Chapter 7 Countinued: Unemployment & Inflation/ & Chapter 8: The Economy’s Performance Lecture Notes
Chapter 7 Countinued: Unemployment & Inflation/ & Chapter 8: The Economy’s Performance Lecture Notes ECON 2305 - 001
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This 7 page Class Notes was uploaded by DulyNoted on Saturday October 17, 2015. The Class Notes belongs to ECON 2305 - 001 at University of Texas at Arlington taught by Ronnie W Liggett in Summer 2015. Since its upload, it has received 212 views. For similar materials see PRINCIPLES OF MACROECONOMICS in Economcs at University of Texas at Arlington.
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Date Created: 10/17/15
ECON 2305 Principles of Macroeconomics Monday October 5 2015 Friday October 9 2015 Unemployment amp lnflation The Economy s Performance Chap 7 cont Unemployment amp Inflation Types of Unemployment Frictional Voluntary but natural Structural Nonvoluntary but natural Cyclical Seasonal Unemployment Examples Mary leaves job to become a stay at home mother Not part of Work force Marty leaves his job as a cashier to look for another job Frictiona Larry drops out of high school to look for work Structura Beck quits job at move to Austin with her Boyfriend but will look for work there Frictiona Maria is laid off work when recession hits Cycica Average Mean Dura en ef llnemple irm39ent 45 4 35 3 25 Weeks 2 15 1E 195i 193i 233 Earnings and Unemployment Rates by Educational Attainment UNEMPLOYMENT RATES MEDIAN WEEKLY EARNINGS Doctoral Degree 1 824 Professional Degree 1735 Master39s Degree 1300 Bachelor39s Degree 1 066 Assoclale39s Degree 3 785 P 9 l9 N u 0 0 9 x9 0 O O quot 0 77 53335912quot 127 839 ngh School Dlploma 652 0 Less than a 12394 390 ngh SchooIDlploma 4 Source Bureau of Labor Stallshcs Curran Population Survey 2012 Consumer Price Index CPI A statistical measure of a weighted average of prices of a specified set of goods and services purchased by a typical consumer in urban areas Market Basket of Goods CPI Food and Beverages HousingShelterFuels and UtilitiesHousehold furnishing and ops Apparel Transportation Medical Care Recreation Education and Communication CPI Comparison This is CPI Price Index 0 1927 175 cents o 1955 277 cents o 1983 100 Base Year8284 o 1991 134 0 2011 220 0 2013 233 Prince Index the cost of today s market basket of goods Equation Prince Index Cost of MB todayCost of MB in base year The increase between 1991 and 2013 233136136 7132 round up to get answer ANSWER 71 Protecting Against Inflation Cost of Living Adjustments COLA Clauses in contracts that allow for increases in specified nominal values to take account of changes in the cost of living Appicable to any job with a union Nominal Dollars unadjusted Real Dollars adjusted Gas Example 205 centsgallon in 1955 1955 Price Level 267267 cents 2013 Price Level 233 Equation 1955Price X 2013Price1955Price 205 X 233267 179 Example Question 50000 X 233267 Answer 436330 ndex Prices in current yearprices in basket year CPI Flows p158 Slow to adjust Problems dealing with technology increase How to deal with quotqualityquot Generally CPI quotoverstatesquot inflation Other Indexes Personal Consumption Expenditure PCE Index A statistical measure of average prices that uses annually updated weights based on surveys of consumer spending Producer Price Index A statistical measure of a weighted average of prices of goods and services that firms produce and sell GDP Deflator A price index measuring the changes of all new goods and services produced in the economy Used to determine real GDP bur broader with more adjustments Those Impacted by Inflation Fixed income folks Creditors those who make loans Repricing menu costs Businesses becomes difficult for them to plan Big Mac Problem Example Do we still buy the Big Mac today What about the value menu Have prices gone up Minimum wage Burger Price Increase 191271 70 70 increase Chap 8 The Economy s Performance HyperinflationOut of control inflation Circular Flow Page 173 1 In every economic exchange the seller receives exactly the same amount that the buyer spends 2 Goods and services flow in in one direction and money payments flow in the other Factor Markers resources AKA quotResource Markets Money Households Money Goods and services Factors Markets for goods and Factor markets services Goods and services Factors Firms Money GDP Gross Domestic Product The total market value of all final goods and services produced during a year by factors of production located within a nation s borders Excluded Transitions 1 Financial BuySell securities stock bonds Private transfer Funds cash gift Government Transfer Funds SS benefitswelfare UsedSecondhand Goods not included because the initial transaction is already accounted for Household Production paint your own house repair your own car watch your own children Nonreported Cash payments GardenerHousekeeper payed quotunder the table off the books Illegal Activities prostitutiongamblingdrug deals P1Pquot GDP Limitations Nonmarket transitions legitimate Quantity not quantity Does not measure leisure nor lifestyle of individuals Does not measure mostly negative environmental impact more productionmore pollution Not the best estimate of social welfare U PP NI Expenditures Approach GDPCGXn Consumption Expenditures Government Expenditures Gross Private Domestic Investment Net Exports Xn exports imports GDP Components 1 Consumption a DurableNondurable b Services c Largest component of GDP 2 Government federalstatelocal 3 Investment a Capital goods b Factoriesplants c Most volatile component Why is investment most volatile component to GDP Technology waves Electricity Automobile Interest Rates Taxes PsychologyExpectations Keynes quotAnimal Spirit See The Visual on next page Keynes Quote 39 Even apart from the instability due to W there is the instability due to the characteristic of human nature that a large proportion of W activitiesdepend on spontaneous optimism rather than mathematical expectations whether moral or hedonistic or economic Most probably of our decisions to do something positive the full consequences of which will be drawn out over many days to come can only be taken as the result of animal spirits a spontaneous m toiction gm than inaction and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities Investment And Interest Rates Investment amp Interest Rates GDP Other Accounts GDP Deprecation NDP Net Domestic Product PI Personal Income Personal Taxes DP Disposable Personal Income What do you do with DPI SpendSave Real Vs Nominal GDP Real adjusted for changes in price level We use CPI consumer price index or gap deflator Nominal unadjusted for changes Remember quotApples vs Apples Adjust GDP for changes in price level Included in GDP YesNo More Examples on page 195 12 year old mowing family s lawn NO Dave buys used car NO Used Laptop NO Barbara buys 100 shares of SW Airlines NO Brokerage fees she pays YES Illegal Drug deal on campus NO Paint your own house NO The paint you bought YES Paint houses for a living YES If legitimate and not under the table ETrade YES 10 K Stocks NO Broker Fee YES Social Security NO GDP Example What is GDP NDP Consumption 1125 Corporate Profits Tax 150 Transfer Payments 212 Investment 790 Exports 158 Rental Income 23 Depreciation 180 Government Expenditures 801 Imports 299 Personal Taxes 305 GDPCGIXn 1125 801 790 158299 1125 801 790 141 Answer 2575 NDP GDP Depreciation 2575 180 2395 1 Answer 272 159 125125 272 2 Answer 12500000000 In base year Real Nominal 3 Answer 12822580000 159124 12822580 4 Answer 258064 OR 26 12822580125125 0258 Then time by 100 to get 258 or 26
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