Economics Unit 2
Criticisms of unemployment
-Involuntary part-time workers counted as full-time -Discouraged workers are not counted as unemployed -Race/Age inequalities
nominal deflator
(deflator)x(real GDP)/100
Investment
- Investment is NEVER when individuals buy assets like stocks and bonds - Investment is ALWAYS when businesses buy capital like machines, resources, and tools
3 types of unemployment
-Frictional unemployment- Temporary unemployment or being between jobs. Individuals are qualified workers with transferable skills. -Structural Unemployment- Changes in the labor force make some skills obsolete. -Cyclical Unemployment- Unemployment caused by a recession
Characteristics of the circular flow model
-Individual's demand products and supply resources -Businesses demand resources and supply products
When is the US at full employment
4-6%
Inflation
A continuous rise in the price of goods and services
transfer payments
Benefits given by the government directly to individuals ex:welfare, social security
People helped by inflation
Borrowers-People who borrow money
GDP formula
C+I+G+(X-M)
Inflation Rate Formula
CPI Year 2 - CPI Year 1/ CPI Year 1 x 100
Four components of GDP
Consumption (C) Investment (I) Government Purchases (G) Net Exports (NX)
Menu Costs
Costs money to change listed prices
CPI formula
Current basket/base basket X100
Nominal GDP
GDP measured in current prices
Recovery
Expansion of the economy
GDP approaches
Expenditure Approach -Add up all the spending on final goods and services produced in a given year Income approach -Add up all the income earned from selling all final goods and services produced each year Value-Added approach -Add up the dollar value added at each stage of the production process
a market basket includes
Food and Beverages Housing Apparel Transportation Medical Care Recreation Education and Communication Other Goods and Services
natural rate of unemployment
Frictional plus structural unemployment. The amount of unemployment that exists when the economy is healthy and growing.
Real GDP
GDP adjusted for inflation
Government
Government expenditure tracks the spending made in the "public sector". -includes government spending on goods and services. Ex: price of fighter jets, pilot salaries -It does not include money spent on "transfer payments" (welfare, social security, and subsidies.)
doesn't count in GDP
Intermediate goods -Goods inside the final goods don't count Nonproduction transactions -Financial transactions (nothing produced) -Used goods Nonmarket and illegal activities -Things made at home- household production
Nonmarket Transactions
Many goods and services provide value but don't count in GDP
Unit of Account Costs
Money doesn't reliably measures the value of goods/service
GDP deflator
Nominal GDP/Real GDP x 100
Shoe Leather Costs
The costs of transactions increase.
Macroeconomics
The study of the economy as a whole
Examples of financial actions with economic impacts not accounted for in GDP
Volunteering Transfer payments Home-made products Sale of used or antique products Black market and underground sales
Subsidies
a sum of money granted by the government or a public body to assist an industry or business
Calculating market basket
add up the prices of all items in the basket in a given year
Firm
an organization that uses resources to produce a product, which it then sells
Deflation
decrease in general prices or a negative inflation rate
Macroeconomic goals
economic growth, full employment, stable prices
People hurt by inflation
lenders, people with fixed incomes, savers
real wage
nominal wage adjusted for inflation
unemployment rate formula
number of unemployed/labor force x 100
factor payments
payment for the factors of production, rent, wages, interest, and profit... etc
Recession
period of reduced economic activity (6 months)
Disinflation
prices increasing at slower rates
nominal wage
the dollar amount of the wage paid
GDP
the dollar value (the total market value) of all final goods and services produced within a country in one year
public sector
the part of an economy that is controlled by the government
private sector
the part of the economy that involves the transactions of individuals and businesses
circular flow diagram
traces the flow of resources, products, income, and revenue among economic decision makers
GDP percent change
year 2 - year 1 / year 1 x 100
Who is in the Labor Force?
•At least 16 years old •Able and willing to work •Not institutionalized (in jails or hospitals) •Not in military, in school full time, or retired