Download year 1

the creation of
goods and services
measuring serves as a
basis for setting
reaching macro goals
a general rise in
the price level
Some prices may even
be going down!!
a resource
(factor of
production)
is not being used
our focus is on people
1. Loss of goods
and services
2. Individual loss of
spending ability
and social issues
1. Frictional
2. Structural
3. Cyclical
4. Seasonal
between jobs
job replaced
less business
temporary job
1. population
2. labor force
3. unemployed
4. discouraged
everyone
over 16, working
or looking
not working,
but looking
labor not looking
unemployed
labor force
Population = 260 million
labor force = 160 million
Unemployed = 32 million
Unemployed /labor force
= 32 million/160 million
= .20 = 20%
Deals with which
type?
1. Frictional?
2. Structural?
3. Cyclical?
At full employment there
will still be some:
1. Frictional
2. Structural
but no Cyclical
actual unemployment
may only get as low as
4–5%
Jobless rates by group
January
December
White
8
8.5
Black
15.7
15.8
Hispanic
11.9
Asian
Jobless changes by sector
January
December
Private
50,000
139,000
Manufacturing
49,000
14,000
13
Retail
27,500
2,800
6.9
7.2
Health care
10,600
26,700
Adult men
8.8
9.4
Financial
-10,000
0
Adult women
7.9
8.1
Temporary
-11,400
38,100
20-24 years old
15.2
15.3
Restaurant
-4,400
3,300
25-54 years old
7.9
8.5
Construction
-32,000
-17,000
55 and older
6.7
6.9
Government
-12,000
-26,000
Numbers in percent
Number of jobs added/lost
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.
3. A waiter who quits his job and is applying
for the same type of work in a restaurant
where morale is better.
4. The son of a local farmer who works 20hour 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.
6. A plumber who works 5 hours per week for
his church (on a paid basis) until he can get
a full-time job
a general rise in
the price level
Some prices may even
be going down!!
1. Hyperinflation
2. Money loses value
1. Savings
Lose value
2. Loans Are easier to repay
3. Wealth
May increase
1. Demand-Pull
2. Cost-Push
1. Demand-Pull
Price
S1
New price
and output
P2
Orig. price
and output
P1
D2(increase in demand)
D1
Q1 Q2
Quantity
buyers demands greater than
producers supply
2. Cost Push
Price
S2(new equilibrium)
S1(initial equilibrium)
P2
P1
D
Q2
Q1
Quantity/time
sellers’ costs are passed
on to buyers
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.
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.
1. Measures price changes
2. calculations
by %
amount in 2nd year
Amount in 1st (or base) year
For Example:
2002 Price = $260
2003 Price = $300
X 100
$300
$260
= 1.1538 X 100
= 115.4
year
1
Base year =
X 100
year 1
Base year = 100 (always)
Year
1
2
3
4
5
6
7
Market
Basket
Price
Index
$170
180
200
200
224
250
280
Calculate a Price Index, and assume that year 3 is the base year
Year
1
2
3
4
5
6
7
Market
Basket
Price
Index
$170
180
200
200
224
250
280
85
90
100
100
112
125
140
measures a “shopping
basket” of consumer
goods
checked regularly
then an index is created
1. PPI
2. WPI
3. MPI
4. GDP Price Index
a slowing of the
inflation rate
the aim of policies
usually phrased as “slowing inflation”
http://abcnews.go.com/Video/playerIndex?id=6484348
the creation of
goods and services
measuring serves as a
basis for setting
reaching macro goals
producing at maximum
capacity
on the PPC
the full-production fullemployment capacity
grows over time
the PPC shifts out
1. GDP
production in a country
2. Nominal GDP current $$
adjusted $$
3. Real GDP
4. GNP
production of a country
Only final goods and services count
• 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.
Stage of production
Sales Receipts
Value added to the product
(at each stage of production)
(equals income created)
Stage 1: farmer’s wheat
by farmer
$.30
$.30
Stage 2: miller’s flour
by miller
$.65
$.35
Stage 3: baker’s bread
(wholesale)
by baker
$.90
$.25
Stage 4: grocer’s bread
(retail)
by grocer
$1
Total consumer expenditure = $1
$.10
Total value added = $1
• What Else?
– Financial transactions and income
transfers. They do not reflectStocks
production.
– Production outside the geographic
borders of the country is not1955
counted.
Chevy
– Goods not produced during the
current period are not counted.
Which are included in this year's
GDP? :
1.
2.
3.
4.
5.
6.
7.
8.
9.
YES
Interest on an AT&T bond NO
Social Security payments to retirees Services of a painter in painting a house - YES
Income of a dentist YES
Money received from the sale of a 1990 model car-NO
Monthly allowance of a college student NO
Rent for a 2 bedroom apartment YES
Money received for selling this year's model car -YES
NO
Interest on a government bond -
Which?
10. A two hour decline in the work week NO
11. Purchase of the AT&T bond NO
12. A $ 2 billion increase in business investments - YES
13. Purchasing 100 shares of GM common stock - NO
14. Purchase of an insurance policy YES
15. Wages paid to your butler YES
16. Market value of a homemaker's services NO
17. Purchase of the Mona Lisa NO
nominal GDP for a year
price index number for that year
X 100
For Example:
2000 GDP = $9.873 trillion
2000 GDP Index = 107.04
$9.873
107.04
= .0092238 X 100 = 9.224
calculation works for “deflating” or
“inflating” any dollar amount
nominal price
target year index
X 100
Gross Domestic Product
Complete the following table assuming that Year 1 is the base year.
Year
Output
Price
1
100
$4.00
2
120
4.40
3
110
5.00
4
110
5.20
5
135
5.20
6
140
5.60
Money
GDP
GDP
Index
Real
GDP
Gross Domestic Product
Complete the following table assuming that Year 1 is the base year.
Year
Output
Price
Money
GDP
GDP
Index
Real
GDP
1
100
$4.00
$400
100
$400
2
120
4.40
528
110
480
3
110
5.00
550
125
440
4
110
5.20
572
130
440
5
135
5.20
702
130
540
6
140
5.60
784
140
560