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What is considered "employed"?
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A person 16 years or older who has worked 1 or more hours as a paid employee, 15 hours or more without pay in a family business, or holding a job but being on a temp leave with or without pay
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unemployed
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A person 16 or older who has looked for work in the last month and is available to work
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not in labor force
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A person not looking for work, or who does not want a job. (Ex: retired)
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labor force formula =
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employed + unemployed
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population formula =
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labor force + not in labor force
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unemployment rate formula =
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unemployed/employed + unemployed
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labor force participation rate formula
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labor force/population
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What does the discouraged-worker effect do to unemployment?
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Lowers the unemployment rate because these people are no longer looking for work, so they are not in the labor force.
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Discouraged-worker effect
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decline in unemployment rate that results when people who want to work can't find jobs and become unemployed/not in labor force
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What exactly does the unemployment rate measure?
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It measures unemployment at a given point in time
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Frictional Unemployment
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unemployment as a result of normal turnover. used to denote short run job/skill matching problems (ex: quitting, getting fired, seeking a new job)
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Structural Unemployment
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unemployment as a result of changes in structure of economy that result in significant loss of jobs in certain industries. (Ex: Factory relocating, robots replacing jobs, trade agreements).
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cyclical unemployment
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anything MORE than the combination of frictional & structural employment rate (ex: a spike from 4.2% to 9.3% unemployment between 2008-09)
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natural rate of employment
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unemployment occurring as a normal part of a functioning economy. Formula: Structural Unemployment + Frictional Unemployment. Estimates vary from 4-6%.
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Inflation
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a general increase in overall price
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Deflation
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Decrease in the overall price
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Consumer Price Index (CPI)
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a fixed weight index that is calculated by using a 'market basket'
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Real Interest Rate Formula =
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Interest Rate - Inflation Rate on a loan
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Anticipated Inflation
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has no effect on income distribution; benefits debtors
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Unanticipated Inflation
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has an effect on income distribution; benefits creditors
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Output growth
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growth rate of the entire economy
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Per capita growth
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growth rate of output per person in the economy
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If the population of a country is growing at the same rate as output, then per capita output is:
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not growing
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Output per worker and output per person
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are not the same because not everyone is employed.
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Productivity growth
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the rate of output per worker, larger than output per person, is a factor in a country's economic welfare
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labor productivity
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output per worker hour
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GDP (Gross Domestic Product)
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total market value of a country's output. The market value of all final goods and services produced within a given period of time by factors of production located within a country
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Final goods and services
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goods and services produced for final use
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Intermediate goods
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goods produced by one firm for use in further processing by another firm
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value added
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difference between value of goods as they leave a stage of production and the cost of goods as they entered the stage
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GDP Formula =
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final sales + change in business inventories
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aggregate behavior
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the behavior of all households and firms together
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sticky prices
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a situation where prices of goods and services are slow to respond to changes in supply and demand
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business cycle
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the rise and fall of economic activity over time
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aggregate output
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the total quantity of goods and services produced in an economy in a given period; main measure of economic state
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recession
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A slowdown in a nation's economy
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depression
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a period when economic activity slows and unemployment increases; prolonged recession
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expansion
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the period of a business cycle during which total production and total employment are increasing
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contraction, recession, slump
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period in the cycle from a peak down to a trough during which output and employment fall
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hyperinflation
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A very rapid rise in the price level; an extremely high rate of inflation.
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transfer payments
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welfare and other supplementary payments that a state or the federal government makes to individuals
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treasury bonds, notes, bills
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promissory notes issued by the gov't when it borrows money
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corporate bonds
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promissory notes issued by corps when they borrow money
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fiscal policy
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gov't policies concerning taxes and spending
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monetary policy
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tools used by Fed reserve to control short term interest rates
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fine tuning
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phrase by Walter Heller to refer to the gov't role in regulating inflation and unemployment
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stagflation
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a situation of both high inflation and high unemployment
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dissave
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when a household receives less than they spend. Or uses up previous savings or borrows.
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Who demands from the goods and services market?
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Households, firms, and the government
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Who buys and sells to the goods/services market?
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Rest of the world
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What role do firms play in the goods/services market?
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They purchase from each other, and supply each other in this market
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What do households and gov't do in the goods/services market?
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They also purchase/supply in this market
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What do households do in the labor market?
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Supply labor
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What do firms/government do in the labor market?
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Demand labor
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What does the rest of the world play in labor market?
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They supply and demand from the labor market
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If the economy is coming out of a trough
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it will be growing (positive) but have low output
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If the economy is declining from a peak
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it will be contracting (negative) but have high output
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When the business cycle is symmetrical this means that
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the expansion is the same as the contraction
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When there is unemployment beyond a minimum amount
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there is an excess supply of workers
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If the governments revenue is less than its payments
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the gov't is dissaving
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expansionary fiscal policy
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a policy in which taxes are cut and government spending increases
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contractionary fiscal policy
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increases taxes and decreases gov't spending; slows economy down, reverses inflation,
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nominal GDP is always
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equal to real GDP
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market basket formula
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(Price of good X×Quantity of good X) + (Price of good Y x Quantity of good Y) + (Price of good Y×Quantity of good Y) + (Price of good Z x Quantity of good Z)
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How is it possible for output to rise while employment falls at the same time?
answer
Increase in labor productivity
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