Eco Notes 4 Unit 2

Eco Notes 4 Unit 2 2/3/15

Unemployment- percentage of people who do not have jobs, that are in the labor force, ideal is 4%

Labor Force- a number of people in a country that are classified as either employed or unemployed

Not in the Labor Force- kids, military personnel, mentally insane, incarcerated or in prison, retired, stay at home parents, full time students, discouraged workers

Unemployment rate= # of unemployed / ((# of unemployed + # of employed))* 100

Types of unemployment
Frictional	Structural	Seasonal	Cyclical
Between jobs Choose new opportunities, new choices, new lifestyle, or new education level Leave one job for a better one	Technology changing Associated with a lack of skills or a declining industry	Waiting for the right season to go to work ex. Santa Claus, lifeguards, and construction workers: don’t work in rain.	Occurs due to a swing in the economy has to do with a business cycle bad for society and individuals

What is full employment?  Occurs when there is no cyclical unemployment present in the economy

NRU- national rate of unemployment- 4 to 5% same as full employment economy is working at best potential possible

Why is unemployment bad? 3 reasons

1.       Not  enough consumption (GDP)

2.       Too much poverty

3.       Too much government assistance

Why is unemployment good?

1.       There is less pressure to raise wages

2.       There is more workers available for future expansions

Okun’s Law – for every 1% of unemployment above the NRU causes a 2% decline in real GDP

Eco notes 3 Unit 2

Eco Notes 3 Unit 2 2/2/15

Inflation- a rise in the general level of prices

Measuring inflation 2% to 3% standard

                Inflation rate- key indicator in economy’s health, measure the percentage increase in price over time

                                Deflation- decline in general price level

                                Disinflation- occurs when inflation rate declines

                (CPI) 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 using market basket data- (current year market basket value – base year market basket value)/ base year market basket value * 100

                Finding inflation rate using price indexes- (current year price index – base year price index) / base year price index * 100

                Estimating inflation using the rule of 70

                                Rule of 70- used to calculate the number of years for the price level to double at any given rate of inflation formula: 70/ annual inflation rate = years needed to double inflation

                Determining real wages = nominal wages / price level * 100

                Finding real interest rate= nominal interest rate- inflation premium

                                Real interest rate- cost of borrowing or lending money that is adjusted for inflation always expressed as a percentage

                                Nominal interest rate- unadjusted cost of borrowing or lending money

Causes of Inflation

                Demand-pull inflation- caused by excess of demand over output that pulls prices upward

                Cost-push inflation- caused by a rise in per unit production cost due to increasing resource cost

 Effects of inflation

                Anticipated – talking about it in the news already known

                Unanticipated- did not know it was coming happened suddenly

Helped by inflation	Hurt by inflation
Borrowers- debt will be repaid with cheaper dollars than those that were loaned out	Fixed Income Savers Lenders/ Creditors- money worth less when get it back

Eco Notes 2 Unit 2

Eco Notes 2 Unit 2 1/28/15

Expenditure approach ( C+ Ig+ G+ Xn = GDP) adding up the market value of all domestic expenditures made on all final goods and services in a single year

Income Approach (GDP= W+ R+ I+ P+ Statistical Adjustments) adding up all the income earned by households and firms in a single year

                W- Wages ex. compensation of employees, or salaries

                R- Rents ex. 2 ways: from tenant to landlord or from lease payments that corporations pay for the use of space

                In- Interests ex. Money paid by private businesses to the suppliers of loans used to purchase capital

                P- Profit (proprietor’s income) ex. 3 ways to see word profit: corporate income taxes, dividends, undistributed corporate profits

Budget- government purchases of goods and services + government transfer payments – government tax and fee collections. If number is positive= budget deficit    number is negative= budget surplus

Trade- exports – imports

GNP= GDP + net foreign factor income use expenditure approach GDP

Net National Product (NNP) = GNP – Depreciation

Net Domestic Product (NDP) = GDP – depreciation

National income= GDP- indirect business taxes – depreciation – net foreign factor payment  or compensation of employees + rental income + interest income + proprietor’s income + corporate profits

Disposable Personal income (DPI) = national income – personal household taxes + government transfer payments