1. Economic Notes Economic Measures

2. Unemployment – people who are out of work and actively seeking employment
Does not count – homeless, students, retired, disabled, welfare recipients, etc.

3. Types of Unemployment:
Frictional Unemployment – short term, people who are in between jobs or new to the job markets (there will always be frictional unemployment)
Example – someone relocates and is looking for a job
Seasonal unemployment – people who are out of work during certain seasons of the year – this is not serious because it can usually be anticipated
Example – snow plowing in WNY

4. Cyclical Unemployment – people who are unemployed due to a down turn in the business cycle
Example – laid off during a recession
Structural Unemployment – People who are unemployed because their skills are no longer needed, this is usually long term and poses a serious problem. People generally need to be retrained or educated in a new field, in order to re-enter the job market.
Example – machine takes over the job of a worker

5. The longer the duration of unemployment the more serious the situation, (remember unemployment benefits only last 6 months without a government extension).
Discouraged Worker – someone who has given up looking for work

6. Business Cycle – 4 phases of the economy Peak or prosperity Expansion
or recovery
contraction
or recession
Trough or depression

7. Base year – year used for comparison
Consumer Price Index or CPI – tool used to measure inflation, by comparing the price of a market basket of goods from a base year to a current year
Market Basket – a mixture of goods and services that would be purchases by an average family mixing: food, clothing utilities, electronics, toys, etc.
Base year – year used for comparison

8. Inflation – a general rise in prices, the buying power of the dollar goes down
Deflation – a general decline in prices, the buying power of the dollar goes up
Some prices will go up during deflation and some prices will go down during inflation, it is what prices do in general that determines the overall direction of prices

9. Cost Push Inflation – The cost of production increases, causing the supply curve to shift left and prices to increase
Example – oil prices increase causing the cost of production to increase

10. Demand Pull Inflation – Increases in demand, shift the demand curve to the right and prices to increase
Example – When markets opened in the former soviet states there was an overwhelming demand for western goods, which drove prices up

11. Real Values – adjusted for inflation
Nominal Value – not adjusted for inflation

12. Stock Market Unemployment Average work week business inventories
Economic Indicators – factors economists watch to judge the direction of the economy in the business cycle
Examples: CPI
Stock Market Unemployment
Average work week business inventories
Durable good sales retail sales
Number of new businesses New housing builds
Business closings
GDP

13. Methods of measuring GDP:
GDP – Gross Domestic Product – value of all new goods and services produced in a country in one year
Methods of measuring GDP:
1. Production Approach – measure all new production
Problem – Double Counting – counting the value of an item more than once
Example – counting the value of tires Dunlop and counting the value of the car with tires Chevy

14. 3. Expenditure Approach – measure all spending on new production
2. Income Approach – measure all income earned from production including profit
Problem – Underground economy – income not reported to the government
Example – snowplowing income not reported, “under the table”, “off the books”, illegal
3. Expenditure Approach – measure all spending on new production
Production Approach is considered to be the most accurate, especially with the use of barcodes and computer tracking of merchandise

15. Evaluating GDP for standard of living:
1. Adjust the GDP for cost of living, you need the Real GDP
2. Consider the population or per capita
3. Evaluate how the money is being distributed, is there a big gap between rich and poor?
4. How is the GDP being spent? This is a subjective evaluation based on your personal criteria. For example do people in this country have economic freedom, religious freedom, political freedom, is there debt – how much, are people happy, is there a war, racial unrest, etc.
GDP by Country, by population