3. measuring serves as a basis for setting reaching macro goals the creation of goods and services the creation of goods and services

4. Some prices may even be going down!! a general rise in the price level a general rise in the price level

5. our focus is on people a resource (factor of production) is not being used a resource (factor of production) is not being used

6. 1. Loss of goods and services 1. Loss of goods and services 2. Individual loss of spending ability and social issues 2. Individual loss of spending ability and social issues

7. 1. Frictional 1. Frictional 2. Structural 2. Structural 3. Cyclical 3. Cyclical 4. Seasonal 4. Seasonal temporary job less business job replaced between jobs

8. 2. labor force 2. labor force 1. population 1. population 3. unemployed 3. unemployed 4. discouraged 4. discouraged labor not looking not working, but looking over 16, working or looking everyone

9. labor force unemployed

10. labor force = 160 million Unemployed = 32 million Population = 260 million Unemployed /labor force = 32 million/160 million =.20 = 20%

11. 1. Frictional? 1. Frictional? 2. Structural? 2. Structural? 3. Cyclical? 3. Cyclical? Deals with which type? Deals with which type?

12. 1. Frictional 1. Frictional 2. Structural 2. Structural but no Cyclical but no Cyclical At full employment there will still be some: At full employment there will still be some:

13. actual unemployment may only get as low as actual unemployment may only get as low as 4 – 5 % 4 – 5 %

14. JanuaryDecember White88.5 Black15.715.8 Hispanic11.913 Asian6.97.2 Adult men8.89.4 Adult women7.98.1 20-24 years old15.215.3 25-54 years old7.98.5 55 and older6.76.9 JanuaryDecember Private50,000139,000 Manufacturing49,00014,000 Retail27,5002,800 Health care10,60026,700 Financial-10,0000 Temporary-11,40038,100 Restaurant-4,4003,300 Construction-32,000-17,000 Government-12,000-26,000 Jobless rates by group Jobless changes by sector Numbers in percent Number of jobs added/lost

15. 1. A student who decides at mid-semester to devote the rest of the term to studying quits her part-time job 1. A student who decides at mid-semester to devote the rest of the term to studying quits her part-time job 2. A graphic artist who is out of work because a computer now does her job. 2. A graphic artist who is out of work because a computer now does her job. 3. A waiter who quits his job and is applying for the same type of work in a restaurant where morale is better. 3. A waiter who quits his job and is applying for the same type of work in a restaurant where morale is better.

16. 4. The son of a local farmer who works 20- hour weeks without pay on the farm while waiting for a job at a nearby factory. 4. The son of a local farmer who works 20- hour weeks without pay on the farm while waiting for a job at a nearby factory. 5. A travel agent who is laid off because the economy is in a slump and vacation travel is at a minimum. 5. A travel agent who is laid off because the economy is in a slump and vacation travel is at a minimum. 6. A plumber who works 5 hours per week for his church (on a paid basis) until he can get a full-time job 6. A plumber who works 5 hours per week for his church (on a paid basis) until he can get a full-time job

17. Some prices may even be going down!! a general rise in the price level a general rise in the price level

18. 1. Hyperinflation 1. Hyperinflation 2. Money loses value 2. Money loses value

19. 1. Savings 1. Savings 2. Loans 2. Loans 3. Wealth 3. Wealth May increase Are easier to repay Lose value

20. 1. Demand-Pull 1. Demand-Pull 2. Cost-Push 2. Cost-Push

21. 1. Demand-Pull 1. Demand-Pull buyers demands greater than producers supply Price Quantity P2P2 P1P1 Q1Q1 D1D1 S1S1 Q2Q2 New price and output D 2 (increase in demand) Orig. price and output

22. 2. Cost Push 2. Cost Push sellers’ costs are passed on to buyers Price Quantity/time P2P2 P 1 Q 1 D S 1 (initial equilibrium) Q2Q2 S 2 (new equilibrium)

23. 1. Nellie borrows $5,000 for her college expenses at an interest rate of 4 percent to be paid off over 5 years, during which time the inflation rate averages 6 percent. 1. Nellie borrows $5,000 for her college expenses at an interest rate of 4 percent to be paid off over 5 years, during which time the inflation rate averages 6 percent. 2. Oscar invests $3,000 in securities that pay 5.3 % annually for 10 years, and the inflation rate during that time averages 6.4 percent. 2. Oscar invests $3,000 in securities that pay 5.3 % annually for 10 years, and the inflation rate during that time averages 6.4 percent. 1. Nellie borrows $5,000 for her college expenses at an interest rate of 4 percent to be paid off over 5 years, during which time the inflation rate averages 6 percent. 1. Nellie borrows $5,000 for her college expenses at an interest rate of 4 percent to be paid off over 5 years, during which time the inflation rate averages 6 percent. 2. Oscar invests $3,000 in securities that pay 5.3 % annually for 10 years, and the inflation rate during that time averages 6.4 percent. 2. Oscar invests $3,000 in securities that pay 5.3 % annually for 10 years, and the inflation rate during that time averages 6.4 percent.

24. 3. The Lynchburg National Bank commits to $4 million in 15-year mortgages at an average mortgage rate of 7.75 percent. The inflation rate averages 8 percent over this 15-year period. 3. The Lynchburg National Bank commits to $4 million in 15-year mortgages at an average mortgage rate of 7.75 percent. The inflation rate averages 8 percent over this 15-year period. 4. Barney bought a house in 1991 for $100,000 that he now plans to sell for $200,000. during this time the inflation rate has averaged 3 percent.

25. 2. calculations 2. calculations 1. Measures price changes 1. Measures price changes by %

27. amount in 2 nd year Amount in 1 st (or base) year X 100 2003 Price = $300 2002 Price = $260 For Example:

28. $300 $260 = 115.4 year 1 Base year = X 100= 1.1538 X 100 Base year = 100 (always)

29. Year Market Basket Price Index 1$170 2180 3200 4 5224 6250 7280 Calculate a Price Index, and assume that year 3 is the base year

30. Year Market Basket Price Index 1$17085 218090 3200100 4200100 5224112 6250125 7280140

31. checked regularly then an index is created measures a “shopping basket” of consumer goods

32. 2. WPI 2. WPI 1. PPI 1. PPI 3. MPI 3. MPI 4. GDP Price Index 4. GDP Price Index

33. a slowing of the inflation rate a slowing of the inflation rate the aim of policies the aim of policies usually phrased as “slowing inflation” usually phrased as “slowing inflation” http://abcnews.go.com/Video/playerIndex?id=6484348

34. measuring serves as a basis for setting reaching macro goals the creation of goods and services the creation of goods and services

35. producing at maximum capacity producing at maximum capacity on the PPC on the PPC

36. the full-production full- employment capacity grows over time the full-production full- employment capacity grows over time the PPC shifts out the PPC shifts out

37. 1. GDP 1. GDP 4. GNP 4. GNP 2. Nominal GDP 2. Nominal GDP 3. Real GDP 3. Real GDP adjusted $$ current $$ production of a country production in a country

38. Stage of production Value added to the product (equals income created) Sales Receipts (at each stage of production) Stage 1: farmer’s wheat Stage 2: miller’s flour Stage 3: baker’s bread (wholesale) Stage 4: grocer’s bread (retail) $.30 $.65$.90 $1 by farmer $.30 by grocer $.10 by miller $.35 by baker $.25 What Does Not Count Toward GDP? Sales at intermediate stages of production. Their value is already counted in the final-user good. Including them would result in double counting. Total consumer expenditure = $1 Total value added = $1 Only final goods and services count

39. What Else? –Financial transactions and income transfers. They do not reflect production. –Production outside the geographic borders of the country is not counted. –Goods not produced during the current period are not counted. Stocks 1955 Chevy

40. Which are included in this year's GDP ? : 1. Interest on an AT&T bond - 2. Social Security payments to retirees - 3. Services of a painter in painting a house - 4. Income of a dentist - 5. Money received from the sale of a 1990 model car- 6. Monthly allowance of a college student - 7. Rent for a 2 bedroom apartment - 8. Money received for selling this year's model car - 9. Interest on a government bond - YES NO YES NO

41. Which? 10. A two hour decline in the work week - 11. Purchase of the AT&T bond - 12. A $ 2 billion increase in business investments - 13. Purchasing 100 shares of GM common stock - 14. Purchase of an insurance policy - 15. Wages paid to your butler - 16. Market value of a homemaker's services - 17. Purchase of the Mona Lisa - NO YES NO

42. nominal GDP for a year price index number for that year X 100 2000 GDP Index = 107.04 2000 GDP = $9.873 trillion For Example:

43. $9.873 107.04 = 9.224 nominal price target year index nominal price target year index calculation works for “deflating” or “inflating” any dollar amount X 100=.0092238 X 100

44. Gross Domestic Product Complete the following table assuming that Year 1 is the base year. YearOutputPriceMoney GDP GDP Index Real GDP 1100$4.00 21204.40 31105.00 41105.20 51355.20 61405.60

45. Gross Domestic Product Complete the following table assuming that Year 1 is the base year. YearOutputPriceMoney GDP GDP Index Real GDP 1100$4.00 $400100$400 21204.40 528110480 31105.00 550125440 41105.20 572130440 51355.20 702130540 61405.60 784140560