trough comes with fear (expectations, fearful things would continue to go bad, so people save money and withdraw from banks which aggravates the recession) and positive expectations (gov stabilizing, more freedom to spend money, feed off when creating policy

inflation

a rise in general price level, is measured as a percentage change in one of the 2 main price indices, A continuous rise in the price of goods and services, changes in prices over time, less purchasing power =CPI(Y2)-CPI(Y1)/CPI(Y1) x100 later-earlier/earlier,tells percentage increase from year 1 to year 2 economists prefer a low and stable inflation rate, 1.5-3% is considered healthy/moderate/expected, less than 1.5 sparks concern about deflation in prices inflation over the years: 2008 recession, then people don't buy anything in 2009, houses taken from bank, loans crash, then prices boosted, unemployed get unemployment insurance, social security, stabilized in 2016ish venezuela- 80000% inflation, hyperinflation, phase out old notes and take out zeroes which devalues currency, gov initiatives for education public housing etc, with gov services they couldn't pay so prices go up- people coudn't afford anything so they lose jobs, no one is willing to produce because there is no chance for profit

other

how is the economy currently doing?- gdp is up, trade war and tension in stock market, rise in prices, income ineqality, inflation review hw and gdp ws, review ws on diff types of unemployment california- 5th largest economy and high gdp but 49th of 50 in per capita housing, high cost of living leaves people below poverty line, highest homeless population (but not highest rate), agriculture/migrant farmers, leader in job creation, clean energy jobs exceeds total # of coal jobs in US improve economic growth w 4 factors: land (oil, utilize NR more efficiently, free market to allocate resources), labor (education and productivity), capital (efficient machinery), entre. (tech, develop organizations/groups for new ideas) relation to PPF: more efficient in capital (y axis) means more cosumer goods (x axis), represents increase in RGDP, as the economy grows the PPF expands haiti: land-less land exploitation, fertilize soil, new farmland, introduce new crops, restore forests labor- education and worker programs, specializing skills, training mechanisms capital- more stable cargo ships for trade and organized system, industrialization entre- groups to dismantle problems w discriminatory systems, form more concrete governing body, change leaders, work better with DR, expand market and regain diplomatic ground if the economy is doing poorly should the gov try to fix it? yes- gov should help people being negatively impacted, role to help citizens and stabilize the economy, play a major role in economy because they employ and consume, increas gov spending through infrastructure , unemployment insurance, money for job training, subsidies, more democratic view, gets involved through fiscal policy to affect economy no- no dependence on gov, laissez faire, don't want gov getting involved, want market to work naturally, more republican view

demand side inflation/demand pull

rising demand for goods and services not matched by increased output, in other words too much money chasing too few goods, can be caused by increase in moeny supply, demand pulls up prices, increase in demand is not met by suppliers so prices rise, too much money in money supply so prices go up consumers demand more of a product, producers are slow to respond, prices rise gov creates more money, consumers have more money to spend, prices rise cause the demand curve to shift, demand shifters- income change, market size, consumer tastes, substitues, compliments, future expectations ex- new car models like tesla, iphones, housing, high demand justifies increase in prices consumers change demand

business cycles

series of growth and shrinking periods of economic activity, measured by increases or decreases in GDP, measured peak to peak, contraction vs expansion peak: RGDP is at the highest point of the cycle, inflation is on the rise and unemployment is low, as prices rise and resources tighten businesses become less profitable contraction trough- opposite of a peak, RGDP is at a low point but no longer declining, inflation is low and unemployment is high recovery- RGDP is rising to the original peak, unemployment down expansion economists can recognize a peak or trough only after the next phase has begun recovery up until equal to old peak and expansion grows past the old peak

non market activities

services that have potential economic value but are performed without charge

real gdp

states GDP corrected for changes in prices from year to year P in base year x Q =RGDP base year is a year chosen as a point of reference for comparison if output remained the same a year of falling prices would keep RGDP the same since it is adjusted for inflation increases more slightly at base year RGDP=NGDP economists want to see what is happening to production over time, GDP does not provide this info, need to compare ours with another, nominal vs real, or year to year RGDP allows for realistic comparisons overtime, GDP for one year gives an idea of we are growing and how much we are producing 3-5% healthy

aggregate demand

the total amount of goods and services that consumers (households, businesses, government, and foreign purchasers) will buy at each and every price level within the whole economy downward sloping line with price level on y axis and RGDP on x axis (everything we're consuming) what we are spending money on C+I+G+NX if consumption goes down aggregate demand goes down (shift to left) we see RGDP on the x axis the x axis also shows unemployment, as you move to the left unemployment is increasing, as you move to the right you are producing more so unemployment decreases, as RGDP goes down we are producing less which creates more lay offs and increasing unemployment as average price level goes down there is deflation, change in price level represents inflation as aggregate demand decreases price level decreases and real GDP decreases aka a contractionary period, unemployment goes up as aggregate demand increases price level increases and real GDP increases, unemployment goes down

structural unemployment

unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one, jobs are not coming back- labor efficiency changes, moving jobs to other countries, mismatch of skills outsourcing, automation, VCRs Structural unemployment occurs when a mismatch exists between workers and jobs. It may originate from a change in technology that reduces the need for a particular job. Or, it may come about because labor can be found in less expensive parts of the country or the world. Or, it may result from decreased demand for goods and services. Companies often attempt to restructure to reduce financial loss. Workers who become unemployed often cannot be retrained quickly. Jobs lost to structural unemployment tend to be permanent job losses that will not improve when the economy improves.

cyclical unemployment

unemployment that rises during economic downturns and falls when the economy improves, job loss is temporary, job loss is due to a decrease in demand people buying less, but back on production, fire people, not enough money to spend, consume less Cyclical unemployment occurs as a result of changes in the business cycle. It may be the result of inadequate aggregate demand, thus leaving companies with unused industrial capacity. Cyclical unemployment tends to be temporary. When the business cycle moves into the recovery stage, firms rehire people. Cyclical unemployment tends to hurt certain industries more than others. When the economy contracts (two consecutive quarters of a decline in GDP), consumers tend to reduce their purchases of "big ticket" items like houses and automobiles.

inequality

unequal distribution of wealth, there is a certain amount of inequality that we can tolerate in which democracy can still function we measure by inequality by comparing version of people at top with people at middle 1928 and 2007 are peak years for income concentration, top 1% has 23% of us total income, crashes occurred right after both peaks, leading up to these peak years the financial sector grew by focusing on a limited number of assets strong middle class makes economy stable since middle class consumer spending keeps economy going- sustain economy for long periods of time by creating demand over last 30 years economy has grown and productivity has increased, average hourly earnings risen, gap between productivity and wages for production workers globalized economy- distribution of profit across world, tech enables production process to happen around world, loss of american jobs virtuous cycle: wages increase, workers buy more, companies hire more, tax revenue increases, gov invests more, workers are better educated 1947=77: low economic inequality and high priority for education, educated workforce winners: consumers get good cheap products, investors as stock markets grow, corps get higher profits by keeping pay down coping mechanisms of middle class- women go into paid work, both men and women work longer hours, the middle class borrows and goes into debt-- these have been exhausted vicious cycle- workers buy less, companies downsize, tax revenue decreases, gov cuts programs, workers are less educated, unemployment rises current tax code- taxes for wealthy are lower, income in capital gains is only taxed at 15%, tax breaks in name of job creation threat to democracy- rich have capacity to control politics, campaign finance no income mobility some inequality inevitable- need to incentivize workers

output expenditure model for measuring gdp

who spends our money in the economy? 1. people/individuals/households buy goods and services- general consumption, private sector, households can't buy stuff and save if they don;t have money so they need jobs 2. businesses/firms buy resources aka CELL- investments, large corporations or small businesses expand, build new factory or office building, new machinery or equipment 3. government buys public goods, education, and military- gov spending, public sector, money from taxes, people need to be working so gov can get money to spend 4. foreign purchases, exports-imports= net exports or balance of trade all of these added together is GDP more imports than exports is trade deficit households are most important- consume which creates jobs which makes us confident in economy, businesses are willing to take more risks and lend out more money