Unemployment

Unemployment

• Failure to use available resources particularly labor to produce desired goods and services.

Population

• Number of people in a country

Labor Force

• Number of people in a country that are classified as either employed or unemployed 

Employed

• 16 years of age or older and have a job
• You must at least work an hour every two weeks in order to be considered employed. 

Unemployed

• People 16 years of age or oldr that don't have a job but have actively searched for a job in the last two weeks. 

Not in the Labor Force 

• Kids
• Full time students
• Mentally Institutionalized 
• Incarcerated 
• Disabled 
• Retirees
• Military Personel 
• Stay at home moms/dads 
• Discouraged workers  

Unemployment Rate

1. # of unemployed/Total Labor Force x 100 
2. Total Labor Force = Employed + Unemployed

Types of Unemployment

Frictional

• Temporarily Unemployed or in between jobs 
• Qualified workers with transferable skills
• Ex: High School Students and people looking for a better job  

Seasonal

• Due to the time of the year 
• Ex: Lifeguards, construction workers, school bus drivers, mall santas and easters

Structural

• Changes in the structure of the labor force make some skills absolete 
• Workers do no have transferable skills and these jobs will never come back

Creative Destruction

• All jobs are created, other jobs are lost or destroyed
• Ex: VCR Repairment, Typewriter Repairment 

Cyclical

• Results from economic downturn such as a recession
• As demand for goods and services falls. demand for labor falls and workers are laid off

Full Employment of Natural Rate of unemployment  (Frictional + Structural)

Okuns Law

• When unemployment increases by 1% above the natural rate of unemployment then real GDP will fall by 2% 

Rule of 70

• # of years that is required for GDP to double 
• If the annual inflation rate is 2% how many years will it take for GDP to double. 

Inflation

Inflation

• It Reduces purchasing power of money
• When Inflation occurs each dollar of income will buy fewer goods than before

Three Causes of inflation 

1. Governement Prints too much money 

• Governments that keep printing money to pay debts end up with a situation called Hyperinflation  

      2. Demand Pull inflation

• Too many goods  chasing too many few goods; Demand pulls up prices. 

      3. Cost Push Inflation

• Higher production costs increases prices

Unanticipated Inlfation

• Not Expected    

Who's hurt by Inflation?

• Lenders/Creditors
• Savers
• People on a fixed income
• COLA adjustment people    

Who's helped by Inflation?

• Borrowers 
• Debtors
• Flexible Income people              

Nominal Interest Rate 

• Unadjusted cost of borrowing or lending out money

Real Interest Rate 

• A cost of borrowing or lending money that is adjusted for inflation 
• Nominal Interest Rate - Inflation
  

                                                     

Nominal vs Real GDP + CPI

Nominal GDP (P x Q)

• Value of output produced in current year prices. 
• Can increase from year to year if output increases or prices increase. 

Real GDP (Base Year Price x Quantity) 

• Value of output produced in constant base year prices that is adjusted inflation 
• Can increase from year to year only if output increases 
• In the base year current prices equal constant 
• In years after the base year Nominal GDP exceeds real GDP 
• In years before the base year real GDP exceeds Nominal GDP

GDP Deflator 

• Price Index used to adjust from nominal to real GDP 
• In the base year the GDP Deflator is always equal to 100
• For Years after the base year GDP Deflator is greater than 100 
• For Years before the base year GDP Deflator is less than 100

Formula 

• Nominal/Real GDP X 100

Consumer price index 

• Measures the Cost of a market basket of goods for a typical urban american family. 

Formula 

• Cost of Market Basket of goods in a given year/Cost of a market of goods in the base year x 100 

Unit 2: GDP + Formulas

GDP

• Total Market Value of all goods and services produced within a country's borders within a given year.

GNP

• A measure of what a citizen's produce and whether they produced these items within its borders. 

What's not included in the GDP?

1.  Used or Secondhand Goods (Avoid double or multiple counting) 
2. Intermediate Goods (Goods that require further processing before they are ready for final use)
3. Gifts/Transfer Payments (Ex. SSN, Scholarship) (Public or Private) 
4. Unreported Business Activities (Tips)
5. Ilegal Activites (Drugs, Weapons etc)
6. Stocks and Bonds (Financial Transactions) 
7. Non-Market Activities (Volunteering/Family)

GDP Formula 

• C+IG+G+Xn (Exports-Imports)

C (Personal Consumption Expenditure)

• 67%  of an economy
• Purchase of all final goods and services. 

IG (Gross Private Domestic Investment) 

• New Factory Equipment
• Construction of Housing 
• Unsold Inventory of products built in a year
• Factory Equipment Maintenance

Government Spending

• Government Purchases of Goods and Services

Xn: Net Exports

• Always Exports-Imports 

Formulas

Trade

• Exports - Imports 
• T: + Surplus 
• T: - Deficit 

Budget 

• Government Purchases of Goods and Services + Government Transfer Payments - Government Tax/ Fee Collection 
• B: + Deficit 
• B: - Surplus 

National Income

• Option One: Compensation of employees + Rental Income + Proprietor's Income + Interest Income + Corporate Income 
• Option Two: GDP-Indirect Business Taxes - Depreciation - Net Foreign Factor Payment 

Disposable Personal Income 

• National Income - Household Taxes + Government Transfer Payments 

Net Domestic Product 

• GDP - Depreciation (Consumption of Fixed Capital) 

Net National Product 

• GNP - Depreciation 

GNP

• GDP + Net Foreign Factor Payment 

Gross Private Domestic Investment 

• Net Private Domestic Investment + Depreciation