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Macro Concepts • Aggregate Supply and Aggregate Demand • GDP • Unemployment • Inflation GDP • Total value of all final goods and services produced within a country within a given year. • Real GDP- accounts for inflation. • C + I + G + NX _______ _______ _______ ___________ GDP • C + I + G + NX • Don’t Count – Used – Transfers – Non-market – Intermediate goods Business Cycle Recession- real GDP goes down for at least 6 months. R E A L G D P L E A K A G E S I N J E C T I O N S GDP • Expenditure Method- C+I+G+Nx • Income Method of GDP- National Income R+I+P+W Rent + Interest + Profits + Wages Greatest Component of each? All Stats are for People 16 or Older • • • • Population = 1000 Pop. with jobs = 600 Pop. Without jobs = 400 Pop. Actively seeking employment in past month = 190 • Pop. from previous category who currently have a job = 40 Unemployment Unemployment Rate= Unemployed Persons/Total Labor Force X 100 Labor Force= all civilians 16+ who are working or looking for a job Unemployed Persons= 16+ civilians who are looking for a job but do not have one Agenda • Unemployment – Types of Unemployment – Labor Force Participation Rate – Employment to Population Ratio • Inflation – Types – Measures – Movies Unemployment (National) Types of Unemployment • Frictional- temporary while searching • Structural-lack of skills/lack of need for skills/replacement by technology/replacement by merger or streamlining • Cyclical- related to health of overall economy • Seasonal- seasonal • Not Labor Force Participation Rate • % of working age people who are – Working – Looking for a Job • Working Age – 16-64 Not Unemployed If… • • • • Under 16 Have a Job Are not actively seeking a job Are not currently available to work Unemployment Formula Unemployment Rate= Unemployed Persons/Total Labor Force X 100 Labor Force= all civilians 16+ who are working or looking for a job Unemployed Persons= 16+ civilians who are looking for a job but do not have one Unemployment (National) Labor Force Participation Rate Labor Force Participation Rate Labor Force Participation Rate Labor Force Participation Rate • % of working age people who are – Working – Looking for a Job • Working Age – 16-64 Employment to Population Ratio • Employment Rate • Employed/*Total Population – Working Age (16-64) – 25-54 Employment to Population Ratio • 16-64 Employment to Population Ratio • 25-54 Unemployment • • • • • Relation to Business Cycle Unemployment Rate Calculation Types of Unemployment Labor Force Participation Rate Employment Rate (Employment to Population Ratio) • • • • • Frictional Structural Cyclical Seasonal Not Calculate Population = 10,000 Population 16-64 = 8,000 Employed Persons = 5,000 Unemployed Persons = 350 --------------------------------------------------------Labor Force = ____________ Unemployment Rate = ______________ Labor Force Participation Rate = _______ Calculate Population = 10,000 Population 16-64 = 8,000 Employed Persons = 5,000 Unemployed Persons = 350 --------------------------------------------------------Labor Force = 5,350 Unemployment Rate = 6.54% Labor Force Participation Rate = 66.88% Labor Force Participation Rate • % of working age people who are – Working – Looking for a Job • % working age population in the labor force • Working Age – 16-64 Natural Rate of Unemployment • Sum of frictional and structural unemployment • If Unemployment Rate – Natural Rate = 0 • Full EmploymentJob Finding Rate = Jon Separation Rate • Natural Rate is Long Term Rate Inflation Demand-Pull Inflation Cost-Push Inflation Stagflation Inflation Indexes • GDP Deflator – converts a “changing basket of goods” into constant dollars. – Find Real GDP • Consumer Price Index – Measures price change of a “fixed basket” based on price paid by consumer – Cost of Living Adjustments • Producer Price Index – Measures price change of a “fixed basket” based on price paid consumer – Supplier contracts Inflation Indexes • Nominal- $ amount in current year $s • Real- $ amount in constant $s – Converted to base year $s • Base Year = 100 • Real = Nominal $/Index X 100 CPI (Consumer Price Index) Costs of Inflation • Unit of Account Costs – uncertainty about spending and investment • Menu Costs – cost associated with changing prices • Shoe leather costs – Increased financial transactions • Redistribution of Wealth – Lenders lose and borrowers gain with unanticipated inflation and fixed rates – Savings devalue