Going Big!!!!! Micro Macro Price Quantity Costs Revenues Profits Firms GDP Unemployment Inflation Interest Rates Money Supply Exchange Rates

Economic Indicators Business Cycle Unemployment Rate Inflation “Real” GDP versus “Nominal” GDP Deflator C+I+G+NX 6 month contraction = Recession Unemployment Rate 4 Types Calculation Inflation CPI/GDP Deflator Cost of Living Adjustment “Real” Income

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

GDP C- Consumption (almost 70%) C + I + G + Xn Durable Goods Non-Durable Goods Services (45%) C + I + G + Xn _______ _______ _______ ___________

GDP I- Investment (15%) C + I + G + Xn Business Investment Business Unsold Inventory *Real Estate- commercial and residential C + I + G + Xn _______ _______ _______ ___________

GDP G- Government Spending (18%) C + I + G + Xn _______ _______ _______ ___________

GDP Xn- Net Exports (-500 billion) C + I + G + Xn Add exports Subtract imports Trade Balance- deficit or surplus C + I + G + Xn _______ _______ _______ ___________

Business Cycle

Business Cycle Recession- real GDP goes down for at least 6 months. R

I N J E C T O S L E A K G S

GDP Expenditure Method GDP = C+I+G+Nx Income Method of GDP National Income = R+I+P+W Rent + Interest + Profits + Wages Greatest Component of each?

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

Labor Force Participation Rate % of working age people who are Working Looking for a Job Working Age 16-64

Unemployment (National)

Not Unemployed If… Under 16 Have a Job Are not actively seeking a job Are not currently available to work

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

Natural Rate of Unemployment Sum of frictional and structural unemployment If Unemployment Rate – Natural Rate = 0 Full Employment Natural Rate is Long Term Rate

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

Labor Force Participation Rate % of working age people who are Working Looking for a Job Total 16+ Working Age 16-64 Prime 25-54

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

Types of Inlfation Demand Pull Cost-Push

Demand-Pull Inflation

Cost-Push Inflation

Stagflation

Shocks Large, unexpected change in AD or AS Demand Shock v. Supply Shock Positive v Negative Usually temporary

Inflation Indexes GDP Deflator Consumer Price Index 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 (COLA) Producer Price Index Measures price change of a “fixed basket” based on price received by producer Supplier contracts

Convert Nominal to Real using Price Index Nominal $$$$ x 100= Real $$$ Price Index Example: 2010 nominal GDP = $900 2010 GDP Deflator = 125 What is the real GDP? What was the rate of inflation between the base year and 2010?

Real v. Nominal Interest Rates Nominal = Real Rate + expected inflation rate Real = Nominal – expected inflation rate Who benefits from unexpectedly high inflation? Who benefits from unexpectedly low inflation or deflation?

Real v. Nominal Interest Rates Nominal = Real Rate + expected inflation rate Real = Nominal – expected inflation rate Who benefits from unexpectedly high inflation? Who benefits from unexpectedly low inflation or deflation?

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 Employment- Natural Rate is Long Term Rate

Agenda Today Inflation and Interest Costs of Inflation Calculation Review Indicator Research Tomorrow Review Finish Research

Inflation Indexes Nominal- $ amount in current year $s Real- $ amount in constant $s Converted to base year $s Base Year = 100 Real = Nominal $ X 100 Index Value

Real v. Nominal Interest Rates Nominal = Real Rate + expected inflation rate Real = Nominal – expected inflation rate Who benefits from unexpectedly high inflation? Who benefits from unexpectedly low inflation or deflation?

Costs of Inflation Shoe Leather Costs Menu Costs Unit of Account Costs requires more bank transactions requires changing payment plans and increased transfer activity Menu Costs Businesses must change prices on menus, shelves, tags and in computer system Unit of Account Costs Dollars as a unit for measuring value become less stable and reliable.

I N J E C T O S L E A K G S

Business Cycle Recession- real GDP goes down for at least 6 months. R

Demand-Pull Inflation

Cost-Push Inflation

GDP C + I + G + NX Or R+W+I+P = Income Method (National Income) Don’t Count Used Transfers Non-market Intermediate goods

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

Real v. Nominal

Basket of Goods 2020 = $400 (base year) 2021 = $500 Inflation Rate = $ 2021- $ Base Year $Base Year

Basket of Goods 2020 = $400 (base year) 2021 = $500 Inflation Rate = $ 500- $ 400 $400 Inflation Rate = .25 or 25%

Index Value 2020 = 100 2021 = 125 Nominal GDP 2020 = $20 trillion 2021 = $28 trillion Real GDP 2021 = $

Index Value 2020 = 100 2021 = 125 Nominal GDP 2020 = $20 trillion 2021 = $28 trillion Real GDP 2021 = $22.4 trillion

GDP Growth Rate Nominal 2020 = $20 trillion 2021 = $28 trillion Nominal Growth Rate?

GDP Growth Rate Nominal 2020 = $20 trillion 2021 = $28 trillion Nominal Growth Rate ($28-$20)/$20 = .4 40% nominal growth

GDP Growth Rate Real 2020 = $20 trillion 2021 = $22 GDP Growth Rate Real 2020 = $20 trillion 2021 = $22.4 trillion Real Growth Rate?

GDP Growth Rate Real 2020 = $20 trillion 2021 = $22 GDP Growth Rate Real 2020 = $20 trillion 2021 = $22.4 trillion Real Growth Rate? ($22.4-$20)/$20 = .12 12% real growth

Calculate Population = 10,000 Population 16+ = 8,000 Employed Persons = 5,000 Unemployed Persons = 350 --------------------------------------------------------- Labor Force = ____________ Unemployment Rate = ______________ Labor Force Participation Rate = _______

Calculate Population = 10,000 Population 16+ = 8,000 Employed Persons = 5,000 Unemployed Persons = 350 --------------------------------------------------------- Labor Force = 5,350 Unemployment Rate = 6.54% Labor Force Participation Rate = 66.88%

CPI (Consumer Price Index)