Unemployment

Unemployment: Is the percentage of people who do not have a job but are part of the labor force.

Labor force: The number of people in a country that are classified as employed or unemployed.
Unemployment rate =                                       Number of unemployed

                                                   Number of unemployed + Number of Employed         X 100

Not in the labor force: 

• Kids 
• Retired people
• Military personal
• Mentally insane 
• Incarcerated
• Full time students
• Stay at home parents
• Discourage workers

Forms of Unemployment:

• Voluntary- Between jobs, new opportunities, new choices, new lifestyle, educational level.
• Seasonal- People wait for the right moment to conduct their trade. Ex: School Bus Driver, construction workers.
• Cyclical - Down turn in the business cycle, recession, down price.
• Structural- Associated with lack of skills, decline in industry, change in technology.

Full Employment when there is not cyclical unemployment present in the economy. Natural Rate of Unemployment (NRU) achieved when labor markets are in balanced 4-5%
NRU = Structural UNP + Frictional UNP

Unemployment is good, because its less pressure to raise wages, more workers available in future expansions.

Unemployment is bad because, there is not enough consumption (GDP). There is too much poverty, too much government is needed

Okun's law - For every 1% unemployed above NRU causes a 2% decline in real GDP

Inflation

Inflation: A rise in general level of prices. The Inflation Standard: 2% - 3%

Inflation Rate: Measures percent increase. Key indicator of Economies Strength.

Deflation: Decline in general price level

Disinflation: Occurs when inflation rate declines

CPI: "Consumer Price Index" measures inflation by tracking the yearly price of consumer goods and services. Indicates changes in price levels and price of living.

Formulas:

• Finding Inflation Rate Using market base data.                                                                            Current  Year Market Basket value - Base Year Market value X 100                                                 Base Year Market value
• Finding Inflation Rate using price index                                                                                         Current year price index - Base year price index    X 100                                                           Base year price index
• Estimating Inflation Using Rule of 70. Used to calculate the number of years it would take for the price level to double at any given rate of inflation.                                      Years Needed to double inflation =                     70

                                                                     Annual inflation rate

• Determining real wages                                                                                                                        Real Wages = Nominal wages / Price level  X 100
• Finding real Interest rate                                                                                                                 Real interest rate = Nominal interest rate - Inflation Premium 
• Cost of borrowing/lending money that's adjusted for expected inflation; expressed as percentage.

Cause of inflation: 

• Demand-pull inflation- Cost by excess of demand over output that pulls prices upward.
• Cost-push inflation- Cause by a rise in per unit production rise due to increase resource cost

Effect of inflation: Hurt people with fixed income, savers, lenders/creditors. Helps borrowers and fixed contracts.

• Anticipated: People are told that they will get laid off (Get a new job or spend less money)
• Unanticipated: People told its their last day in the job.

Inflation Helps:

• Borrowers 
• Debt will be repaid with cheaper dollars than those that were loaned out 
• Fixed Contract 

Inflation Hurts:

• Fixed income 
• Social security 
• Savors 
• People that save money  
• Lenders / Creditors  
•  Not going to be repaid back 

Nominal and Real GDP

Nominal GDP - Value of output produced in current prices  

• P x Q 
• Can increase from year to year if either output or price increase 

Real GDP - Value of output produced in constant or based year prices  

• Adjusted for inflation  
• Based Price x Quantity 
• Can increase from year to year only if output increases  

Price index - measure inflation by tracking changes in the price of a market basket of goods compared to the base year 

• Price of market basket of goods in current year / price of market basket of goods in base year 

GDP Deflator 

• Also a price index that is used to adjust from nominal to real GDP 
• In the base year the GDP deflator is
•  =100 Years after base years
• >100 For years before the base year  
• <100 (Nominal GDP/ Real GDP)  ×100 

Inflation 

• (New GDP deflator - Old GDP deflator / Old GDP deflator) ×100 

Expenditure and Income Approach

Expenditure Approach:  C + Ig + G + Xn = GDP 

• Add up the market value of all the domestic expenditures made on final goods and services in a single year.

Income Approach: W + R + I + P + Statistical Adjustments

• Add up all the income earn by households and firms in  a single year.
• W: Wages
• R: Rents
• I: Interest
• P: Profits (Proprietor's income)

Budget: Government Purchases of goods and services + Government Transfer Payments - Government tax and Fee collection.

• If the number is positive its Budget Deficit.
• If the number its negative its a Budget Surplus.

Trade: Exports - Imports

GNP: GDP + Net Foreign Factor Payment 

NNP (Net National Product): GNP - Depreciation

NDP (Net Domestic Product):GDP - Depreciation

National Income:

• GDP - Indirect Business Taxes - Depreciation - Net Foreign Factor Payment
• Compensation Of Employees + Proprietors Income + Rental Income + Interest Income + Corpus Profits

Disposable Personal Income: National Income - Personal Household Taxes + Government transfer payments

GDP and GNP

GDP: Gross Domestic Product is the total money value of all final goods and services produced within a countries borders within a year.

GNP: Gross National Product is the total value of all final goods and services produced by Americans in a year.

What's Included in GDP

• C - "Consumption" its the 67% to the economy, purchasing finished goods and services.
• Ig - "Gross Private Domestic Investment"
• Factory Equipment maintenances
• New factory equipment
• New construction Housing
• Unsold Inventory of Products build in a year.
• G - "Government Spending"
• Xn - "Net Exports  
• Formula: Exports - Imports

What's Excluded from GDP

• Used or Second Hand Goods
• Intermediate goods are the goods or services purchase to resale or further processing or manufacturing. This is excluded to avoid multiple or double counting.
• Non Market Activity
• Illegal drugs
• Any unpaid work
• Prostitution
• Baby Sitting
• Growing own food for personal consumption
• Fixing your own things
• Financial Transactions
• Bonds
• Stock
• Real-estate
• Gift or Transfer Payments
• Private: Produces no output transfer fund from one private individual to another.     Ex: Scholarships
• Public: Various contribute nothing to the current output or production.                       Ex: Welfare, Social Security 

Business Cycle

Expansionary: Real output in the economy increasing and unemployment rate declining.The population is able to buy more.

Peak: Real GDP is at its highest.

Contraction (Recession): Real output in a economy its decreasing and unemployment rate rising. Inflation rate is rising.

Trough: It the lowest point of real GDP, means the end of a recession. 

Equilibrium

Equilibrium is a point where the supply and demand curves intercept. "All resources are being used efficiently"

• Shortage-  QD > QS     Quantity Demanded > Quantity Supply
• Surplus- QS > QD     Quantity Supply < Quantity Demanded

Terms :

• Price Floor- a government imposed price limit on how low a price can be changed for a product 

• Price Ceiling- a government imposed limit on how high a price can be charged for a product.

• Fixed Cost- a cost that does not change no matter how many are produced.

• Variable cost- a cost that changes.

• Marginal Cost- a cost of producing one more unit of goods.

• Marginal Revenue- the additional income from selling one more until of a good.

Formulas: 

• Total Cost: Total Fixed Cost + Total Variable Cost  &  Average Total Cost / Quantity
• Average Fixed Cost: Total Fixed Cost / Quantity 
• Average Variable Cost: Total Variable Cost / Quantity
• Average Total Cost: Average Fixed Cost + Average Variable Cost  &  Average Variable Cost
• Marginal Cost: New Total Cost - Old Total Cost 
• Total Revenue: Price x Quantity 

Elasticity of Demand

Price Elasticity Demand: Tells how drastically buyers will cut back or increase their demand of a good when price rises or fall.

• Elastic Demand: The demand that will change greatly if theres a change in price "many substitute" E > 1
• Inelastic Demand: The demand for product will not change regardless of the price "few or no substitute" E < 1
• Unit Elastic (Unitary Elastic): The price elasticity of demand is equal to 1. E = 1

The Formulas to solve Elasticity Problems.

1. % Δ in quantity
                         New Quantity - Old Quantity
                                    Old Quantity

2. % Δ in price
                        New Price - Old Price
                                 Old Price

3. PED - Price Elastic of Demand
                        Δ in quantity
                         Δ in price

Demand and Supply

Demand is the quantities that people are willing or able to buy at various prices.

• The law of demand- There's an inverse relationship between price and quantity demanded. 
• The causes of a change in quantity demanded


•  Δ in buyers taste (Advertisement)
•  Δ in number of buyers (Population)
•  Δ in income 
• Normal goods that buyers buy more of when income rises. 
• Inferior goods that buyers buy less when income rises.
•  Δ in price in relative goods.
• Substitute good that server roughly the same purpose to buyers.
• Complementary goods often consume together.
•  Δ  in expectation

Supply is the quantities that producers/sellers are willing and able to produce/sell at various prices.

• The law of supply- There's a direct relationship between price and quantity supply.
• The causes of a change in quantity supply

• Δ in weather
• Δ in technology
• Δ in cost of production
• Δ in number of sellers
• Δ in taxes 
• Δ in expectation