Econ 1202 1st Edition Lecture 12Outline of Last LectureI. 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)Outline of Current LectureI. Types of UnemploymentII. Labor Market PoliciesIII. Labor Market PracticesIV. Natural Rate of UnemploymentV. Measurement of InflationVI. IssuesVII. Interest RatesCurrent LectureMeasurement of Macroeconomic Data (continued)I. Types of Unemploymenta. Frictionali. Job searching and matchingii. Nature of dynamic economy1. Regional/geographic (sectorial shifts) and intra-industry demand shiftsb. Cyclicali. Unemployment tied to the general downturn in business activityc. Structurali. Economic structure of the economy1. Long term mismatch between the skills and attributes of workers and the structure of demand (job requirements)ii. Institutional structure of the economy1. Labor market policies and practicesII. Labor Market Policiesa. Create labor market rigidityb. Employment protection lawsc. Unemployment compensation lawsd. Minimum wagese. Labor unionsIII. Labor Market Practicesa. Efficiency Wagesi. Example: Henry Ford an the Model “T”IV. Natural Rate of Unemploymenta. Structural unemployment + frictional unemploymentb. We will always have a natural rate of unemploymentV. Measurement of Inflationa. GDP Deflator=(Nominal GDP/Real GDP)*100b. Consumer Price Indexi. Measure of the overall level of pricesii. Measure of the overall cost of goods and services bought by a representative consumer/household from one year to the nextiii. Measures inflation by the change in the CPIiv. Calculating CPI:1. Fix the basketa. Which prices are most important to the typical consumerb. Different weight2. Find the pricesa. At each point in time3. Compute the basket’s costa. Same basket of goodsb. Isolate the effects of price changes4. Choose a base year and compute the CPIa. Base year=benchmark 5. Compute the inflation ratea. CPI=(CPI in year 2-CPI in year 1/CPI in year 1)*100VI. Issuesa. Substitution Biasb. Quality Biasc. New Product Biasd. Outlet BiasVII. Interest Ratesa. Real Rate of Interest=adjusting the nominal rate for expected inflationb. Nominal Rate of Interest (i)=real interest rate + expected inflation + risk
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