Econ 1202 1st Edition Lecture 11 Outline of Lecture 10 (Business and Corporate Governance (continued)/Measurement of Macroeconomic Data)I. Financial MarketsII. Why So Important?III. Debt and More DebtIV. All BondsV. Bond Prices and Interest RatesVI. How is a Nation’s Output Measured?VII. Who Measures GDP in the United States?VIII. What Does GDP Not Measure?IX. Components of GDPX. Factors that Undermine the Components of GDP?XI. The Twilight of the Resource CurseOutline of Lecture 11 (Measurement of Macroeconomic Data (continued))I. Real vs. Nominal GDPII. Unemployment III. Who’s Not in the labor Force?IV. Official Unemployment RateV. Big Issues (Discouraged Workers and Part-Time Employment)Measurement of Macroeconomic Data (continued)I. Real vs. Nominal GDPa. Issue: The 2014 GDP was $17.7 trillion. If the 2015 GDP was $18.8 trillion,are we better off? i. Nominal GDP-uses or is calculated using the current value of the output.1. Increase in nominal GDP from 2014 to 2015 could have been caused by inflation.2. Nominal GDP in 2015=P2015*Q2015 for all goods and servicesii. Real GDP-takes out or adjusts the value of the market output to take into account the impact of changes in overall prices.1. Uses base prices or the prices from a selected base year to calculate the value of the output in the current year. The base year prices anchor our calculations so that we can seethrough the “price veil” and look directly at the quantity ofoutputs.2. This is how we are able to determine whether the PPC is actually changing because if prices are kept constant at thebase prices, any changes in GDP must reflect changes in the real output of goods and services produced, thus the term real GDP.3. Real GDP in 2015=P2014*Q2015 for all goods and servicesa. Takes 2015 production, but values it by some base year prices (2014 prices).4. Real GDP=(Nominal GDP/Price Level Index)*100b. So going back to the issue, 2014 GDP was $17.7 trillion, 2015 Nominal GDP was $18.8 trillion, and the 2015 Real GDP is $18.25 trillion we are better off by 3.1%. This means that overall prices went up by 3% (inflation).II. Unemploymenta. Unemployment Rate-percentage of the labor force unemployedi. The Unemployment Rate is determined by the Bureau of Labor Statistics1. The BLS divides adult population into 3 categories:a. Employedb. Unemployedc. People not in the labor forceii. Unemployment Rate=(Number of people unemployed/Labor Force)*100b. Labor Force-the number of people (non-institutionalized civilians) that are 16 years old or older and are either employed or unemployed.i. To be classified as unemployed, a person must be actively looking for workii. Labor Force Participation Rate=(Labor Force/Adult Population)*100III. Who’s Not in the Labor Force?a. Those not employed and not unemployedb. Full-time studentsc. Household workers (homemakers)d. RetireesIV. Official Unemployment Ratea. Very Usefulb. Imperfect measure of joblessnessi. Fairly easy to distinguish between someone that is full time employed and not working at all. ii. Less so for someone who is unemployed and not in the labor forcec. Not all unemployment ends with the job seeker finding a jobi. Half of all spells of unemployment end when the unemployed leave the labor forced. Some of those who report being unemployed ma not be trying hard to find a jobi. They want to qualify for government helpii. They are working, but are paid under the tableV. Big Issues (Discouraged Workers and Part-Time Employed)a. Discouraged Workers-individuals who want to work, but have given up looking for a job.i. The impact of discouraged workers is that they reduce the unemployment rateb. Part-Time Employment-individuals who work fewer hours per week compared to full time workers.c. The impact of discouraged workers and part-time employment on the headline number is to overstate the strength of the labor market or to underestimate the level of