Unemployment

• Unemployment - Percentage of people who do not have a job but are part of the labor force 
• Labor force - The number of people that are classified as either employed or unemployed  
• Unemployment rate
• = (The number of unemployed / number of employed + number of unemployed) x 100 
• Not in the labor force
• Kids 
• Retired people 
• Military personnel  
• Mentally insane 
• Incarcerated  
• Full time student  
• Stay at home parent 
• Discouraged workers   
• Types of unemployment  
• Frictional - Between jobs because you choose new opportunities new choices new lifestyles and educational levels  
• Voluntary 
• Ex. Quit job to go back to school, Leave job at burger king become teacher aid  
• Structural - Associated with lack of skills or a decline in industry or change in technology 
• Ex. Can not read or right   
• Seasonal - People are waiting for the right season to conduct their trade  
• Ex. Mall Santa, School bus driver, and Lifeguards  
• Cyclical - Associated with downturns in business cycle 
• Bad for society  

·       Full employment

o   Occurs when there is no cyclical unemployment present in the economy  

• Natural rate of unemployment  (NRU) 
• Achieved when labor market are in balance  
• Structural unemployment + fictional unemployment  
• Why is unemployment good? 
• Less pressure to raise wages  
• More workers available for future expanses  
• Why is unemployment bad? 
• There is not enough consumption  (GDP) 
• To much poverty  
• To much government assistance is needed 
• Okun’s law 
• For every 1 % of unemployment above the NRU causes a 2 % decline in real GDP  

Inflation

• Inflation  
• Definition: rise in the general level of prices 
• Standard inflation rate 2% to 3% 
• Measuring Inflation 
• Inflation rate 
• Measures the percentage increase in the price level over time  
• Key indicator of the economy’s strength  
• Deflation 
• A decline in the general price level
• Disinflation 
• It occurs when the inflation rate itself declines  
• Consumer price index 
• Measures inflation by tracking the yearly price of a fixed basket of consumer goods and services  
• Indicates changes in the price level and cost of living  
• Solving inflation Problems 
• Finding inflation rate by using market basket data 
• (Current year market basket value - base year market basket value / base year market basket value) x 100  
• Finding inflation rate using Price indexes 
• Current year price index - base year price index / base year price index )x 100 
• Estimating inflation using the rule of 70 
• Used to calculate the number of years it will take for the price level to double at any give rate of inflation 
• Years needed to double inflation = 70/ annual inflation rate  
• Real wages  
• = (Nominal wages / price level) ×100  
• Finding real interest rates 
•  = Nominal interest rate - inflation premium  
• Cost of borrowing or lending money that is adjusted for expected inflation 
• Nominal interest rate 
• Unadjusted cost of borrowing or lending money  
• Demand pull inflation 
• Caused by excess of demand / output that pulls prices upwards 
• Cost pushed inflation 
• Caused by a rise in per unit production cost due to increasing resource cost 
• Effects of inflation 
• Anticipated  
• Unanticipated  
• Inflation Helps When:
• Borrowers 
• Debt will be repaid with cheaper dollars than those that were loaned out 
• Fixed Contract 
• Inflation Hurts When:
• Fixed income 
• Social security 
• Savors 
• People that save money  
• Lenders / creditors  
•  Not going to be repaid back 

Nominal and Real GDP

• Nominal GDP - Value of output produced in current prices  
• = P x Q 
• Can increase from year to year if either output or price increase 
• Real GDP - Value of output produced in constant or based year prices  
• Adjusted for inflation  
• = P x Q  
• Can increase from year to year only if output increases  
• Price index - measure inflation by tracking changes in the price of a market basket of goods compared to the base year 
• = price of market basket of goods in current year / price of market basket of goods in base year  
• GDP deflator 
• Also a price index that is used to adjust from nominal to real GDP 
• In the base year the GDP deflator with 
• = 100 Years after base years  
• = >100 For years before the base year  
• = <100 (Nominal GDP/ Real GDP)  ×100 
• Inflation 
• (New GDP deflator - Old GDP deflator / Old GDP deflator) ×100 

Expenditure Approach

• Expenditure approach
• Add up the market value of all domestic expenditures made on final foods and services in a single year 
• C+Ig+G+Xn 
• Income approach
• Adding up all the incomes earned by households and firms in a single year 
• Income Approach=W+R+I+P+ Statistical adjustments 
• W=Wages 
• R=Rents  
• I= Interest 
• P=Profit 
• Budget 
• Government purchases of good + services + government transfer payments - government tax and fee collection 
• Positive number = deficit  
• Negative number = surplus 
• Trade 
• Exports- Imports 
• GNP 
• GDP+ net foreign factor payment 
• NNP - net national product 
• GNP- depreciation 
• NDP 
• GDP - DEPRECIATION 
• National income 
•  GDP - Indirect business taxes - depreciation - net foreign factor payment  
• Compensation of employees + proprietary’s income + rental income + interest income  + corporate profits  
• Disposable personal income  
• National income - personal household taxes + government transfer payments  

Gross Domestic Product and Gross National Product

• Gross domestic product - Total dollar value of all final goods and services produced within a country’s borders within a given year 
• Gross national product- total value of all final goods and services produced by Americans’ in a year 
• GDP Equation
• =C + Ig+ G + Xn (Included) 
• Gross Domestic Product 
• (C) Consumption  
• 67% to the economy  
• Purchasing finish goods and services 
• Last state 
• (Ig) Gross Private Domestic Investment 
• Factory equipment maintenance 
• New factory equipment  
• New construction housing  
• Unsold inventory of products built in a year 
• (G) Government spending 
• Ex. Military, ft bend 300 new teachers 
• (Xn) Net exports 
• =Exports-imports 
• Excluded in GDP

1. Used or second hand goods
2. Intermediate goods- Goods and services that are purchased for resale or for further processing or manufacturing
3. Non-market activity
1. Illegal Drug
2. Unpaid Work
3. Own repair jobs
4. Prostitution
5. Baby Sitting
6. Growing own vegetables for personal consumption
4. Financial transactions
1. Stocks
2. Bonds
3. Real estate

5.     Gifts or Transferred Payment

a.     Private- produces no output, simply travels funds from one private individual to another

b.     Public- It contribute nothing to the current output or production

                                               i.     Ex. Welfare, Social Security