Macro Concepts
• Aggregate Supply and Aggregate Demand
• GDP
• Unemployment
• Inflation
GDP
• Total value of all final goods and services
produced within a country within a given
year.
• Real GDP- accounts for inflation.
• C
+ I
+ G
+ NX
_______ _______ _______ ___________
GDP
• C + I + G + NX
• Don’t Count
– Used
– Transfers
– Non-market
– Intermediate goods
Business Cycle
Recession- real GDP goes down for at least 6 months.
R
E
A
L
G
D
P
L
E
A
K
A
G
E
S
I
N
J
E
C
T
I
O
N
S
GDP
• Expenditure Method- C+I+G+Nx
• Income Method of GDP- National Income
R+I+P+W
Rent + Interest + Profits + Wages
Greatest Component of each?
All Stats are for People 16 or Older
•
•
•
•
Population = 1000
Pop. with jobs = 600
Pop. Without jobs = 400
Pop. Actively seeking employment in past
month = 190
• Pop. from previous category who currently have
a job = 40
Unemployment
Unemployment Rate=
Unemployed Persons/Total Labor Force X 100
Labor Force= all civilians 16+ who are working or
looking for a job
Unemployed Persons= 16+ civilians who are
looking for a job but do not have one
Agenda
• Unemployment
– Types of Unemployment
– Labor Force Participation Rate
– Employment to Population Ratio
• Inflation
– Types
– Measures
– Movies
Unemployment (National)
Types of Unemployment
• Frictional- temporary while searching
• Structural-lack of skills/lack of need for
skills/replacement by
technology/replacement by merger or
streamlining
• Cyclical- related to health of overall
economy
• Seasonal- seasonal
• Not
Labor Force Participation Rate
• % of working age people who are
– Working
– Looking for a Job
• Working Age
– 16-64
Not Unemployed If…
•
•
•
•
Under 16
Have a Job
Are not actively seeking a job
Are not currently available to work
Unemployment Formula
Unemployment Rate=
Unemployed Persons/Total Labor Force X 100
Labor Force= all civilians 16+ who are working or
looking for a job
Unemployed Persons= 16+ civilians who are
looking for a job but do not have one
Unemployment (National)
Labor Force Participation Rate
Labor Force Participation Rate
Labor Force Participation Rate
Labor Force Participation Rate
• % of working age people who are
– Working
– Looking for a Job
• Working Age
– 16-64
Employment to Population Ratio
• Employment Rate
• Employed/*Total Population
– Working Age (16-64)
– 25-54
Employment to Population Ratio
• 16-64
Employment to Population Ratio
• 25-54
Unemployment
•
•
•
•
•
Relation to Business Cycle
Unemployment Rate Calculation
Types of Unemployment
Labor Force Participation Rate
Employment Rate (Employment to Population Ratio)
•
•
•
•
•
Frictional
Structural
Cyclical
Seasonal
Not
Calculate
Population =
10,000
Population 16-64 =
8,000
Employed Persons =
5,000
Unemployed Persons =
350
--------------------------------------------------------Labor Force = ____________
Unemployment Rate = ______________
Labor Force Participation Rate = _______
Calculate
Population =
10,000
Population 16-64 =
8,000
Employed Persons =
5,000
Unemployed Persons =
350
--------------------------------------------------------Labor Force = 5,350
Unemployment Rate = 6.54%
Labor Force Participation Rate = 66.88%
Labor Force Participation Rate
• % of working age people who are
– Working
– Looking for a Job
• % working age population in the labor
force
• Working Age
– 16-64
Natural Rate of Unemployment
• Sum of frictional and structural unemployment
• If Unemployment Rate – Natural Rate = 0
• Full EmploymentJob Finding Rate = Jon Separation Rate
• Natural Rate is Long Term Rate
Inflation
Demand-Pull Inflation
Cost-Push Inflation
Stagflation
Inflation Indexes
• GDP Deflator
– converts a “changing basket of goods” into
constant dollars.
– Find Real GDP
• Consumer Price Index
– Measures price change of a “fixed basket”
based on price paid by consumer
– Cost of Living Adjustments
• Producer Price Index
– Measures price change of a “fixed basket”
based on price paid consumer
– Supplier contracts
Inflation Indexes
• Nominal- $ amount in current year $s
• Real- $ amount in constant $s
– Converted to base year $s
• Base Year = 100
• Real = Nominal $/Index X 100
CPI (Consumer Price Index)
Costs of Inflation
• Unit of Account Costs
– uncertainty about spending and investment
• Menu Costs
– cost associated with changing prices
• Shoe leather costs
– Increased financial transactions
• Redistribution of Wealth
– Lenders lose and borrowers gain with
unanticipated inflation and fixed rates
– Savings devalue