ECON 202 1st Midterm Review
ECON 202 1st Midterm Review Econ 202
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This 9 page Study Guide was uploaded by Ava Jamerson on Saturday October 17, 2015. The Study Guide belongs to Econ 202 at University of Oregon taught by Urbancic M in Summer 2015. Since its upload, it has received 43 views. For similar materials see macroeconomics in Economcs at University of Oregon.
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Date Created: 10/17/15
Chapter 6 How is Macroeconomics Different from Microeconomics productive economy healthy economy macroeconomics study of an entire nation or society overall productionoutput unemployment and in ation microeconomics focuses on decisions of individual decision makers individuals households and firms positive fact scientific no judgement normative opinion values no way to see if true What Does GDP tell us About the Economy Production Equals Income looking at total output prices and employment outputincome 4 criteria for economic policy efficiency equity growth stability Ceteris paribus all else equal GDPmarket value of final goods and services produced in a nation within a time period three uses of GDP 0 measure living standards if a nation39s people can buy what they desire 0 not always accurate ex China and Japan close in GDP but when divided by population its different 0 solution use per capita GDP to count GDP per person 0 measuring economic growth 0 when we have to take into account time amp in ation it becomes real GDP 0 in ation growth in the overall level of prices 0 economic growth measured as the percentage change in real per capita GDP 0 measuring business cycles can determine the expansion or recession of an economy 0 recession short term economic downturns 6 18 months ex US 2007 2009 Great Recession from peak of GDP to next trough O downturns are normal because of business cycles a short fun uctuation in the economy 0 two phases expansion bottom trough to next peak contraction peak downward to the trough How is GDP Computed Counting Market Values 0 instead we also look at market value so there is quantity but also the price of the goodservice so we can compare dissimilar goods ex corn is 5 each and 12 billion are produced a year then GDP is 60 million 0 because it relies on price and there is in ation we also calculate the real GDP adjusts for in ation 0 when prices and wages are higher compared to another country the GDP is overstated Including Goods and Services 0 a service outputs that provide benefits without the production of a tangible product 0 more services in the US that before grew from 50 1960 to 70 in 2010 0 argument that a country needs production to grownot true Including only Final Goods and Services 0 GDP is spending on goods and services but not all spending 0 ex cell phone has many intermediate goods casing software OS or products that are bundled together to later be assembled into a nal good cell phone which is sold to the user 0 when calculating you can get accurate GDP by adding intermediate cost or looking at the final sale price but never both ex count car either when it was produced or when it was sold Within a Country 0 domesticthe companies within the US so if there are US companies manufacturing overseas their GDP is not included in the US39 GDP 0 GNP gross national product was used in the past and it shows output produced by workers and resources owned by residents of the nation Including Only Production from a Particular Period 0 GDP only counts goods and services during a specific period 0 ex car39s GDP isn39t added until the year it39s sold but a used car doesn39t count at all avoid double counting I stock and bonds also don39t count bc these sales don39t create anything new but brokerage fees count because it39s a service Looking at GDP as Different Types of Expenditures 0 Bureau of Economic Analysis BEA tallies GDP data called national income accounting 0 split GDP into 4 categories the equation is GDP C I G NX 0 consumption C purchase of final goods and services ex groceries cars haircuts doctor I split into durable long period amp healthy and nondurable short period amp struggling 0 investment I private spending on tools equipment houses warehouses business buying inventory etc that create future output 0 government spending G purchases made by national state and local governments ex employee salary public work projects I excludestransfer payments that governments make to households ex welfare and unemployment insurance 0 net exports NX only exports count I equation net export export import I net exports typically negative in US because we import more I import always negative Real GDP Adjusting GDP for Price Changes 0 raw GDP is computed based on goods and services at the time or current prices 0 then the resulting GDP is called nominal GDP which rises much faster re ecting in ation 0 for real GDP we need price level overall prices 0 price level index of average prices throughout the economy up when economy rises vice versa 0 price level we use to adjust GDP data is called GDP de ator because it adjusts for in ation 0 to do this we filter out the current prices from nominal GDP data and replace it with prices from a base period that has been agreed upon 0 real GDP nominal GDPprice level X 100 Growth Rates 0 calculating them is important to get additional info 0 calculated as percentage changes in a variable 0 eX nominal GDP growth in 2012 GDP 2012GDP 2011GDP 2011 X 100 What Are Some Shortcomings of GDP Data NonMarket Goods 0 some goods and services are produced but not sold 0 eX nonmarket goods and services your own chores 0 in countries where people live off land and produce own goods GDP is less reliable Underground Economy 0 transactions that aren39t reported and aren39t taxed 0 legal onestips contractors and landscapers 0 illegaldrugs 0 roughly 15 of GDP 21 in developed countries are underground 0 strong economysmaller underground economy 0 America39s shadow economy Taylor Barnes journalist wrote about US underground in 2009 0 US underground economy is 1 trillion 8 of GDP Quality of the Environment 0 GDP will not measure how eniovionrent they were produced 0 there is more quality to life than services and goods 0 using GDP to infer the quality would be inaccurate Leisure Time 0 GDP only counts market activity doesn39t see how long laborers take to produce goods and services 0 GDP doesn39t count extra time worked 0 ex south korea 46 netherlands 28 0 we can39t correct it because additional factors are hard to measure 0 the factors are connected with GDP and it would be hard to interpret so we keep it to economic production 0 Higher levels of GDP are highly correlated With better environment health care etc 0 the underground economy although drug trades aren39t GDP the people and sales of drug paraphernalia is 0 does count as GDP person39s cars estate etc that are made from illegal money 0 purchasing power parityestimates the amount of adjustment rate for different exchange rates to equal each other s currency purchasing power basically exchange rate Chapter 7 What Are the Major Reasons for Unemployment 0 unemploymentworker who is not currently employed is looking for a job without success 0 unemployment rate upercentage of the labor force that is unemployed 0 three typesstructural frictional and cyclical 0 structural and frictional happen when economy is healthy natural 0 unemployment and employment rates have to be opposite levels can go up and down together Structural Unemployment 0 some jobs become obsolete causes temporal unemployment 0 if economy is going to grow and adapt then unemployment is byproduct 0 creative destruction 0 as some new industries are created older ones are destroyed 0 causes transitional problems but sign of economic health 0 ex book industry Borders bankrupt because of kindleipads 0 evolving economy 0 200 years ago 90 Americansagriculture century later half in farming O 56 Americans in service jobs 0 since 1979 manufacturing employment has fallen from 20 million to 115 million while service 65 million to 112 million 0 government can establish training and subsidize relocation Economics in the Real World 0 2010 Burke wrote article on how no one wanted to farm 0 unemployment high still people didn39t want it 0 janjune 1160 jobs advertised 36 hired 0 also happened in 20072009 recession very different from reaction during the Great Depression Frictional Unemployment 0 unemployment caused by delays in matching jobs with workers natural occurence 0 information availability 0 applying online makes it faster and lower cost to match employers and workers creating lower frictional cost 0 government policies 0 any factors that lengthen job searching also increase frictional unemployment O unemployment insurance or federal jobless benefits gives unemployed workers a percentage of their old income reducing impact on economy 0 incentives 0 it makes people lazy government policy contributes to frictional unemployment 0 government rules on hiring firing also contribute 0 there are restrictions on who can and should be interviewed paperwork severance pay etc 0 intended to provide job security creates frictional unemployment when firms take longer to hire Economics in the Real World Employment Italian style 0 2012 inability to drag Italians out of economic stagnation 0 they pay at least 23 of employees social security expensive to dismiss staffer submit selfassessment nation unions must hire a 17th disabled worker gender dynamics etc 0 attempt to benefit employees but reduces employer39s incentive to hire result higher frictional unemployment Cyclical Unemployment 0 caused by recessions this type is most dangerous it means jobs are not available 0 the root is unhealthy economy not natural 0 Duration of cyclical unemployment is not certain ex Great Recession The Natural Rate of Unemployment 0 zero unemployment is impossible 0 government can39t strive towards it once they tried to lower unemployment by putting money into economy resultin ation 0 natural rate of unemployment utypical rate that occurs when economy is growing normally 0 when unemployment ratenatural rate then output level of economy is full employment output y 0 GDPy in US it39s around 5 What Can We Learn from the Employment Data The Unemployment Rate Unemployment rate u number unemployedlabor force X 100 0 to be officially unemployed you have to be a member of labor force 0 labor forcesomeone who is already employed or actively seeking work 0 4 weeks and didn39t seek jobnot included ex retirees stay at home parents jail military under 16 and full time students 0 historical unemployment rates 0 1960 unemployment rate 6 good reference point 1970 lowest rate at 38 Shortcomings of unemployment 0 doesn39t count the people who gave up looking for workdiscouraged workers have looked in the past 12 months but not in the past 4 weeks tricky this lowers unemployment rate bc they aren t counted as labour force 0 underemployed workersparttime jobs that want fulltime 0 second shortcomingcan39t determine how long someone has been jobless 0 2007 23 unemployment was short term 176 longer than 27 weeks 2011 43 long term Other Labor Market Indicators 0 labor force participation 0 labor force participation rateportion of population in labor force 0 labor force participation rate labor force population X 100 0 gender and race statistics 0 more women working 32 in 198 to 60 today male has fallen 87 to 70 0 why men are liVing longer acquiring more education taking care of families Case Study Unemployment in the Great Recession 0 20072009 called Great Recession can be compared to the Great Depression of 1930 0 rate of unemployment and discouraged workers increases during recession
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