Macroeconomics Exam 2- Ch. 20, 21, 22

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What causes business cycles

-A shock to key input to production -Housing bubble followed by a financial markets meltdown

why wage paid higher than market wage

-Efficiency wage -Labor unions

Minimum wage thing (2 things to remember)

-If minimum wage is above market wage then unemployment exists -If minimum wage is blow market wage then no unemployment

Not in the labor force

-Not available for work (Homemakers, retirees, full time students), in military - Available for work but not currently working (Discouraged workers, not currently looking due to childcare responsibilities or transportation)

Business cycle facts

-during Bc Unemployment will increase during the recession and continue to increase into the expansion - during Bc Durable goods are much more affected than non-durable goods -during recession portion of Bc the inflation rate will decline

How many Employed

148.2 million

Labor Force: Employed

16 years of age and older on job or temporarily away from job Ill, vacation, on strike Part-time students work full time

Unemployment rate numbers

5.7 now, 5.6% Dec 2014, and 10% Oct 2009 is the highest

unemployment- looked in past four weeks

8.98 million

How many not in labor force

92.54 million

Hyperinflation

> 100% of inflation rate (1980s Bolivia, 2000-2009 Zimbabwe) Massive and rapid increase in the amount of printed money. If you are a borrower, you will love inflation; if you lend money, you hate inflation

Outlet bias

BLS collect price statistics from full-price retail stores, not from outlet and internet discounted values

New product bias

BLS update the market basket of goods every 10 years. some new products use in the middle of these 10 years may not reflect in CPI calculation immediately

Lower income countries should grow faster than higher income countries; but not all of those countries because of

Corruption political instability poor public education and health low savings and investment

Marginally attached workers

Have looked for work sometime in the past year but not in the past 4 weeks(2.234m) (discouraged workers(682000) is a subset of this)

If more people entered into the labor force and started looking for jobs, what happens to the unemployment rate

Higher

PFF curve

Horizontal: capital per hour worked; vertical: output per hour worked

Unemployment rate deffinition

Percentage of the labor force that is currently unemployed.

Nominal interest rate =

Real interest rate +inflation rate Also = stated interest rate on the loan

Business cycle

alternating periods of economic expansion and recession

Why employment Exists

Unemployment insurance

Efficiency wage

Wage paid above market wage which improves attendance productivity, reduce shirking and increase profitability

Substitution Bias

When calculate CPI, BLS assumes that each month consumers buy the same amount of each product. But, if price of apple increases, you will not buy the same amount of apples as before and may switch to buy apple juice

Human capital

accumulated knowledge and skills workers acquire for edu and training of from life experiences

CPI may overstate the true inflation rate(4 reasons)

Substitution Bias Increase in quality New product Bias Outlet Bias

deflation

decrease in price level

what determines economic growth

human capital, physical capital and technology

Increase in quality bias

increase in the price of goods often mean increase in quality. this does not show up in CPI calculation

inflation

is the increase in the price level

Long run economic growth

is the process by which rising productivity increases the average standard of living -In other words, long run growth is that increase in real GDP per capita depend on increases in labor productivity and natural resources

why England

it had tools, capital, and equipment people had property rights Court systems independent ability and incentive to produce more

Unemployed

looked for job in the past 4 weeks but haven't found one

Physical capital

refers to manufactured goods that are used to produce other goods and services

increase in technology

shift up the PPF curve (increase production vertically) if keep the capital the same; vice versa

Labor productivity

the quantity of goods and services that can be produced by one worker or by one hour of work

difference u3 and u6

u3 is just the normal measure, it is not as broad as u6

increase in capital

will stretch out the PFF curve horizontally

U6 caculation

(unemployed+marginally attached+ part time for economic reason)/(labor force+marginally attached)

GDP deflator equation

Nominal/Real. If nominal wages stay the same during inflation period, then your real wage will decrease dramatically

Growth rates calculation

(real GDP of later year- real GDP of the earlier year)/(real GDP of earlier year)*100

u3 calculation

#unemployed/#unemployed+#employed

GDP per Capital in history

$140 until industrial revolution in England 1750

Employment-population ratio

(#employed/#labor force+#not in labor force)*100

Labor Force participation rate

(#labor force /#labor force+#not in labor force)*100

Unemployment rate equation

((#of unemployed)/(#unemployed+#employed))*100

Working part time for economic reasons

(6.810m) Counted as Employed

CPI calculation

(Expenditure in current year/ expenditure in base year)*100 CPI of base year always equals 100

Quantity of capital per hour worked

Increases in this will cause increases in labor productivity

Institutions in economic growth

Institutions are rules and arrangements that direct our behavior. can be formal and informal

if people who did not have a job recently found a new job, what happened to the unemployment rate?

Lower, no change in denominator

CPI Deff

Measures how prices change over time measured by Bureau of labor statistics using market basket(housing 41%, transportation 17%, Food and drink 15%)

Diminishing Marginal Productivity

Need labor and capital into production - Adding more of 1 input (labor) to a fixed amount of another input(capital) will increase your output but buy smaller and smaller increments


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