Economics business cycle

How do you calculate the unemployment rate?

(Number of unemployed)/(labor force) X 100

Example of structural unemployment

A new technology is created and we no longer need some person with those skills because we have machines

Contraction

A period where real GDP is falling -generally described as two consecutive quarters of falling real GDP -if prolonged or deep enough it is called a depression

Expansion

A period where real GDP is growing

Example of seasonal unemployment

A snowplow driver during the summer has no job

How is GDP calculated?

C+I+G+(X-M)

A French company based in the US sells 1 million worth of its project; is this counted or not counted in GDP?

Counted

Miguel bought a new house after he got married; this is counted or not counted in GDP?

Counted

Nominal income

Part of your salary that is paid out in cash. It is your income in actual currency terms unadjusted for what is termed as inflation

Example of cyclical unemployment

Selena lost her job as an architect during the recession as businesses cut back on their spending (job loss due to contraction or recession in the business cycle)

Investment spending (I)

Money spent by businesses

Government spending (G)

Money spent by government

Consumer spending(C)

Money spent by households/consumers

Is GDP always 100% accurate?

No

Bob makes $85 at a yard sale on one weekend. Will this cause GDP to increase decrease or have no effect?

No effect

Business cycle

The periodic rise and fall and economic activity and can be measured by changes in real GDP

Unemployment rate

The ratio of unemployment to total labor force (LF=E+U)

What is our unemployment rate?

4-6%

Consumer price index(CPI)

A measure of the average of the prices paid by consumers for a fixed market basket of consumer goods and services

How are GDP CPI and unemployment all related?

All of these things let you know how well off economically a country is

Seasonal unemployment

An elevated level of unemployment that is expected to occur at certain parts of the year

What is the equation for CPI?

CPI=(cost of cpi basket at cUrrent period Prices)/ (cost of cpi basket at base period Prices) X 100

What are the different types of unemployment?

Cyclical frictional and structural

If GDP rises the unemployment rate will probably...

Decrease

The government increases taxes on citizens which means people have less money to spend. Will this cause GDP to increase decrease or have no effect?

Decrease

The United States GDP does or does not include goods made in the US by foreign companies?

Does

The United States GDP does or does not include goods made by US companies in other countries?

Does not

Intermediate goods

Goods used to produce the final good Ex: tomatoes are produced but used to make ketchup so only ketchup would count towards GDP

Net exports (X)

Grose exports- Grose imports (X-M)

Underground economy

Illegal or under the table practices

Preparing for war the military orders more fighter jets from US-based companies for defense. Will this cause GDP to increase decrease or have no effect?

Increase

To fight unemployment the government decides to hire more people to staff public libraries. Will this cause GDP to increase decrease or have no effect?

Increase

Double counting

Item sold more than once in a production year Ex: PS3 is purchased but then resold on eBay resales do not count

Labor force participation rate =

Labor force / adult population ×100

AUS own company based in Italy makes 10 million over the summer; is this counted or not counted in GDP?

Not counted

Charles sold a used car to Barry for $5000; is this counted or not counted in GDP?

Not counted

Sharon makes $100 at a flea market on Saturday; is this counted or not counted in GDP?

Not counted

Tatiana earns $150 a week keeping a child in her home while her mother works; is this counted or not counted in GDP?

Not counted

Labor force =

Number of employed + number of unemployed

Discourage workers

People out of work and not looking for job -no longer considered unemployed

Outs of labor force

People who are not seeking employment

Unemployed

People who are out of work but looking for work

Employed

People who work for pay at least one hour a week

Nominal or real GDP is more accurate because it takes into account inflation?

Real

Example of frictional unemployment

Someone who leaves their current job to look for another and until they successfully find another job they are temporarily unemployed

Trough

The bottom of the cycle where a contraction has stopped and is about to turn up

Peak

The top of the cycle where an expansion has run its course and is about to turn down

What is GDP?

The value of all final goods and services produced within a nation in a year

Natural rate of unemployment

There will always be workers switching jobs working seasonally or being replaced by technology so the employment rate can never be zero

Structural unemployment

Unemployment arising from technical change such as auto nation

Frictional unemployment

Unemployment that occurs because of people moving or changing occupations

Non-market transactions

Unpaid labor done by yourself or others

It is beneficial for an economy when the GDP is going...

Up

Cyclical unemployment

Workers losing their jobs due to business cycle fluctuations in output

Real income

inflation adjusted income