February 09, 2017

 Unemployment Notes:

 What is unemployment? 

•  It is the percent of people in labor force who want a job but are not working. 

 What is the labor force? 

•  It is the number of people in a country that are either classified as either employed or unemployed. 

 What is employed?

1.  It is anybody that works at least one hour a month. 
2.  Someone who is temporarily absent from work. 
3.  Part-time people  

 Who is not in the labor force? 

1.  Kids. 
2.  Full-time students 
3.  People in mental situations 
4.  Military personal 
5.  Stay home moms and dads 
6.  Retirees 
7.  People incarcerated 
8.  Discouraged workers  

 Unemployment rate calculations? 

• #  of employed / # of  Labor force x 100

 What is the standard unemployment rate?

• 4% - 5%

 What are four types of unemployment? 

1.  Frictional  unemployment. 
2.  Seasonal unemployment 
3.  Directional  unemployment 
4.  Cyclical unemployment

 What is NRU? 

• Fictional plus structural equals NRU (4% - 5% ) 

 What  does full employment exclude? 

• No cyclical  unemployment 

 What is Okun's law?

• It is one unemployment rises 1% above natural rate of GDP falls about 2% 

February 06, 2017

 Inflation Notes:

 What is inflation? 

•   Inflation is a general racing level of prices. 
•  It reduces the purchasing power of money. 
• Ex:  it takes two dollars to buy today what one dollar bought in 1982. 

 What are three causes of inflation? 

1.  Government prints too much money! ( quantity theory ) 
2.  Demand-pull inflation ( too many dollars chasing too few goods ) & (  caused by excess demand ) 
3.  Cost-push inflation ( higher production cost increase prices ) 

 What is the standard inflation rate? 

• 2% - 3%

 What is the formula to find inflation rate?

•  Current year price index minus base year price index /  base year price index x 100
•  New - old / old x 100 

 What is the rule of 70? 

•  The rule of 70 is used to calculate the number of years it will take for the price level to double at any given rate of inflation. 
•  The formula to find the rule of 70:
• 70 /  annual inflation rate 

 What is deflation?

•  It is the general decline in the price level 

 What is disinflation?

•  It occurs when inflation rate declines. 

 What is real interest rate? 

•  it is the percentage increase in purchasing power that the borrower pays to the lender. 
•  It is adjusted for inflation 
•  Formula for real interest rate:
•  Real = nominal interest rate - expected inflation 

 What is nominal interest rates? 

•  It is the percentage increase in money that the borrower pays back to the lender. 
•  It does not adjust for inflation. 

 Who is hurt and who is helped by inflation? 

•  Hurt by inflation: 
•  Lenders people who lends money at fixed interest rate 
•  People with fixed incomes 
•  Savers 

 Who is helped by inflation? 

•   Helped by inflation:
•  Borrowers people who borrow money. 
•  A business where this price of the product increases faster than the price of resources. 

February 02, 2017 & February 03, 2017

 Real and   Nominal GDP Notes: 

Focus Question: 
1.  The "G" term in C + Ig + G + X and includes all of the following  except:
      b.)  social Security checks received by retirees.

2.  If waitresses and taxi drivers do not report all of their income to the government GDP will be understated. This is  because the unreported income
     b.)  is part of the underground economy

 Focus Question:
1.  Included
2.  Included
3.  Excluded
4.  Included
5.  Excluded
6.  Excluded
7.  Included
8.  Included
9.  Excluded
10. Included


 What is nominal GDP?

•  It is the value of output produced in current prices. 
•  It can increase from year to year if their output or prices increase. 
•  Current prices 
•  Formula for nominal GDP: 
•  Price x Quantity 

 What is real GDP? 

•  It is the value of output produced in constant based year prices. 
•  Base your prices remain constant. 
•  It is adjusted for inflation. 
•  Formula for real GDP: 
•  Base price x Quantity 
•  It can increase from year to year. 

 What are some key tips  you need to know? 

•  Measure of economic growth = real GDP 
•  Only in base year does real GDP equal nominal GDP.   
•  In years after base year nominal GDP will exceed real GDP. 
•  In years before base year real GDP will exceed nominal GDP. 
•  The base year is normally the earliest year, if not it is given. 

 What is GDP deflator? 

•  It is the price index that is used to adjust from nominal GDP to real GDP. 
•  Formula to find GDP deflator:
•  Nominal GDP /  Real GDP x100 

 What is consumer price index (cpi)? 

•  It measures inflation by tracking changes in the price of a market basket goods. 
•   Basket goods include things such as trucks, cars, motorcycles etc. 
•  Formula to find consumer price index :
•  Price of  market basket in current year / price of Market Basket in base year x 100

 Examples on how to find nominal GDP and real GDP: 

February 01, 2017

Focus Question:
1. A microwave was produces by its manufacturer in 2016, sold to a retailer in 2016, & sold to a retailer to a final consumer in 2017. The microwave was.

c.) Counted as investments in 2016.

2. Which of the following is not considered a factor payment?

e.) Transfer Payments.

 What are other Formulas that you need to know?

• Net Domestic Product:
• GDP - Depreciation 
• Net National Product:
• GNP - Depreciation
• Gross Investment:
• Net Investment + Deprecation 
• GNP:
• GDP + Net foreign factor payment.

What is Deprecation?

• It is the loss of value of capital equipment due to normal wear & tear.

What is another word for Depreciation?

• Consumption of fixed capitals.

January 31, 2017

Expenditure Approach to GDP/ Income Approach Notes

Focus Question: 

1. Indicate whether each of the following is counted in US gross domestic product for the year 2011. Explain each of your answers.

a.) The value of a used textbook sold through an online auction in 2011.

-No, it is a secondhand good. 

b.) Rent paid in 2011 by residents in an apartment building built in 2005. 

- Yes, it is consumption.

What is the Expenditure Approach?

• C     +     Ig     +     G     +     Xn 

What is the Income Approach?

• W     +     R     +     I     +     P     +     S

      Wages + Rent + Interest + Profit + Statistical adjustment  

How to calculate Budget?

• Govt. purchases of goods & Services + Govt. transfer payments - Govt. tax & fee collection 
• positive # = Déficit 
• negative # =Surplus 

How to calculate Trade?

• Export - Import 
• positive # = Surplus 
• negative # = Déficit 

What Formula do you need to know?

• National Income:
• Compensation + Rental + Interest + Proprietors + Corporate Profits. 
• GDP - Indirect Taxes - Depreciation - Net Foreign Factor Payment.
• Disposable Personal Income:
• National - Personal Taxes + Government Transfer 

January 27, 2017

GDP & GNP NOTES:

What is GDP?

• It is the total value of all goods & services produced within a country's borders in a given year.
• All production within U.S.A by U.S.A & foreign producers.
• Excludes production outside of the U.S.A even by americans. 

What is GNP? 

• It is the total value of all U.S 
• Includes production or income earned by Americans
• Excludes productions by non-americans

What is the formula for GDP?

• C+IG+G+XN

What is Consumption?

• It is the final goods & services being purchased. 
• 67% of the economy

What is Gross Private Domestic Investment?

• 17% of the economy 
• Ex: construction of new housing, factoring, factory equipment maintenance unsold inventory.

What is Government Spending?

• 18% of the economy 
• Ex: School buses, guns, and highway

What are Net Exports?

• -2% of the economy, we import more than we export. 
• To find Net Export: (Export-Import)

What is Included in GDP?

1. C
2. Ig
3. G
4. Xn

What is Excluded in GDP?

1. Intermediate Goods (avoid double or multiple counting)
2. Used or 2nd hand Goods (avoid double counting) 
3. Unreported Business Activities (TIPS) 
4. Stocks & Bonds (purely transaction, nothing is being produced.)
5. Nonmarket activities (volunteer work) 
6. Illegal activities (Prostitution & Drugs) 
7. Gifts or Transfer payments ( Scholarships, Social Security, Unemployment, Retirement. No production, put aside/ Not for now.)