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ECON CH.27 Textbook

by: itswingo

ECON CH.27 Textbook ECO2013


GPA 3.32

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About this Document

- Labor force - Unemployment - Inflation - Business Cycle - Consumer Price Index - Etc. Etc.
Principles of Macroeconomics
Professor Sammie Young
Class Notes
Econ, Macroeconomics, fsw, floridasouthwestern, laborforce, unemployment, inflation, BusinessCycle, CPI, Consumer
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This 2 page Class Notes was uploaded by itswingo on Thursday October 6, 2016. The Class Notes belongs to ECO2013 at Florida SouthWestern State College taught by Professor Sammie Young in Fall 2016. Since its upload, it has received 5 views. For similar materials see Principles of Macroeconomics in Economics at Florida SouthWestern State College.

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Date Created: 10/06/16
Macroeconomics Ch. 27 Textbook Notes  Labor force = both employed & unemployed but actively seeking, willing, and able, to work.  Unemployment rate = % of the labor force unemployed o unemployed/labor force X 100  inflation redistributes total real income o rise in general level of prices o when inflation rises each dollar of income buys fewer goods and services o reduces purchasing power of money o exists when there is an increase in prices over a sustained period of time  flexible income receivers may be unaffected or benefit by unanticipated inflation because: o they receive COLAs o business owner’s profits may rise if product price rises faster than resource price o their incomes automatically increase when CPI increases o demand-pull inflation may cause some nominal incomes to increase faster than inflation and lead to real income increases.  The long-run trend of the U.S. economy is expansion and growth.  Consumer Price Index o CPI = price of the most recent market basket in the particular year/price estimate of the market basket in 1982-1984 X 100.  Business cycles = alternating rises and declines o Sources and shocks causing business cycles  Irregular innovation  Productivity changes  Monetary factors  Political events  Financial instability  Individual cycles = vary in duration and intensity  Unanticipated inflation hurts savers, creditors, and people on fixed incomes  When inflation occurs, those with fixed incomes, see their real incomes fall.  Nominal interest rate = % increase in money that borrower provides lender o Interest rates that are quoted in the market o Nominal interest rate = real interest rate + inflation premium (the expected rate of inflation)  Nominal Income = the number of dollars received as wages, rent, interest or profits in current dollars  Real Income = measure of amount of goods and services nominal income can by o Purchasing power of nominal income or income adjusted for inflation o Real income = nominal income/price index (in hundredths)  Frictionally unemployed o Have marketable skills o Live where jobs exist  Structurally unemployed o Find it difficult to obtain new jobs w/o training, relocation, education, etc. o More likely to be long-term o More serious  Consequences of unexpected lower total spending in the short-run when prices are sticky: o Firms cut back on production o Fewer purchased items o Rise in unemployment o GDP declines o Firms sell fewer units of outputs  Demand-pull inflation = too much spending chasing too few goods o Caused by excess total spending  GDP Gap = difference between actual and potential GDP o Gap GDP = actual GDP – potential GDP  Teenagers have a much higher unemployment rate than adults because they have lower level skills, quit more frequently, more frequently fired, less geographic mobility  Cost-push inflation describes the rise of prices in terms of factors that raise per-unit production costs at each spending level o Major source is supply shocks  Recession = phase in business cycle that has decline in total output, employment, and income  Expansion = period where output rises and the price level may rise 2


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