Week 2: calculating GDP, inflation, and unemployment
Week 2: calculating GDP, inflation, and unemployment Econ3020
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This 3 page Class Notes was uploaded by Emmaroseglaser on Saturday September 19, 2015. The Class Notes belongs to Econ3020 at Tulane University taught by Antonio Bojanic in Fall 2015. Since its upload, it has received 47 views. For similar materials see Intermediate Macroeconomics in Economcs at Tulane University.
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Date Created: 09/19/15
Week 2 In ation Increasing price levels over time 3 Methods to measure price levels 1 GDP De ator Ie The nominal GDP in 2012 is 15 billion and the real GDP is 12 billion Calculate the GDP de ator for 2012 with a base year of 2005 Price level 100 x 15 billion 12 billion 125 So from 2005 to 2012 there was a 25 rise in price level 2 Personal Consumption Expenditure PCE De ator a Only looks at household consumption doesn t account for business or gvt 3 Consumer Price Index CPI The bureau of statistics takes surveys from urban consumers to see what goods they buy most often They then take this data and create a basket of goods that most people consume They then study the price levels and consumption of these basket goods Ie In 2012 people consumed 2 apples and 10 gallons of gas monthly Calculate CPI for 2012 with a base year of 2005 CPI 10 x price of gas in 2012 2x price of apples in 2012 10 x price of gas in 2005 2 x price of apples in 2005 CPI is very important because it is used to set taxes determine transfers and set wages Controversies 1 Does not account for substitutes a If a price of a good in the basket goes up people will move towards a sub 2 Does not account for rise in quality a If the quality of a good rises the price will go up 3 Does not account for increasing consumer choice a People don t need to buy as many cars now because they can buy bigger ones Ie The price level in 2014 is 102 The price level in 2015 is 103 Calculate in ation 103102102 1102 Other method of calculation Ie Nominal GDP Price level x Real GDP change nominal GDP change price level change real GDP Growth rate nominal GDP in ation irowth rate real GDP Unemployment Rate The percentage of civilian population who wants to work but cannot find work Bureau of labor and statistics publishes the quotemploymentquot situation monthly with 2 surveys Household survey calculates 60000 homes Establishment survey calculates 150000 businesses 0 Differing results I Household survey counts people not jobs someone holding two jobs will be counted once in household and twice in establishment I Household counts self employed as a job and establishment doesn t I Establishment is more extensive than household Types of civilians 1 Employed someone who has worked 1 hour in the past week 2 Unemployed someone who hasn t worked in the past week but has looked for work in the past 4 weeks 3 Not in labor force someone who hasn t worked or looked for work in 4 weeks a Discouraged workers b Voluntary leavers of the labor force Labor force employed unemployed Issues 1 Leaves out underemployed and discouraged workers It underestimates the actual rate of unemployment Solution 1 The U6 method of measuring which includes marginally attached workers and part time workers with the unemployed in the numerator as well as marginally attached in the denominator Why this is important Different countries may have similar unemployment rates However if only half of a country s civilians are permitted to join the labor force then the unemployment rate misrepresents the number of employed persons For example women may not join the labor force in the Middle East but they are adult civilians