Unit 2- Unemployment

Population: number of people in a country

Labor force: number of people in a country that are classified as either employed or unemployed

Labor force is made up of
        -Employed
               -able and willing to work
               -must be 16 years of age or older
               -must work at least one hour every two weeks

        -Unemployed

               -people of 16 years age and older that do not have a job

Unemployment: the failure to use available resources, particularly labor, to produce desired goods and services

Underemployment: not using resources to best of ability

Unemployment rate: (Number of unemployed / Total labor force) x 100
        -Total labor force: Number of employed + number of unemployed
        -Ideal unemployment rate is 4 to 5%

Not in labor force
1.Students
2.Prisoners
3.Mental institution
4.Military
5.Disabled
6.People who have given up in looking for a job
7.Homemakers
8.Choose not to work
9.Retired people

Types of Unemployment
1.Frictional: People who are between jobs, temporarily unemployed.
            Ex: High school/college graduates looking for a job, people who are fired and looking for a                    job, people looking for a job

2.Seasonal: Due to the time of the year and nature of the job
            Ex: Lifeguards, bus drivers, construction workers, Santa 

3.Structural: Changes in the structure of the labor force makes some skills obsolete. Workers don't have transferable skills.
            Ex: High school dropout, VCR repairman

4.Cyclical: Results from economic downturns such as recessions. As demand for goods and services fall, demand for labor falls and workers are fired/laid off.

• Frictional and structural unemployment can not be avoided
• Frictional + Structural = Natural Rate of Unemployment (NRU)
• Full employment means there's no cyclical unemployment 
• Ideal unemployment rate is 4-5%
• There will always be unemployment
• NRU and full employment are the same

Okun's Law: For every 1% increase in the unemployment rate causes a 2% decline in real GDP

Rule of 70: Calculates approximate number of years to double GDP

Unit 2- Inflation

Inflation: General rise in the price level

Deflation: General decline in the  price level

Disinflation: Occurs when the inflation rate itself declines

Real interest rate: Cost of borrowing money that is adjusted for inflation
       Real Interest Rate = Nominal Interest Rate - Expected Rate of Inflation

Nominal Interest Rate: Unadjusted cost of borrowing money.
       Nominal Interest Rate = Real Interest Rate + Expected Rate of Inflation

Demand pull inflation
    -"Too many dollars facing too few goods." 
    -Caused by excess of demand over output that pulls prices upward
    -Triggered by an increase in aggregate demand which causes output and employment to rise,           which causes the price level to rise


Cost push inflation
    -Increase in the cost of factors of production. 
    -Increase in resource prices
    -Output and employment will decline, while the price level is rising.
        Example: Price of oil

Unanticipated Inflation: Inflation that was not expected

Those hurt by inflation:
-Lenders: People who loan out money
-People on fixed income
-Savers

Those helped by inflation:
-Borrowers: Debt will be repaid with cheaper dollars than those loaned out

Cost of Living Adjustment (COLA): Wages have risen with inflation

Shoe-leather costs: Increased transaction cost of shopping around

Menu Costs: Money it costs to change prices

Unit 2- Gross Domestic Product

Gross Domestic Product (GDP): Total market value of all final goods and services produced within a country's borders within a given year.

Gross National Product (GNP): Measure of what it's citizens produce and whether they produce these items within a country's borders.

How to find GDP
C= Personal Consumption Expenditures(67%)
     -Finished goods/services

Ig= Gross Private Domestic Investment(17%)
         1. Factory equipment maintenance
         2. New factory equipment
         3. Construction of housing
         4. Unsold inventory or products built in a year

G= Government purchases of goods and services (20%)

Xn= Net Exports (Exports - Imports)    (-4%)

GDP = C + Ig + G + Xn

Things not counted in GDP
1. Used or secondhand goods
        -To avoid double or multiple counting.
               Ex: Buying a car manufactured in 2017, in 2019

2. Gifts or transfer payments (public and private)
    Transfer payments: Transferring money from one person to another
         Public example: Social security/welfare
         Private example: Scholarships

3. Stocks or bonds
       -Purely financial transactions

4. Unreported business activities
          Ex: Tips

5. Illegal activities (underground/black market)

6. Non-market activities
          Ex: Babysitting, trade, bartering

7. Intermediate goods
         -To avoid double or multiple counting.
               Ex: Parts of a car

How to calculate GDP
Expenditure Approach: Add up all of the spending on final goods and services produced in a given year

GDP = C + Ig + G + Xn

Income Approach: Add up all of the income that resulted from selling all final goods and services produced in a given year.
-Comes from factors of production(FOP)

W= Wages
     Wages(s) can be referred to as:
        -Salaries
        -Compensation of Employees

R= Rents

I= Interests

P= Profits

GDP = W + R + I + P + Statistical Adjustments

Other formulas
Trade: Exports - Imports
     -If value of trade is positive, then it's a surplus.
     -If value of trade is negative, then it's a deficit.

Budget: (Government purchases of goods and services + Government transfer payments - Government tax and fee collection)
     -If value of budget is positive, then it's a deficit.
     -If value of budget is negative, then it's a surplus.

National Income
Two methods:
1) Compensation of employees + Rental income + Interest income +  Proprietor's income  + Corporate profits

2) GDP - Indirect business taxes - Depreciation - Net foreign factor payment

Disposable Personal Income: National income - Personal household taxes + Government transfer payments

GNP= GDP + Net foreign factor payment

Net National Product (NNP)= GNP - Depreciation

Net Domestic Product (NDP)= GDP - Depreciation

Gross Private Domestic Investment (Ig)= Net private domestic investment + Depreciation

REMEMBER: Consumption of Fixed Capital is the same as Depreciation

Real vs Nominal GDP
Real GDP: Value of output produced in a constant/base year price.
    -Base year price x Quantity
    -Adjusted for inflation
    -Can increase from year to year only if output increases.

Nominal GDP- Value of output produced in current year prices.
    -Price x Quantity
    -Can increase from year to year if output or price increases.

• In the base year, the current price will be equal to constant price
• In years after the base year, nominal GDP will exceed real GDP
• In years before the base year, real GDP exceeds nominal GDP

Price Index- Measure inflation by tracking changes in the price of a market basket of goods and comparing it with the base year.

GDP Deflator: Price index used to adjust from nominal to real GDP
         Formula: (Nominal GDP / Real GDP) * 100

Consumer Price Index(CPI): Measures the cost of the market basket of a typical urban american family.
         Formula: = ((Price from year 2 - Price from year 1) / Price from year 1) * 100

• In the base year, the GDP deflator will always equal 100
• For years after base year, GDP deflator is greater than 100
• For years before the base year, GDP deflator is less than 100

Inflation Rate= ((New year - Old year) / Old year) * 100

Unit 2- Circular Flow Models

Circular Flow Model: shows the flow of money, goods and services, and factors of production through the economy

Parts
Household: person or group of people who share an income.
     -Own the factors of production.

Firms: organization that produces goods and services for sale. They produce goods by taking inputs (factors of production) and turning them into outputs (finished products)

Government: provider of public goods and services. Demander of both public and private goods and services as well as factors of production.

Markets
Product market: where goods and services are bought and sold

Factor/resource market: where factors of production and resources are bought and sold

Unit 2- Business Cycles

Business Cycle- A  fluctuation in economic activity that an economy experiences over a period of time

Four Phases of Business Cycle
1.Expansion Phase: period if economic upturn when output and employment are rising

2. Peak: highest point of real GDP; it's near or at full employment.

3. Contraction/Recession:  where real GDP declines for at least six months

4. Trough: the lowest point of real GDP; it has the least amount of spending and the highest unemployment.