econ 104 exam 2

Who was chair of Federal Reserve board of governors that raised interest rates to 20% in the early 1980s to try and tame inflation

paul volcker

transfer payments

payments by the government to households for which the government does not receive a new good or service in return not included in GDP!!!!!

unemployed

people not working who have actively searched for work during previous 4 weeks

discouraged workers

people who are available for work but have not looked for a job during the previous four weeks because they believe no jobs are available for them

employed

people who are currently holding a job in the economy, either full time or part time or temporarily away from their jobs due to illness, vacation, strike, etc

Inflation can affect the distribution of income because

people with incomes rising faster than the rate of inflation enjoy an increasing purchasing​ power, while people with incomes rising more slowly than the rate of inflation are hurt by a decreasing purchasing power.

The payment of government unemployment insurance reduces the severity of recessions by

preventing a huge drop in income and spending for the unemployed.

how to get rid of logs

put everything to the power of 10

the percentage change in real gdp is a measure of

real growth rate

what is one explanation for the decrease in the labor force participation rate since 2007

retirement of baby boomers, discouraged workers, aging population, etc

the BLS also uses the establishment survey (called the payroll survey) to measure total employment in the economy

samples 300,000 business establishments to provide info on the total number of people employed - VERIFIED drawbacks: -does not include self employed people -fails to count people employed at newly opened firms -employment values can be significantly revised as data from additional establishments becomes available

hysteresis

short term unemployment could become long term unemployment

cyclical unemployment

skills are needed, but we're in a recession/downtown but there's no job for you as the economy moves into an expansion, cyclical unemployment drops to 0 -seinfeld - George quit his real estate job and the market is terrible so nobody's hiring

the minimum wage mostly impacts teens

so it has a small effect on the unemployment rate

unemployment insurance makes a lower opportunity cost of being unemployed

so people stay unemployed longer

when the inflation rate changes unexpectedly

some people win and some people lose

GDP component: consumption

spending by households (not on houses) -durable goods - goods that do0 not wear out quickly -nondurable goods - goods that quickly wear out and are replaced often -services - biggest

GDP component: government purcahses

spending by the gov on goods and services -- NOT TRANSFER PAYMENTS

GDP component: investment

spending on capital equipment, inventories, and structures, including household purchases of new housing -economic investment is not financial investment

GDP does not include

stocks/bonds or transfer payments or any products produced outside the borders of the country

there will always be

structural and frictional unemployment

there are no perfect policies that will fix any of these types of unemployment but

structural unemployment - training of new skills frictional unemployment - job matching

frictional unemployment is important in a healthy economy bc it allows for workers to get matched with the jobs that they will be most efficient at

structural unemployment is important bc we want to see economic growth and this means people we need to update their skills

CPI biases

substitution bias, increase in quality bias; new product bias; outlet bias all 4 biases can cause the cpi to overstate the inflation rate all of these biases lead economists to believe the official inflation rate is overstated by .5 - 1 %

The broadest measure of the price level that includes all final goods and services is

the GDP deflator

economic growth

the ability of the economy to increase the production of goods and services

new product bias

the basket of goods changes only every 2 years, which delays including new goods like smartphones

who collects the data for the u rate

the census bureau

cpi is intended to measure changes in price level over time

the cpi is the most widely used measure of inflation

labor market churn

the economy creates and destroys millions of jobs every year but when the BLS announces each month the increase/decrease of jobs, these are net differences

Creating a goal of zero percent unemployment for an economy is not feasible nor is it desirable because

the economy needs some​ short-term unemployment in order to allow for better matching of jobs with workers that possess the proper skill sets.

in what period did the US experience prolonged deflation

the great depression

GDP

the market value of all final goods and services produced within a country in a given period of time (measures total production, total expenditures, and total income in an economy) -- we can measure GDP either by calculating the total value of expenditures on final goods and services or by calculating the value of total income it does not include the value of intermediate goods (or used/resold goods)

real interest rate

the nominal interest rate minus the inflation rate

the natural rate of unemployment

the normal underlying level of unemployment in the economy --the rate of unemployment present when only structural and frictional unemployment are present --also called full employment

The unemployment rate in the United States typically has been lower than the unemployment rates in Canada and countries in Western Europe because

the opportunity cost of job search is lower in Canada and countries of Western Europe and unemployed workers in those countries search longer for jobs

inflation rate

the percentage increase in the average price level from ONE YEAR TO THE NEXT

james tierney calls interest rates

the price of money

profit

the return to entrepreneurs for bearing the risk of producing and selling goods/services

nominal interest rate

the stated interest rate on a loan

microecon

the study of how households and firms make decisions, how they interact in markets, and how the gov attempts to influence their choices

macroecon

the study of the economy as a whole

The natural rate of unemployment is

the sum of structural unemployment and frictional unemployment.

if more unemployed people become discouraged workers

the unemployment rate and the labor force participation rate will decrease

real GDP

the value of final goods and services evaluated at base year prices (ADJUSTED FOR INFLATION) one problem is that prices may change relative to each other -- estimate becomes distorted

Nominal GDP

the value of final goods and services evaluated at current-year prices

unemployed people are eligible for unemployment benefits

this helps the economy bc it helps to limit the reduction of spending that often occurs when people become unemployed the unemployed are usually eligible to receive these benefits for up to 6 months, and they equal about half of what their wages would be other countries are nicer and give higher payments for longer

labor unions are organizations of workers that bargain with employers for higher wages and better working conditions

this makes employers hire less employees but doesnt have much of an effect on unemployment bc only 6.5% of industries are unionized

Nigeria, after changing their base year, calculated a much much higher GDP

this shows that they had been calculating it very inaccurately before

not in labor force

those over the age of 16 who are not working nor actively searching for a job -retirees -homemakers -full time students -hospital patients -prisoners -military -people who are available for work but have not looked for a job in the last 4 weeks either bc of childcare responsibilities etc or bc they are discouraged

GDP component: net exports

total exports minus total imports we have a trade deficit

which is a greater problem? anticipated or unanticipated inflation?

unanticipated. households and firms can plan in the case of anticipated inflation...but with unanticipated inflation, there are winners and losers

The type of inflation that is a greater problem to society is

unanticipated​ inflation, since it causes greater redistribution of income between those making payments and those awaiting payments in the future.

When an unemployed person drops out of the labor​ force, the unemployment rate

understates the true degree of joblessness in the economy but does not affect the​ employment-population ratio.

structural unemployment

unemployment that arises from a persistent mismatch between the skills or attributes of workers and the requirements of jobs the skills you possess are no longer needed in the labor market -brooklyn 99 - postworker Andy Bernard's coworkers were laid off bc of Email

chain weighted prices

using previous-year prices to adjust current-year production measure

nominal variables

variables calculated in current year prices

To have no substitution​ bias, the demand curves for the products in the market basket would need to be

vertical If there is no substitution bias that means that, no matter what happens to the price, the quantity stays fixed. That's shown by a vertical demand curve.

we divide income into 4 categories

wages - firms pay wages to household for labor interest - firms pay interest for the use of capital rent - firms pay rent for natural resources (land) profit - the income that remains after a firm has paid wages, interest, and rent

core CPI

we exclude good and energy items -gets rid of volatility

Nominal incomes generally increase with inflation because

when inflation is​ anticipated, average nominal incomes also increase by the same percentage as the rate of inflation.

frictional unemployment (lowkey unavoidable)

you have the skills, and your skills are needed in the labor force, it just takes some time to find a job -Sheldon was fired bc he was rude to his boss -but it's short time unemployment bc he'll be able to find another job seasonal unemployment refers to frictional unemployment due to weather, tourism, etc to counteract this, the BLS seasonally adjusts the unemployment rate

inflation rate =

(CPI this year - CPI last year) / CPI last year x 100

GDP growth rate

(Current year's GDP - Last year's GDP)/ (Last year's GDP) x 100.

real GDP =

(Nominal GDP/GDP Deflator) x 100

employment population ratio

(employment/working age population) x 100

CPI equation

(expenditures in the current year/expenditures in the base year) x 100

CPI of year x =

(expenditures in year x / expenditures in base year) x 100

percent change =

(final - initial) / initial

real wage =

(nominal wage/CPI) x 100

Yellen on Drop in Labor-Force Participation Rate (WSJ)

- "To what extent has the decline in labor force participation rate affected your thinking regarding the timing and pace of further rate increases?" - Labor force participation is declining and will continue to decline in the future because we have an aging population - Also labor force participation among other groups has been depressed by the fact that we've had a weak labor market - Over the past year, the labor force participation rate has been essentially flat - take this as an indication that in fact, we have seen some cyclical gains - people who were discouraged have come back into the labor force - When we have a month in which job gains are very low, and we see a decline in labor force participation, that reflects an increase in the number of people who had actively been looking for work (unemployed) ceasing to look so that they now move into the category of out of the labor force - not a good sign

What Inflation Means to You: Inside the Consumer Price Index by Jill Mislinski

- Back in 2010, the Fed justified its aggressive monetary policy "to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate" (full text). In effect, the Fed has been trying to increase inflation, operating at the macro level. But what does inflation mean at the micro level — specifically to your household? - Let's do some analysis of the Consumer Price Index, the best-known measure of inflation. The Bureau of Labor Statistics (BLS) divides all expenditures into eight categories and assigns a relative size to each. The pie chart below illustrates the components of the Consumer Price Index for Urban Consumers, the CPI-U, which we'll refer to hereafter as the CPI. - Apparel has deflated since 2000 - Medical care has grown the fastest since 2000 - Transportation has high volatility - The BLS does not lump energy costs into an expenditure category. Instead, it includes energy subcategories in Housing in addition to the fuel subcategory in Transportation. Also, energy costs are indirectly reflected in expenditure changes for goods and services across the CPI. - College Tuition and Fees is a steady staircase - annual cost increases in the late summer for each academic year - Economists and policymakers (e.g., the Federal Reserve) pay close attention to Core Inflation, which is the overall inflation rate excluding Food and Energy. Now this is a somewhat peculiar metric in that one of the exclusions, Energy, is an aggregate that combines specific pieces of two consumption categories: 1) Transportation fuels and 2) Housing fuels, gas, and electricity. The other, Food, is the major part of the Food and Beverage category. Note that "beverage" for the BLS means alcoholic beverages. - The universal response is to moan over price increases and take delight when prices are cheaper. But in reality, households vary dramatically in the impact that inflation has upon them. - Inflation has been tame in recent years and slowly picked up, finally reaching the Fed's target in March 2018. But the one thing we can be certain about is this: Inflation volatility has a painful effect on lower income households, those on fixed incomes, those with higher ratios of tuition, transportation, or medical costs ... and all households whose discretionary spending is more dream than reality.

Donald Trump Is Right: About 42% of Americans Are Unemployed (If You Include My 88-Year-Old Grandma) by Josh Zumbrun

- Donald Trump said this: "We have a real unemployment rate that's probably 21%. It's not 6. It's not 5.2 and 5.5. Our real unemployment rate-in fact, I saw a chart the other day, our real unemployment-because you have ninety million people that aren't working. Ninety-three million to be exact. If you start adding it up, our real unemployment rate is 42%." - Mr. Trump is right: A little under 93 million people in America do not have jobs. - Only about 59% of Americans have jobs and only 62.6% are considered to be "in the labor force." Indeed, more than 40% of the population has no job. - First, many people without jobs are teenagers and retirees. Here's a look at the percentage of the people in each age group employed, unemployed and not in the labor force. - The reason 42% of Americans don't have job is that the U.S. has 46 million people age 60 and over and another 10 million teenagers. - In their prime working years, close to 80% of Americans have jobs. Breaking this chart down by age also reveals something significant: Men are more likely to work than women. There's an obvious reason for this, too: Many women choose to stay home to take care of their children. - Now, it's true that the share of prime-age workers has been declining. - Economists debate the reasons for this: Some people are stay-at-home parents, rising education levels mean people spend more years as students, no doubt the weakness in the economy has left some people to discouraged to hunt for work, more people have gone on disability. - The number of workers in their teens and 20s also has declined significantly. This also partly reflects a weak labor market and partly reflects more people staying in school. Some teens want jobs, yes, but many prefer to focus on their studies. Those students who are not working, because they're pursuing higher education, may well benefit the U.S. economy in the long run due to their higher level of skills and productivity. - Employment rates among those 55 and over actually are rising. As recently as the mid-1990s, less than 30% of people in this age group worked. That's since risen to close to 40%.Many of these workers simply can't afford to retire and keep working because they need the money.

A Brief History of US Inflation Since 1775 by Josh Zumbrun

- From the U.S. Revolutionary War to World War II, inflation swung around much more dramatically than it does today. Especially in periods of war, prices would surge, to be followed by long periods of deflation. Over long periods of time, these dramatic swings tended to balance out, but it was a far cry from what anyone today would likely consider "price stability." - But tracking and attempting to predict and control inflation came along much more recently. The Federal Reserve was signed into law in 1913, and the Labor Department began compiling the consumer-price index in 1919 - In 1974, the economist Herbert Stein, then a top adviser to President Richard Nixon, called inflation "a Hydra-headed monster" that "came in various forms—sometimes led by wages, sometimes by prices, by foods, by oil; sometimes it was domestic and sometimes imported." Any attempt to tame prices resulted in more inflation, just like the mythological monster, "growing two new heads each time one was cut off," he wrote. - The 1980s and 1990s were a period of confidence—sometimes extreme—that central banks tightly controlled their inflation rates. But the recession beginning in 2007 has again called that confidence into question. - Many economists believed a period of prolonged mass unemployment would lead to a deflationary spiral. This forecast, however, never came to pass. - While the level of inflation is low by historical standards, the decline in inflation since the onset of the Great Recession has been less than many popular models of the inflation process would have predicted and, as a result, research in recent years has emphasized that inflation has been surprisingly high, not low. - In recent years, however, central banks have made the opposite mistake. They have forecast that inflation would quickly return to their 2% target, and inflation has been surprisingly low, not high, compared to what they've forecast

Is High Fructose Corn Syrup Included in GDP? By James Tierney

- He was looking at the ingredients of Rice Krispie Treat, and tweeted this; "I look at the ingredients of food items, not bc I'm health conscious, but bc I want to see what isn't included in GDP"

What Full Employment Really Means (The Economist)

- IN 1977 America's government gave the Federal Reserve what seems like a straightforward goal: maximum employment. Janet Yellen, the current chairman of the Fed, thinks America is pretty close; at 4.7%, the unemployment rate is quite low by historical standards. - But firms continue to hire, and American adults, of whom only about 69% have a job, seem less than maximally employed. Most governments set themselves or their central banks a guideline of full or maximum employment. But what exactly counts as full? - Macroeconomists reckon that governments can only push unemployment so low. Push the unemployment rate below some (unobserved) "natural rate", and it will soon rise back up, along with prices. - At the natural rate, all the workers who can easily or usefully be hired are working, and new hires can only occur by luring people from other jobs by offering them higher wages. - The natural rate of umemployment depends mostly on what economists label "frictional unemployment" - Barriers to job switching, like occupational licensing, increase friction and push up the natural rate. - But the boundary between long-term structural unemployment and the temporary, cyclical kind is not clear-cut. In the 1980s and 1990s economists argued that short-term unemployment could become long-term unemployment: a phenomenon known as "hysteresis". As a worker's time without a job grows, his professional connections might weaken and his skills might become obsolete. - Hysteresis also works in reverse, at least to some degree. As America's unemployment rate has fallen below 5%, wages have finally started rising at a faster pace. Better pay will entice some people who had given up on the labour force to look for work again. - Better economic conditions might lead firms to offer temporary workers permanent positions, or to give more hours to part-time employees. As firms find it harder to hire new workers, they might offer existing workers more hours, or convert part-time or temporary positions to full-time or permanent ones. - The rub is that policymakers cannot know how much slack remains in the system until they see inflation spiralling up—and they would rather it didn't. So central banks often end up slowing growth before full employment is reached because of an excessive aversion to inflation. - To treat full employment as a purely economic phenomenon is not quite right, however. If the goal of full employment is a happy society, then the quality as well as the quantity of jobs matters.

Measuring a Progressive Society

- IT HAS long been said that economic output is too narrow a gauge by which to measure the progress of nations. - In recent years a plethora of new indices that go "beyond GDP" have emerged. One is the Social Progress Index (SPI), by the Social Progress Imperative, an American think-tank which eschews GDP entirely and focuses on 53 social and environmental output indicators under three headings: basic needs, the foundations of well-being and opportunity. - And, as the chart shows, generally the richer a nation is the more socially progressive it is. But that progression is not linear, and there are notable exceptions - Gains in social progress appear to slow when a country enters middle-income status. It also becomes harder to improve at a high-income level as countries face rich-world problems such as obesity. - Oil- and resource-rich Saudi Arabia, Qatar and the United Arab Emirates are the worst of the 35 underperforming nations, and fall spectacularly below the average owing to closed and restrictive cultures and poor scores on religious tolerance and personal freedom.

How Imports INCREASE GDP by Thomas Firey

- In recent posts, Pierre Lemieux and Scott Sumner refuted a common but mistaken idea: that because gross domestic product can be calculated by taking national expenditure data (i.e., the "C + I + G" part of the equation) and adding the value of exports while subtracting the value of imports (the "X - M" in said equation), imports reduce GDP. - One of the reasons this error persists is that it echoes another mistaken but intuitively compelling idea: the imported goods could have been made domestically, and thus would have added to domestic employment. -comparative advantage - Imported cacao beans, grown easily in Africa, provide thousands of jobs here at companies like Hershey - They would likely respond to this anecdote by saying that the destroyed jobs would be replaced by other jobs elsewhere in the economy. This is true, but the affected workers could move to those jobs now if they wanted to. Instead, they stick with chocolate-making because they are more productive and better paid. - That is the point of the theory of comparative advantage: you produce what you can do more efficiently (like chocolate in Pennsylvania) and you import what others in the world can produce cheaper (cocoa beans). - At a time when U.S. employment is below 4 percent and American wages are finally beginning to climb, it's baffling that U.S. politicians want to put a number of productive jobs at risk because of a woeful misunderstanding of trade and economics.

The Rise of Knowledge Workers is Accelerating Despite the Threat of Automation by Josh Zumbrun

- In the past three decades, the number of jobs for knowledge workers has never been rising as quickly as it is right now. - As recently as the mid-1980s, you could categorize American workers into roughly three equal-sized groups of about 30 million people each. About 31 million people had nonroutine cognitive jobs, what is often called "knowledge work," consisting of varied intellectual tasks such as professional, managerial or technical occupations. Just under 30 million people had jobs that consisted primarily of routine manual work—on assembly lines or in warehouses, doing physical tasks day after day. About 30 million people had jobs consisting of routine office work—bookkeepers, filing clerks, bank tellers and so on—work that doesn't involve much physical activity but is highly routine and doesn't necessarily require high levels of knowledge. A fourth, smaller group, did nonroutine manual tasks, such as many service occupations. - But over the past three decades, almost all job growth has come from the two categories of work that are nonroutine. Meanwhile, routine jobs have been under a lot of pressure - Why is this happening? Economists believe it's because jobs that are highly routine are the most susceptible to being replaced by automation and technology—Excel spreadsheets replace bookkeepers and sophisticated robots replace people on the assembly line. Especially during periods of recession, many workers in routine occupations lose their jobs and aren't hired back as the economy recovers. - While routine jobs have gone nowhere over the past three decades, the number of people in knowledge work jobs has more than doubled, and there are no signs of that trend slowing. This strongly suggests that even though technology is eliminating some jobs, it's creating even more in different fields. - There is no doubt that machines are getting smarter, faster, more powerful and more dexterous—and potentially capable of doing more and more of the tasks that humans do. It's easy to find warnings of the imminent risk of a jobless future. Most dramatically, a group of researchers at the University of Oxford warned three years ago that technology was on the cusp of destroying nearly 47% of U.S. jobs in coming years. It's only been three years since that prediction, but so far new knowledge jobs are easily eclipsing the jobs that are disappearing. - Even as machines get smarter, many jobs have critical components that are social, emotional, creative or relational. These are overwhelmingly likely to be classified as non-routine types of jobs. The prospect of robots or automation replacing all of them remains remote. In other words, there's good reason to think knowledge work will continue to grow.

In Tight Labor Market, Inmates Learn to Code by Kris Maher

- Indiana program teaches women in prison to write computer code - The program called The Last Mile aims to help inmates find work and stay out of prison once they are released. Researchers at Rand Corp. have found that inmates who participate in educational programs had 43% lower odds of returning to prison. - Ex-inmates are typically among the last groups on the sidelines of the jobs market. The U.S. economy has been in a sustained period of low unemployment with many states across the Midwest and Northeast, in particular, experiencing labor shortages and employers needing to reach further for workers. - Officials in Maine, which had a 3% unemployment rate in July, are inviting employers to the state prison in Warren for a seminar on hiring prisoners in September. Organizers expected between 25 and 50 employers. So far, 114 have signed up, from retailers to construction companies. The state is proposing that employers send their own managers into prisons to train inmates. - The Last Mile, founded in 2014, operates in Indiana as well as in six correctional facilities in California. All 50 people who have completed the program in California and been released are employed, and none have returned to prison, the organization said.

Calculating the Inflation Rate with CPI Values by James

- Inflation rate - percentage change in CPI - Percentage change formula

ERA and the Unemployment Rate Have the Same Problem: And That's Okay by James Tierney

- Most economists are drawn to both a career in economics and interest in baseball for the same reason: Statistics. Economic statistics (called economic indicators) can be very similar to statistics in baseball. - Some are known as 'surface-level' statistics like the unemployment rate (U-3) or the consumer price index (CPI, a measure of inflation) while others dig deeper into the economy like the multiple manufacturing indexes (PMI, ISM) or the Case-Shiller home price index. Baseball deals with the same issue. The questions remains, is this a bad thing? - Take for example a pitcher's earned-run average (ERA). A simple statistic calculated by taking the number of earned runs a pitcher has allowed per 9 innings pitched. This statistic, which began being collected in 1912 by the National League, is used to statistically rate pitchers. Is it perfect? No. - To try and control for these other factors, statisticians came up with other measures of pitchers' effectiveness. Two examples are ERA+ and WHIP. - If most people agree there are better statistics available for use, why not use them on an everyday basis? The answer is quite simple: for the ordinary fan, ERA does a good job. ERA+ and WHIP are available for anyone wanting to dig deeper and do a more thorough analysis. - Economics runs into the same problem. The official unemployment rate in the United States, released on a monthly basis by the Bureau of Labor Statistics (BLS), is calculated by taking the number of people who are unemployed as a percentage of the overall labor force. - Problems arise with the official unemployment rate when you dig deeper into the statistic. It doesn't count individuals who give up looking for jobs because they feel the labor market has nothing to offer them. - To give a more complete pictures of the unemployment situation, the BLS publishes 5 additional measures. - As you can see, the official unemployment rate doesn't tell the whole story of the labor market. Just like a pitcher's ERA does not tell you everything about his effectiveness. But at the end of the day, the official unemployment rate, like ERA, is a simple statistic to start your understanding. Instead of bashing simple statistics like these and others, it's time to fully understand the value of both surface-level stats and those that dig deeper.

Gini: the Measure of Inequality by Krissy Clark

- Not everyone has the same amount of money. Some are richer. Some are poorer. That's pretty obvious. But just how much more money do the rich have? How much poorer are the poor? - The going theory in the early 1900s was that in any country, at any point in history, wealth distribution was constant. That "everywhere, at all time, the top 20 percent have 80 percent of the wealth, and the bottom 80 percent split the 20 percent remaining," says Professor Jean-Guy Prevost, who studies the history of statistics at the University of Quebec in Montreal. - Then a handsome and stubborn Italian statistician named Corrado Gini came along. Gini found the idea of wealth distribution being always the same absurd. - In the process, Gini created what we now call the Gini Index. Basically it's a scale from zero to 100 that allows you to measure just how concentrated income or wealth is in a given country at a given time. - A perfectly unequal country, where one person has all the wealth, would rank 100 on the Gini Index. On the other end of the spectrum, a country where everyone has exactly the same amount of money would rank as a zero. - On the relatively equal end, Sweden comes in at about a 23 on the Gini Index*. The U.S. has gone from the low 40s to the high 40s in the last few decades. South Africa, one of the most unequal countries, is about a 62. - But in case you're thinking the guy behind this inequality measurement was some kind of liberal softy? Guess again. Corrado Gini was a card-carrying fascist. - For Gini and the Fascist Party he belonged to, measuring inequality wasn't important because they cared so much about the poor, explains Favero. Instead, they cared about maintaining the proper balance between rich and poor. - "There's a set of political, ethical or moral questions you might ask whether we care about the ratio between the rich and poor for example, about how inequality matters for things like well being. Or you might ask, is the crime rate higher in unequal countries? Do unequal countries grow faster?"

US Durable-Goods Orders Rose 2.9% in December by Ben Leubsdorf and Josh Mitchell

- Orders for durable goods—products designed to last at least three years, such as airplanes and industrial robots—increased 2.9% from the prior month to a seasonally adjusted $249.45 billion in December - Last month's gain was led by a 55.3% jump in orders for military aircraft and a 15.9% increase in civilian-airplane orders. - U.S. economic growth has picked up in recent quarters, aided by stronger business investment. That trend was driven in large part by the energy sector's recovery as oil prices stabilized and moved higher. Stronger growth overseas and a weaker dollar also have boosted demand for U.S. exports.

Inflation: Waiting for the Upturn by the Federal Reserve Bank of Cleveland

- Over the course of the past year there have been concerns about falling long-term inflation expectations - One closely watched measure of inflation expectations comes from the Federal Reserve Bank of Philadelphia's Survey of Professional Forecasters - The 2015:Q4 SPF reading showed that, after having been essentially unchanged at 2 percent since the first quarter of 2013, the median SPF projection for annual average inflation in the Personal Consumption Expenditures (PCE) price index over the next 10 years decreased to 1.9 percent. - One-tenth of one percentage point is small in the grand scheme of things. But because this measure had been so stable—and because this decline coincided with decreases in several other measures of inflation expectations—it is notable. - These readings indicate that while longer-run inflation expectations remain steady according to the SPF and Blue Chip surveys, short- and medium-term inflation expectations appear to be drifting lower. - Economists pay attention to inflation expectations because economic theory and empirical evidence suggest they help to determine where inflation is likely to go. If businesses expect higher inflation in the future, they may start preemptively raising their prices today, which in turn could cause inflation to increase as well. - On the empirical front, recent research—including some here at the Cleveland Fed—has found that it is possible to make more accurate forecasts of inflation by incorporating inflation expectations into forecasting models. - In these models, the inflation gap—which is the difference between inflation today and the longer-run expected inflation rate—is the variable of interest; - But what model generates the most accurate results for the next quarter—in forecasting jargon, for the one-step-ahead forecast? - For forecasting further into the future, however, the evidence from our exercise and in Faust and Wright (2013) suggests that the fixed-coefficient gap model is a tough competitor to beat.

The Economic Growth That Experts Can't Count (NY Times) by Patricia Cohen

- President Trump's vow to raise the annual growth rate to 4 percent has been dismissed as outlandish by economists. - But what if the economy has already been growing at that rate — but no one realized it? - As the economy has shifted from one that primarily produced things — refrigerators and cars, guns and shoes — to one that now deals largely in services and information, economists have grown more and more skeptical that the traditional measure of gross domestic product — the nation's total output — is accurately capturing much of the economy's innovation and improvements. - the yearly growth figures — fairly or not — end up being used to answer several essential questions. Is the country getting richer? Are standards of living rising? Are businesses and workers more productive? Is the economy improving? - Gross domestic product has always been an imperfect answer to such questions. It is designed to measure production and just production — not welfare or happiness. - Since the end of the recession in 2009, the government has estimated that G.D.P. has trudged forward at an average annual rate of roughly 2 percent - The growing suspicion, however, is that in a digital world overflowing with free services like Facebook, Google and YouTube, price is an increasingly ill-suited proxy for value. - Trying to measure an economy as large and complicated as the United States' is daunting even under the best of circumstances. Ever since the Nobel Prize winner Simon Kuznets helped create the government's first estimate of the national income in 1934, the comprehensiveness and accuracy of the measure have been debated. Kuznets, for example, wanted to include the value provided by mothers taking care of their children and the home, which would cost a sizable amount if it were paid labor.

What the Social Progress Index Can Reveal About Your Country by Michael Green

- Simon Kuznets delivered a report in the 1920s proposing the GDP - The report was delivered in a moment of crisis - the US economy was plummeting into the Great Depression, and policy makers were struggling to understand what was going on - Kuznet's report filled with data and statistics allowed them to understand the factors behind the recession and help the country recover - The invention spread around the world - In the first report, Kuznets gives a warning - GDP is a tool to help us measure economic performance...it's not a measure of our wellbeing. - We ignored his warning - GDP is the benchmark of success in our global economy - Social Progress Index - basic human needs, foundations of wellbeing, opportunity - The number one country for social progress is New Zealand, the last one is Chad - At every level of GDP per capita, there are opportunities for more social progress and risks for less - For poorer countries, the line of best fit is really steep - when you don't have much GDP, adding a little bit more helps you increase social progress a LOT - But then the curve flattens - as we go further up the curve, each additional dollar of GDP buys less and less social progress - The social progress index reframes the debate about development

US GDP Growth Revised Up to 3% Pace in the Second Quarter by Ben Leubsdorf

- The U.S. economy expanded at its most robust pace in more than two years in the spring and appears to have momentum going into the second half of the year, supported by solid consumer spending and a pickup in business investment. - Since the recession ended in mid-2009, economic growth has fluctuated from quarter to quarter while averaging a little more than 2% a year. - "We just announced that we hit 3% in GDP. It just came out," Mr. Trump said Wednesday during an event in Springfield, Mo., referring to the quarterly figures released by the Commerce Department. "And on a yearly basis, as you know, the last administration during an eight-year period never hit 3%. So we're really on our way." - Consumer, business and investor optimism have all jumped since Mr. Trump's election last year. Other forces supporting U.S. economic activity were under way well before Mr. Trump took office, including the falling unemployment rate, stabilization in oil prices and an upswing in global growth. - Many forecasters expect economic growth will remain modest in the coming years, shaped by long-term demographic and other forces including slow worker productivity growth. - "It is absolutely possible at times to have growth fluctuate and hit 3%, but to sustain 3% would imply a much larger and faster growing labor force than we have and a higher rate of productivity," aka trump was wrong - The details of Wednesday's report on the second quarter were broadly positive, including the strongest consumer-spending growth in a year.

The US Now Ranks 19th in 'Social Progress,' With Finland and Canada Topping the List by Josh Zumbrun

- The United States has fallen to 19th place in a global ranking of well-being, down three spots from last year. That's according to the 2016 edition of the Social Progress Index, one of the most comprehensive international measures of well-being. - Across a number of such "non-economic" measures, the U.S. fares particularly poorly for a rich nation, according to the index, because of its high obesity rate, high homicide rate, high level of traffic fatalities and unequal access to higher education. - U.S. citizens "are getting a pretty raw deal when it comes to translating the country's wealth into social progress," - Finland topped the index this year, followed closely by Canada, Denmark, Australia and Switzerland. - Criticizing GDP has a long and storied history. Presidential candidate Robert F. Kennedy famously lambasted GDP during his 1968 presidential campaign, saying GDP "measures everything, in short, except that which makes life worthwhile." The Economist and The Atlantic have splashed stories about the inadequacies of GDP on their covers. In recent years, GDP has climbed to new highs under President Barack Obama, and many conservatives too have turned to highlighting things not measured by GDP, such as falling median incomes, rising numbers of people on food stamps, or soaring levels of student debt.

How Do Imports Affect GDP? By Scott A. Wolla

- The current textbook and classroom treatment of how international trade is measured as part of GDP can lead to misconceptions if not properly explained. - GDP can either be measured by total expenditures or total income - The typical textbook treatment of GDP is the expenditure approach - made up of personal consumption, gross private investment, government purchases, and net exports - GDP measures domestic production - the value of imports do not add to or subtract from a country's GDP - International trade is captured in the net exports portion of the expenditures equation (X - M). In this approach, exports (X) are added in the same way as the other variables (C, I, and G) and contribute to GDP—an extra dollar of spending increases GDP by one dollar. However, in the expenditures equation, imports (M) are subtracted. On the surface, this implies that an extra dollar of spending on imports (M) would decrease GDP by one dollar. For example, let's assume you spend $30,000 on an imported car; because imports are subtracted (i.e., "- M"), the equation seems to imply that $30,000 should be subtracted from GDP (Table 2). However, this cannot be correct because GDP measures domestic production, so imports (foreign production) should have no impact on GDP. - Some of this spending, which is counted as C, I, and G, is spent on imported goods. As such, the value of imports must be subtracted to ensure that only spending on domestic goods is measured in GDP. For example, $30,000 spent on an imported car is counted as a personal consumption expenditure (C), but then the $30,000 is subtracted as an import (M) to ensure that only the value of domestic production is counted. As such, the imports variable (M) functions as an accounting variable rather than an expenditure variable. To be clear, the purchase of domestic goods and services increases GDP because it increases domestic production, but the purchase of imported goods and services has no direct impact on GDP. - For example, if $10,000 in imported parts are used in the production of a car in a U.S. factory (an "American" car) and the car is sold in the United States for $30,000, then the $30,000 counts as personal consumption expenditures (C); but $10,000 is subtracted to account for the value of the imported (M) parts, so the effect on U.S. GDP is $20,000 - Exports of intermediate count as part of GDP bc the final good will be sold nondomestically - The expenditure approach calculates GDP using total spending on domestic goods; but the equation, as stated, can lead to a misunderstanding of how imports affect GDP. More specifically, the expenditure equation seems to imply that imports reduce economic output. - This essay explains that the imports variable (M) corrects for the value of imports that have already been counted as personal consumption (C), gross private investment (I), or government purchases (G). - the purchase of domestic goods and services should increase GDP, but the purchase of imported goods and services should have no direct impact on GDP.

Gross National Happiness Measures Quality of Life by Lisa Napoli

- The tiny Himalayan kingdom of Bhutan has pledged to manage its nation's well-being by measuring Gross National Happiness, rather than the more popular gauge Gross Domestic Product. In Vermont, a global gathering of proponents of this alternative scale gathered to discuss GNH and how to adapt it for Western use. - Chris Wood came to Vermont 40 years ago as part of the hippie movement. Now, he's helped gather 200 people, old and young, from across the state and from as far away as South Africa and Bangladesh, to help launch a new movement. - The philosophy comes from the tiny Himalayan kingdom of Bhutan, which long ago pledged not to let Gross Domestic Product overshadow its Buddhist ideals. - Bhutan's government is focused on creating the right conditions that can lead people to fulfilling lives - They've come up with nine key indicators - Psychological well-being, community vitality, cultural diversity, time use, good governance, health, education, ecology, and living standards.

Inflation Jumps, Spending Slumps

- Theres more economic data suggesting a rise in inflation - The labor department said retail prices rose 5 tenths per cent in Jan - more than expected - Harriet Torry - covers the economy for the Wall St Journal: - The reason for that gain in the headline CPI was largely gasoline prices - they went up 5% - But economists are more interestd in Core CPI - CPI without food or energy - bc it's more reliable - volatile energy/food isn't factored in - Core retail prices were up 0.349% in January - strongest increase since 2005 - Headline CPI was up 2.1% for the year and Core prices were up 1.8% for the year - Shows a broader story of gradually increasing prices - this is what we want to see - The rise in inflation in January was greater than expected - Average weekly earnings declined over the year - This means companies are fighting through higher costs - having to pay higher minimum wages - The Fed might have to raise interest rates more than expected this year

What We Know - And Don't Know - About the Declining Labor Force Participation Rate by Eleanor Krause and Isabel V. Sawhill

- Today's unemployment rate of 4.8 percent, showing the United States still nearing "full employment," will dominate the mainstream news. But behind the headlines is a troubling, stubborn trend: men and women dropping out of the labor force. - This declining participation rate, particularly among prime-age workers (ages 25 to 54), and its implications for the economy, is receiving increased attention from scholars, journalists, and policymakers in recent years. There have been a flurry of recent studies. So, what have we learned? - Prime-age male labor force participation has been declining for over half a century - Prime-age male participation has fallen most dramatically for black men, those with a high school degree or less, nonparents, and veterans: - Explanations for the decline tend to focus on supply-side factors (workers are ill-fit for the jobs available) or demand-side factors (employers aren't hiring). - But not all experts agree with this assessment. - Eberstadt concludes that the problem largely lies in the supply of skilled, able, and willing workers, and points to the rise in reliance on disability insurance. - There are likely many more factors dragging down America's prime-age labor force participation rate—increasing numbers of individuals lack the skills necessary to perform today's jobs. Rising incarceration rates have left growing numbers of Americans with criminal records. Many men might be unwilling to work in the rapidly growing, but traditionally female-dominated professions. - We are getting a little more clarity on the nature of the problem; but solutions are less clear-cut. - America's lack of "family-friendly" policies are preventing women from working at the same rate as our international peers (a federal paid leave policy would be a good start). Most importantly, transforming education and training programs to prepare workers with the skills demanded by today's economy will be critical to putting Americans back to work. - Lower unemployment rates are, of course, good news. But the problems with the labor market run deeper, and must be addressed if our economic fortunes are to be seriously improved

Employment Situation Summary by the BLS

- Total nonfarm payroll employment rose by 134,000 in September. In September, job gains occurred in professional and business services, in health care, and in transportation and warehousing. - The unemployment rate declined by 0.2 percentage point to 3.7 percent in September, and the number of unemployed persons decreased by 270,000 to 6.0 million. - Among the major worker groups, the unemployment rates for adult women (3.3 percent) and Whites (3.3 percent) declined in September. The jobless rates for adult men (3.4 percent), teenagers (12.8 percent), Blacks (6.0 percent), Asians (3.5 percent), and Hispanics (4.5 percent) showed little or no change over the month. - The average workweek for all employees on private nonfarm payrolls remained unchanged at 34.5 hours in September. - In September, average hourly earnings for all employees on private nonfarm payrolls rose by 8 cents to $27.24. Average hourly earnings of private-sector production and nonsupervisory employees increased by 6 cents to $22.81 in September.

How Bhutan Measures Gross National Happiness by Raymond Zhong

- Tucked high in the Himalayas between India and China, Bhutan was poor and largely closed to foreigners when its fourth king declared, in the 1970s, that "gross national happiness" was more important than gross domestic product, or GDP. - Never mind that tourism and hydropower have more recently lifted incomes and fueled development. Or that Bhutan's economy is growing at a healthy annual rate of nearly 7%. Officials here worry that modern life tends to throw things off-balance. - Bhutan, population 750,000, still feels like a place out of time. Traditional architecture and dress prevail: Men wear knee-length robes, tied at the waist, with over-the-calf socks. An early-morning prayer session is among the state-run television network's most popular programs. - Dasho Karma Ura, the index's main architect, proudly notes a main difference with Western happiness surveys: Bhutan's doesn't hesitate to probe into its citizens' spiritual and social lives. It asks, for instance: "During the past four weeks, how often have you felt calmness?" - Respondents in Bhutan's latest survey said they donated less money and devoted less time to volunteer work than in 2010, the last time the happiness index was calculated. Fewer planned to vote or attend community meetings. They also reported greater anger, fear and jealousy. And fewer considered important the national code of etiquette—which governs, for instance, how to bow before officials. - Still, progress elsewhere meant 43.4% of Bhutanese were classified as extensively or deeply happy this year, up from 40.9% in 2010. More households reported income above a threshold of around $350 per person a year. Fewer people complained of deer, boars and elephants damaging crops. More said they got enough sleep. - The biggest decline this year: satisfaction with government performance. That plummeted to 34% from 78% five years ago, even though many more Bhutanese said they had better access to public services like health care and electricity. - Why the disconnect? Mr. Ura blames another unwelcome symptom of modernity: political polarization. Bhutan held its first democratic elections only seven years ago.

A Bank Robbery? Nope, Just Buying Coffee by Nicholas Casey

- Venezuelan currency is worth basically nothing right now - A couple of days ago I had some overpriced coffees in a tony Caracas neighborhood and posted a photo on Twitter of a wad of cash I used to pay for the bill. "Looks like a drug deal, but these bills paid for 3 coffees and 2 waters," I wrote. - The highest bills they make are 50s and 100s, which trade for nickels and dimes - Take the hot dogs at the baseball game I recently went to. One man with five kids and a wife sat on the sidelines counting out what must have been 50 bills of 10s and 50s to pay for his hot dogs. - How did Venezuela get to this point? - When the government began instituting price controls under former President Hugo Chávez, it created some disincentives to produce things here. The price set for milk, for example, was sometimes lower than the cost of making it. So Venezuela imported milk — and nearly everything else — instead. No problem as long as the government is selling oil at high prices and for dollars, right? - Now that oil prices have fallen and taken the currency with them, Venezuela is in trouble. - The government still has to buy everything in dollars. It's also having to print a lot more money than it used to just to pay the salaries of government workers. More money on the market means it's worth less, and inflation increases. Prices keep soaring. The bolivar keeps depreciating. - I'll close here with a note on the exchange rate. According to the government, the official exchange rate is 6.3 bolivars to the dollar. But the market doesn't accept that. On the streets, a money changer will be happy to buy your dollars for 700 bolivars a piece.

Declining Male Workforce Participations Reflects Supply, Not Demand, Says New Paper by Nick Timiraos

- Weakness in the labor market doesn't adequately explain why fewer men are working or seeking jobs, according to a new paper - One big contributor is the rising number of men in their prime working years--aged 25 to 54--who are getting federal disability benefits, or report being disabled, and who are not actively searching for jobs, Mr. Winship concludes. - His research suggests there is a "much smaller segment of inactive men who want a job than people realize," said Mr. Winship - The fall in labor-force participation—the share of adults holding or seeking jobs—gained more attention last year when President Donald Trump questioned official unemployment statistics, which he said understated labor-market weakness because they didn't count as unemployed the millions of Americans who weren't actively looking for jobs. - Mr. Winship's research suggests this is true to a relatively limited extent, and not by nearly the magnitude that Mr. Trump and others suggest has been the case. - The research finds that adjusting the unemployment rate for the rising numbers of workers who say they want a job but who are not looking for one doesn't show significantly more labor slack right now than during past periods in which the overall unemployment rate dropped to the low levels seen over the past year. - Could some of this rise in inactivity reflect men who are quitting the workforce because they're frustrated with job opportunities? Mr. Winship says yes, but that's only part of the picture. - Wage data provides further evidence, he says, that the increase in inactivity has been driven primarily by men who say they don't want a job. - Mr. Winship says disability programs and other private safety nets that may have made it possible for men who are not used to a very high standard of living to maintain that standard without working. - Other men are inactive in the labor force because they are students, homemakers, caregivers and retirees. - One possible policy response Mr. Winship outlines is the creation of an alternate measure of underemployment that includes all inactive workers who say they want a job and do not report a long-term disability. - Mr. Winship proposes a rate he calls U-5b, which would add all inactive workers who say they want a job, even if they haven't been looking for one or aren't available for work, and who do not report a long-term disability. In August, this measure was 7.8%.

Danish Companies Seek to Hire, but Everyone's Already Working by Liz Alderman

- When Peter Enevoldsen won a lucrative order for the precision tractor parts that his company, Sjorring Maskinfabrik, makes in northern Denmark, his eyes lit up. The contract was worth more than half a million euros — a boon for his profits. - There was just one hitch: He did not have enough employees for the job. - Delivery was delayed, by one month, then two, then three, as he searched for skilled welders to speed the work at the sprawling factory. But in Denmark's fast-recovering economy, they were hard to come by. - As Europe rebounds from its economic malaise, Denmark is one of a few countries that can boast of nearing a golden era of full employment, meaning almost everyone who is able and willing to work has a job. But instead of being cheered, it is posing new challenges to the country's recovery. - More than a third of companies in this industrial and technically advanced nation can no longer recruit enough skilled workers to fill posts. Vacancies abound for I.T. specialists, computer scientists, engineers and mechanics, as well as for electricians and carpenters. The wages needed to lure them are creeping up. Affected firms are scaling back production, turning down contracts and postponing expansion plans. - After a painful recession, unemployment is now at 4.3 percent, which is about as low as it can go without provoking inflation. During an economic boom a decade ago, joblessness fell as low as 2.4 percent, igniting an unsustainable spiral of higher wages and prices that the government desperately wants to avoid today. - Growth is still relatively modest — the economy expanded an annualized 1.2 percent last year despite the hiring frenzy. - The government has helped ease the strain by linking the retirement age to life expectancy, allowing seniors to work longer, and encouraging more employment of European Union nationals, who do not need employment visas to work in Denmark. - Some employers have also looked to refugees to fill jobs, but few of the newcomers are readily employable in high-skilled work, and the government tightened policies recently to discourage more asylum seekers from coming in. - Germany, which faces a shortage of engineers, nurses and other skilled workers, has taken the opposite tack, setting up training programs for refugees in an attempt to bridge the gap - Companies in Denmark are hiring outside of Denmark bc they have no other option - The government is testing measures to encourage early retirees, students and recipients of disability pensions to work. Businesses are also lobbying lawmakers to intensify the teaching of technology and vocational skills in schools to churn out more young Danes prepared for a high-tech world.

Which Labor Market Data Should You Believe? By Binyamin Appelbaum

- When the unemployment rate falls below 5 percent, it usually means things are going pretty well. It was 4.7 percent in May, a level last seen in November 2007. - A different measure of the economy's health, however, is beeping and flashing red. It says that labor market conditions have deteriorated with each passing month this year. In May, it fell to its lowest level in seven years. - There are two possible explanations for the index's decline: one somewhat comforting, and the other scary. - Let's do comfort first. It's possible we're not making progress because we've more or less arrived at our destination — what economists call full employment. This somewhat misleading term doesn't mean that everyone has a job. It means that the reservoir of people seeking work has receded to a historically normal level. - The scary explanation? Job growth is slowing because the economy is losing steam. - Investors have continued to discount the Fed's hints that it plans to raise rates this summer, and again later this year. They are betting the Fed will once again be forced to wait longer than it wishes. - The Federal Reserve introduced the new measure of labor market health a few months after Janet Yellen became the Fed's chairwoman in 2014. It created the index because the unemployment rate is too simple. Even the name is too simple. It doesn't actually measure unemployment; it counts only people who are actively looking for work. - The Fed's corrective, however, is also imperfect. The central bank mashed together 19 kinds of labor data, including high-profile stalwarts like the unemployment rate and less familiar esoterica like the Conference Board's "help-wanted advertising index." And it tried to clean that data, scrubbing away the noise to reveal the underlying trends. But there is no perfect method for telling the difference, and a recent Goldman Sachs analysis suggests the Fed scrubbed too hard. - Economic growth still appears to be slowing. - So there you have it. - The economy isn't great. The economy isn't terrible. We're just chugging along, and apparently that's about as good as it gets.

Using CPI Values to Adjust for Inflation by James

- Whenever you hear the term "real" in economics you should think 'adjusted for inflation' - Value in X dollars = Value in Y dollars (CPIx/CPIy)

Venezuela's Inflation IS Set to Top 1600% Next Year by Ian Talley

- While most advanced economies struggle to lift inflation, none would want Venezuela's situation: Consumer-price inflation is forecast to hit 480% this year and top 1,640% in 2017, according to the International Monetary Fund. - Inflation is so bad, the government has had to order bolivars by the planeload. - As Caracas extends its declared state of economic emergency, it's no wonder many economists say the nation will soon have to ask the IMF for a bailout. - But Venezuela, whose government severed ties with the IMF nearly a decade ago under its former socialist autocratic leader, Hugo Chávez, hasn't tried to restore relations with the world's emergency lender. - China, seeking to take advantage of poor political relations that many African and Latin American nations have with the U.S. and Western-based institutions like the IMF, has been giving Venezuela and other commodity exporters cheap loans to help tide them through the commodity slump. Last year, the country supposedly secured $10 billion in cheap credit to help keep it afloat. - While those loans may keep the state budget limping along, including massive costly subsidy programs, and strengthen political ties to Beijing, they don't require the deep policy overhauls many economists say are vital to repairing the broken economy. - Here's the IMF's rough assessment of the country's economy. - "A lack of hard currency has led to scarcity of intermediate goods and to widespread shortages of essential goods—including food—exacting a tragic toll." - "We have dire forecasts...predicated on very limited information that we have."

As Low Skilled Jobs Disappear, Men Drop Out of the Workforce by Jeffrey Sparshott

- Why aren't men in the prime of their lives working more? - Working-age males have been sitting on the sidelines in greater numbers for decades, a trend that accelerated during the latest recession and has broad implications for individual well-being as well as the overall economy. - "No single factor can fully explain this decline, but analysis suggests that a reduction in the demand for less skilled labor has been a key cause of declining participation rates as well as lower wages for less skilled workers," - Labor-force participation among men between the ages 25 to 54 topped out at 97.9% in 1954. For about five decades, it has been heading steadily lower, punctuated by steeper falls during recessions. - Participation appears to have stabilized but it's still below levels at the end of the recession despite years of steady job creation, falling unemployment rates and signs of a tighter labor market. - In the mid-1960s, participation figures nearly matched for those with a college degree and those with a high school degree or less. Last year, the rate for college-educated men was 94%, while the rate for men with at most a high-school diploma was 83%. The rate also has declined most steeply for black men. - "In contrast, reductions in the demand for labor, especially for lower-skilled men, appear to be an important component of the decline in prime-age male labor force participation," - Possible causes include the disappearance of factory jobs, men's falling educational attainment relative to women and a big rise in incarceration rates

the employment rate is still 8 million people less than it was before the recession

-"labor market scarring" - those out of work for years are less likely to be hired bc their skills deteriorate -more people receiving social security benefits -the affordable care act -the minimum wage rose - made it harder for low skilled workers to be hired -increased licensing requirements for businesses -better video games made young people value leisure time over working

in addition to computing GDP, the BEA computes 4 measures of production and income:

-Gross National Product - the value of final goods and services produced by residents of the US, even if that production takes place outside the US -national income - the GDP minus the cost of replacing machinery, equipment, and buildings (capital) -personal income - income received by households -disposable personal income - personal income minus personal tax payments...aka the measure of the income households actually have available to spend

Costs of anticipated inflation

-changes in distribution of income -"menu costs" of inflation (changing prices)

Ocasio Cortez video

-congresswoman in New York -said that the reason that unemployment is down is bc everyone has 2 jobs -the unemployment rate doesn't double count so thats bs -and the number of people with jobs is pretty low

4 major categories of expenditure

-consumption - spending by households on goods and services (excluding new houses for example, services, durable goods, nondurable goods -investment - spending by firms on new factories, office buildings, machinery, and additions to inventories, plus spending by households and firms on new houses for example, business fixed investment (new factories, buildings, machinery, research and development), residential investments (houses), and changes in business inventories (changes in the stocks of goods that have been produced but not yet sold) -government purchases - spending by federal, state, and local governments on goods and services for example, teachers' salaries, highways, airplanes -net exports - exports minus imports

Napolean Dynamite video

-girls only want boys that have great skills -employers want employees with the right skills

increase in quality bias

-the CPI only looks at the prices of goods, not necessarily the quality of the goods -prices may go up because the quality of the product got better -think healthcare

there are costs to anticipated inflation though

-there will always be some level of redistribution of income -menu costs - the cost to firms of changing prices

GDP is often used as a measure of wellbeing but thats not always accurate

-value of leisure is not included -it's not adjusted for pollution -or social issues -or health measures -or changes in crime or other social problems also GDP measures the size of the pie but not how it is divided -- wealth may be unequally distributed Simon Kuznets argued that stay-at-home-moms value should be added into GDP

who leads production in the world

1 - USA 2 - China 3 - Japan

"Who would not borrow at 4 percent a​ year, with prices going up 4 percent a ​month?​" What was the real interest rate paid by borrowers in this​ situation?

100 x (1.04)^12 = 60% real = nominal - interest = 4 - 60% =-56%

Consumption makes up about _____ of overall GDP.

2/3

average duration of unemployment

22.6 weeks

inflation can be calculated by

A PRICE LEVEL INDICATOR: GDP DEFLATOR, CPI, ETC NOT A GDP AMOUNT

inflation rate

A continuous rise in the price of goods and services (final-initial)/initial aka change in price level/original price level

​"If a recession is so severe that the price level​ declines, then we know that both real GDP and nominal GDP must​ decline."

Agree. If both output and prices are​ falling, then both real GDP and nominal GDP will fall.

"If real GDP stayed the same while nominal GDP declined between 2008 and​ 2009, then the GDP deflator must also have​ declined."

Agree. If nominal GDP declined between 2008 and​ 2009, then the GDP deflator must also have declined. GDP deflator = nominal/real x100

outlet bias

CPI uses full retail price, but many people now buy from discount stores or online

​"If nominal GDP is less than real​ GDP, then the price level must have fallen during the​ year."

Disagree. Nominal GDP is less than real GDP if the current price level is less than the base year price level. A fall in the price level during the year is neither necessary nor sufficient to cause nominal GDP to be less than real GDP.

"Whenever real GDP declines, nominal GDP must also decline."

Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise.

equations

Employed + Unemployed = Labor Force Unemployment Rate = (Unemployed/Labor Force) x 100 Labor Force Participation Rate = (Labor Force/Working Age Population) x100 Working Age Population = Labor Force + Not In Labor Force

GDP equation

GDP = Consumption + Investment + Gov purchases + Net eXports -consumer spending on services is more than double spending on goods -business fixed investment is the largest component of investment -purchases by state/local gov are greater than purchases by federal gov -imports > exports

GDP deflator can be used to compute a measure of the price level

GDP deflator = (nominal GDP/real GDP) x100 HAS NO UNITS

GDP equation

GDP= consumption + investment + government purchases + net exports consumption - 69% investment - 15% government purchases - 19% net exports - -3%

the GDP does not include

Household production and the underground economy.

Assuming that inflation has occurred over​ time

In years after the base​ year, nominal GDP is greater than real GDP. In the base​ year, nominal GDP is equal to real GDP In years prior to the base​ year, nominal GDP is less than real GDP

working age population:

LABOR FORCE: employed or unemployed and NOT IN LABOR FORCE: not available for work (homemakers, retirees, full time students) or available for work but not currently working (discouraged workers or Not Looking bc of childcare responsibilities/transportation/etc)

janet yellen video

LFPR will continue to drop bc of an increase in discouraged workers

The household survey interviews households and collects data that is used to measure the unemployment rate whereas the establishment survey interviews businesses and measures total employment in the economy.

Many economists prefer the establishment survey because it is determined by actual payroll records rather than unverified answers.

Which of the following components of CPI has been the fastest growing since the year​ 2000?

Medical Care

what does nber stand for

National Bureau of Economic Research

GDP deflator:

Nominal GDP/Real GDP x 100

in the inflation rate is the percentage change in the price level from the

PREVIOUS YEAR not the base year

Who was the chair of the Federal Reserve Board of Governors that raised interest rates to​ 20% in the early 1980s to try and tame​ inflation?

Paul Volcker

substitution bias

The inability of the CPI to account for basket changes caused by consumers' substitution of cheaper goods and services

bls unemployment situation overview

The unemployment rate declined to 3.7 percent in September, and total nonfarm payroll employment increased by 134,000, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, in health care, and in transportation and warehousing.

Currently, the Bureau of Labor Statistics does not include homemakers in its employment and labor force totals. What would happen to the unemployment rate and the labor force participation rate if homemakers were included in these​ numbers?

The unemployment rate would decrease and the labor force participation rate would increase.

How would it affect the unemployment rate if the Bureau of Labor Statistics counted as unemployed both​ (1) discouraged workers and​ (2) people who work​ part-time but would prefer to work​ full-time?

The unemployment rate would increase.

The BLS divides all expenditures into eight categories and assigns a relative size to each. Which of the following components has a relative size greater than​ 15%?

Transportation, Housing, Food​ & Beverages

Value in year 2 =

Value in year 1 (CPI year 2 / CPI year 1)

Unemployment in America, Mapped Over Time by Nathan Yau

We often hear about shifting unemployment rate at the national scale. It went up. It went down. It changes month-to-month. But unemployment is very regional, more common in some areas of the country than others. In many areas, unemployment rates remain relatively high despite the decreases in the national average.

an economic indicator

a statistic about an economy

business cycle

alternating periods of economic expansion and economic recession production and employment increase during expansion and decrease during recession

efficiency wage

an above market wage that a firm pays to increase productivity - contributes to unemployment a little bit

consumer price index (also called the cost-of-living index)

an average of the prices of goods and services consumed by the typical urban family of 4 calculated by hundreds of BLS employees visiting 23,000 stores in 87 different cities to record prices of over 200 goods the basket is updated every 2 years The price index which is used to measure changes in the cost of living is the

the government also compute the producer price index

an average of the prices received by producers of goods and services at all stages of the production process (including intermediate goods) if the prices of these goods rise, firms may increase prices of final goods..........changes in the ppi can give an early warning of future movements in the cpi

african americans have the highest unemployment rate

asians have the lowest

nominal GDP tends to be higher than real GDP

bc inflation

deflation is also bad

bc people buy less things while waiting for prices to get even cheaper and then the economy gets even worse (happened in the 30s and contributed to the great depression)

the CPI basket is divided into 8 categories

but almost 3/4 of these goods fall into 3 categories: housing, transportation, and food

inflation doesn't really matter on a large scale bc as prices increase, incomes do too

but this only applies to the average person - some people's incomes rise faster than the rate of inflation, and some people's rise slower inflation can unfairly redistribute income the extent to which inflation redistributes income depends in part on whether the inflation is anticipated or unanticipated

the inflation rate "in" a year - between this year and last year

but u can also solve the inflation rate between any 2 years

jobs report

comes out every first fri with a 1 month lag

unemployment rate

countercyclical (opposes trends)

important economic indicators

current level of gdp: $20.412 trillion official unemployment rate: 3.7% current inflation rate: 2.7% current federal funds rate (The interest rate at which banks and other depository institutions lend money to each other, usually on an overnight basis): 2.25% (current target range: 2-2.25%) lfpr: 62.7%

to calculate the unemployment rate, the BLS uses

data gathered within the Consumption Population Survey, better known as the household survey CPS asks aged 16+ individuals in 60,000 households about their employment every month they are trying to figure out if people are working, and if not, why theyre not

time series data

data plotted against time

negative inflation rate

deflation

inflation rate positive but decreasing

disinflation

problems with measuring the unemployment rate

distinguishing people who are unemployed vs not in the labor force (discouraged workers, those working part time who would rather work full time) the BLS does not verify responses - some who claim to be actively working for a job might not be

working age population

everyone in the country that is 16 years of age or older

labor force

everyone who is working PLUS those not working but actively searching for a job

The minimum wage law

has only a small effect on the unemployment rate since only a small part of the labor force earns the minimum wage.

the minimum wage law

has only a small effect on the unemployment rate since only a small part of the labor force earns the minimum wage.

countries that are more globalized tend to have

higher growth rates in real GDP per capita.

if there wasnt structural unemployment, there would be no innovation

if there wasn't frictional unemployment, then people wouldn't be optimizing their skills

no matter how old you are

if you are looking for work and not employed, you are unemployed

Government unemployment insurance tends to

increase the unemployment rate by lowering the opportunity cost of job search.

podcast from the show Surprisingly Awesome

interest rate

the difference between gross private investment and fixed private investment is

inventory investment

which of the following components of GDP is most volatile

investment

GDP

is compiled every 3 months by the Bureau of Economic Analysis

factors of production

land (natural resources), labor, capital, entrepreneurship

tight labor market

lots of job openings, easy to find a job if youre unemployed if theres slack in the labor market, there's people willing to work for that wage rate who are sitting on the sidelines

Unemployment rates are

lower for college graduates than for people without a high school​ degree, and vary greatly among ethnic groups.

labor force participation rate

mens has fallen since 1948 -partially due to earlier retirement, young men staying in school longer, and more government assistance to the unemployed womens has risen -due to changing social attitudes, laws outlawing discrimination, increasing wages for women, people having fewer kids, and an increase in female headed households

GDP is

mentioned in market value, not quantities

what goods led the way in the US Durable Goods Rose 2.9% article

military aircraft and civilian airplanes

in order to be counted as unemployed in the US you must be

not working 16+ actively looking for a job

The increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure​ inflation, but​ ______ quality increases. This causes the CPI to​ ______ the cost of the market basket.

not, overstate

cpi

one year is chosen as the base year, and the value of the cpi is set to 100 for that year. in any other year, the cpi is equal to the ratio of the dollar amount necessary to buy the market basket of goods that year divided by the dollar amount necessary to buy the market basket of goods in the base year (x100)