Macro Chapter 7 Econ Notes

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Macro Chapter 7 Econ Notes
2011-10-19 19:12:43
econ macro

Macro Chapter 7 Econ Notes
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  1. Consumer Price Index (CPI)
    • Reports inflation each month and year
    • Reports the price of a basket of 300 consumer goods a typical urban consumer would buy
    • Includes foreign goods (difference between CPI and PI)
    • Base year = 1982-1984
    • Better reflection of what people actually buy than PI
    • CPI = (price of most recent market basket in the particular year)/(price of the same market basket in 1982-1984) x 100
  2. GDP per Capita
    Divide the GDP by the size of the population
  3. Economic Growth
    An increase in real GDP over some time period or an increase in real GDP per capita over some time period
  4. Main Sources of Growth
    • Increasing inputs of resources
    • Increasing the productivity (real output per unit of input) of the resources used
  5. Rule of 70
    • To approximate number of years required to double GDP
    • 70/annual percentage rate of growth
  6. Recession/Contraction
    • 6 months or more of decline in total output, income, and increase in unemployment
    • Period of time during which aggregate economic activity is falling
    • If recession is particularly bad = depression
  7. During a recession �
    • Many sectors of the economy experience declining sales and production
    • Workers are laid off or forced to work only part-time
  8. Peak
    The point in which output starts to decline
  9. Upturn
    • After reaching the low point of the contraction (trough), aggregate economic activity begins to increase
    • Expansion/boom � period of time during which aggregate economic activity grows
    • Peak � high point of expansion
  10. Demand-Pull Inflation
    • When resources are fully employed and the business sector can�t respond to excess demand by increasing output
    • Excess demand causes an increase in cost
    • Demand shifts right, price goes up
  11. Cost-Push Inflation
    • Rising per-unit costs of production lower profits and force the prices up
    • Costs more to make goods
    • Supply shifts left, price goes up
    • Usually due to natural disasters or civil war
  12. Supply Shock
    Abrupt increases in the cost of raw materials
  13. Per Unit Cost
    Total input cost / number of units of output
  14. Hyperinflation
    • An extremely high and fast inflation rate
    • Ex: Germany after WWI (wheelbarrows of money to buy bread)
  15. COLA
    • Cost Of Living Adjustment
    • An increase in benefits as inflation occurs
    • Pay more next month so you have the same purchasing power
  16. Who is Hurt by Inflation?
    • Fixed income receivers � same amount of money doesn�t go as far
    • Savers � purchasing power of saved money goes down, not as valuable as when you put it away
    • Creditors � paid back money that has less purchasing power, money they get back is less valuable than the money they loaned
  17. Who is Not Hurt by Inflation?
    • Flexible income receivers � adjusted for inflation, have the same purchasing power
    • Debtors � pay back money that�s less valuable than what they got
  18. Labor Force
    • Consists of people who are willing and able to work
    • Those employed and unemployed but seeking work count
  19. Unemployment Rate
    • Random monthly telephone survey of 60,000 people conducted by the Bureau of Labor Statistics (BLS)
    • Use results to make conclusions for the nation
    • About 9.1% right now
    • Unemployed = percentage of the labor force unemployed
    • Unemployment rate = unemployed / labor force x 100
  20. BLS splits the population into 3 groups:
    • People under 16 and people who are institutionalized (prison, asylums, etc) � not counted in labor force
    • Adults who don�t have a job and aren�t seeking work � not in labor force
    • Everyone else � counted in labor force
  21. Flaws with Unemployment
    • Discouraged workers aren�t included (people who gave up looking but would still like to work) unemployment rate underestimated because of it
    • Underemployed people are included as employed even though they�re working below their skill level
    • Part-time works are included even if they are also looking for a full-time job
  22. Frictional unemployment � occurs from people moving between jobs, careers, or locations
    • Job to job, just out of college, just moved
    • Not necessarily bad, normal
  23. Structural unemployment � mismatch of workers and job openings
    • Unemployed people lack skills, education, or geographical location
    • Ex: marine biologist living in Alaska
  24. Cyclical unemployment � occurs from changes in the business cycle (recession/depression)
    Lay-offs due to decrease in demand for goods/services
  25. Seasonal unemployment � change in hiring patterns due to the time of year
    Ex: ski instructors, lifeguards, landscapers
  26. Full Employment/Natural Rate of Unemployment
    • Exists when there�s structural, friction, and seasonal unemployment
    • Can�t be any cyclical unemployment
    • Economy is producing at its potential output
    • Number of job seekers matches the number of jobs available
    • About 4-5%
  27. Nominal income
    • Number of dollars received as wages, rent, interest or profits
    • Not adjusted for inflation
  28. Real income
    • A measure of the amount of goods and services nominal income can buy
    • Purchasing power of nominal income
    • Income adjusted for inflation
    • Real income = (nominal income) / (price index/100)
    • % change in real income = % change in nominal income - % change in price level