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jobless recovery
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economic recovery provides too few jobs to reduce the unemployment rate significantly
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macroeconomics
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study of how the whole society interacts within/outside itself to achieve the broad goals of the economy
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parts of the business cycle
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peak, recession, trough, and recovery
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peak
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economy operating at its capacity
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recession
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business investment starts to decline
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trough
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business stop hiring/firing workers
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recovery
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government puts fiscal/monetary policies in place
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double dip recession
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economy's recovery ends early and goes into another recession before it fully recovers
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NBER (National Bureau of Economic Research)
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officially dates the "turning points" (peaks/trough) of the economy, uses historical data
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criticisms of NBER
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based on consensus of 6 economists with different methods, they only post final decisions, and they report after the fact
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National Activity Index (NAI)
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developed by National Reserve Bank, weighted average of 85 indicators, historical trend = 0, recession = -0.07, negative # = slow growth, positive # = fast growth
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Leading Economic Index (LEI)
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use indicators to to produce a weighted index, predicts recession when index falls for three consecutive months
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critics of Leading Economic Index (LEI)
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gives false warning of recessions
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yield curve
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shows interest rates for bonds with different maturity rates, when value is negative = recession
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NIPA (National Income and Personal Accounts)
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measures US economic performance, compares us to other countries , tracks economy throughout business cycle, Simon Kuznets developed methods, major components can be found by adding up spending or income produced
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circular flow diagram
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how businesses and households interact, households give labor to the resource market >businesses hire them as employees > businesses produce goods that are supplied to product markets > end up in households. flow of money> businesses pay for inputs of production > payments become income for households > funds used to purchase goods
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GDP (gross domestic product)
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measure of the economy's total output, most widely reported value in NIPA, total market value of all final goods produced by resources in the US in a given year
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GNP (grosws national product)
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standard measure of output, market value of all goods produced domestically and abroad using US resources
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spending approach to GDP
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ALL SPENDING ON FINAL GOODS IS ADDED TOGETHER
personal consumption expenditures
gross private domestic investment
gov purchases of goods
net exports
GDP
personal consumption expenditures
gross private domestic investment
gov purchases of goods
net exports
GDP
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informal economy
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unmeasured, black market
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inflation
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gradual rise in prices
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causes of inflation
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demand factors
supply shocks
gov policies
supply shocks
gov policies
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disinflation
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reduction in rate of inflation
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deflation
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overall prices fall
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hyperinflation
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extremely high rise in prices
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CPI (Consumer Price Index)
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average change in prices paid by urban consumers, "cost-of-living index", (cost in current period / cost in base period) x 100
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PPI (Producer Price Index)
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average change in prices received by domestic product
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GDP Deflator
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broadest measure of inflation, index of the average prices for all goods
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escalator clause
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designed to adjust payments/wages for changes in price level
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consequences of inflation
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people with fixed incomes have less purchasing power
creditors' principal seems less b/c of $ increase
debtors have more purchasing power
creditors' principal seems less b/c of $ increase
debtors have more purchasing power
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unemployed
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no job BUT actively looking for work in the past 4 weeks
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labor force
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total number of employed and unemployed
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unemployment rate
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# of unemployed / labor faorce
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household survey
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contacts households to determine economic activity
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payroll survey
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asks companies how many employees they have
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weekly jobs report
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released by US Dept of Labor every Thursday, estimate # of people filing for unemployment
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discouraged worker
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without work but have actively looked for work within the past 12 months
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frictional unemloyment
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short-term unemployment b/c of switching jobs
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structural unemployment
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long-term, get laid off
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cyclical unemployment
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caused by changes in business cycle, policymakers have greatest impact
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natural rate of unemployment
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price and wage decisions are consistent, cyclical unemployment = 0
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compounding
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small rates of growth leads to substantial increase in income
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real GDP
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total value of final goods produced in a country in a year using prices in base year
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real GDP per capita
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real GDP divided by population
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Rule of 70
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number of years required for a value to double in size, 70 divided by annual growth rate
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catch up effect
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developing countries achieve greater productivity with each unit of capital invested
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investment in human capital
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improvements to the labor force from investments in skill, knowledge, and overall quality of workers and their productivity
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capital -to-labor ratio
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capital employed per worker, high ratio = high productivity = high wages
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diminishing returns to capital
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each additional unit of capital provides a smaller increase in output than before
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