ECN 203 1nd Edition Lecture 20Outline of Last Lecture II. Intro to Macro a. Aggregate III. Why we Study Macro Outline of Current Lecture IV. Defining Terms a. GDP and Yb. Growth, Recession, DepressionV. Labor Force and Types of Unemployment Current LectureLecture 3/6/15- Defining Terms o Gross Domestic Product – the broadest measure of a nation’s production and the term used to represent that production.  Defined as the value of all the new production in the nation a given year.  Aggregate final production in a given economy in a given year.  “Y” represents real GDP Y f - Full Sustainable capacity GDP or potential real GDP. The greatest level of production that the whole economy can maintain given the current endowment.How big a “pie” could sustainably be produced Y – Actual or current real GDP – how big the “pie” actually is, how much the nation is currently producing. - Comparing the potential GDP and actual GDP is a gauge we use to measure the productive health of the economy. - If the actual GDP is close to or at potential GDP then the macroeconomyis productively health. - If the actual GDP is well below potential GDP then the macroeconomy is using productive resources inefficiently. These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute. If the GDP has fallen for over six months that is a recession If the GDP continues to fall that is a depression o Growth – steady growth in Y is desired o Recession – two consecutive quarters of declining Y o Depression – extended, deep decline in Y o Y is not a great measure of well-being.  The level of GDP is not a direct measure of the general standard of living in a country because this macro measure obscures the microeconomic distribution of wealth.  Distribution can be skewed. Human production does not equal improved humancondition. o Labor Force (LF) – includes all those persons who are participating in or who are looking for an opportunity to participate in the nation’s market economy. o Voluntarily unemployed - People who do not want a job are not counted in the labor force. For example, those who retired or those who quit jobs due to winning the lottery. o Those within in the LF fall into two categories: Employed and unemployed  The unemployment situation in an economy is represented by a statistic called the unemployment rate – a % of the LF that is unemp. o Structural unemployment – there is a job available, there is a worker looking for a job but the worker’s skills don’t match the job’s requirements.  For example, structural unemp. Resulted when industrial jobs in some areas were disappearing ever has high-tech jobs in other areas were expanding.  This is expected to happen in a growing, dynamic economy.  We can reduce the problem by retraining workers, but there will always be somestructural unemp. o Frictional unemployment – there is a job available, there is a worker with the right job skills looking for a job but the worker is still searching for the job.  For example, a college graduate looking for the right job.  Job search takes time.  The time spent searching is beneficial to the individual and to a growing, dynamic economy. The problem can be reduced by helping facilitate workers’ search process.  There will always be some frictional unemployment in a healthy, growing economy o Demand Deficient Unemployment – the unemp. Caused by a lack of job opportunities.  Not enough jobs for the workers who want to be employed.  No amount of training or search will solve this problem. This is not a part of a healthy economy. It represents wasted resources. o Natural Rate of Unemployment  Structural and frictional unemp. Are a natural part of a healthy economy.  This part of the UR is the Natural Rate For example, the gov’t reports the UR is 7%. - If the natural rate is 5%, there is 2% that is not part of a healthy economy. The Demand Deficient