Formulas to Know for Macro Economics Capital K Labor N Wages W Interest i Symbol Key Land L Rent R Inflation Expected o Income GDP Y Consumers C Suppliers I Government G Exports X Imports M Private Sector C I Consumers and Suppliers Statistical Adjustment SA Quantity Q Price P Labor Force LF U E Tax Revenues T Entrepreneurship e Profit Public Sector G Government Unemployed U Interest Rate ir Happened Employed E Equations Total Revenue Base x Height on Supply and Demand Curve Producer Surplus Base x Height on Supply and Demand Curve Consumer Surplus Base x Height Market price on Supply and Demand Curve GDP Per Capita GDP Population x 100 Expenditures approach to calculate GDP Y C I G X M If X M Exporting more If X M Importing more Income Cost approach to calculate GDP Y R W i SA To measure inflation Y QP If Q increases good If P increases bad Real GDP Nominal CPI x 100 Inflation rate Current CPI Last Years CPI Last years CPI x 100 Growth Rate of RGDP Change in RGDP time slope of Business Cycle Graph Civilian Labor Force U E Unemployment Rate of U U E x 100 Labor Force Participation Rate U E Population x 100 Employment to Population Rate E population x 100 Anticipated inflation Nominal GDP RGDP Inflation Expected NGDP RGDP o Fiscal Policy Change in G and change in T G T means a balanced budget G T means a surplus G T means a deficit Profit Total Revenue Total Cost Total Revenue Price x Quantity of the final product sold Total Cost LNKe x RWi of the intermediate goods that contribute to the final product TR TC P x Q p x q Average Price Level APL Price of Goods and Services Price of Resources Short Term APL increases Profits increase Producers produce more Long Term APL increases Total Revenue increases Profits have no change Real interest rates opportunity cost of risk of default premium Nominal interest rates real interest rate inflation premium Ex ante nominal interest rates real interest rate o Ex post real interest rate nominal inflation premium Chapter 8 Business Cycles Unemployment Inflation A Business Cycle Graph o Shows how Real GDP changes over time o If actual RGDP is beyond potential we are producing a lot Peaks Booming o If actual RGDP is below potential we are not producing enough Troughs Busting economy o Contractionary phase GDP and income are declining o Expansionary phase GDP and income are recovering o GDP increases Unemployment decreases GDP decrease Unemployment Economy increases o Healthy rate of unemployment is 4 6 and is a point on the potential line o Full employment 95 of Labor Force has a job What are economic indicators that help determine the business cycle o A The civilian labor force Labor Force Unemployed Employed LF U E To be considered part of the labor force one must be 16 years or older non institutionalized willing and able to work Retirees are NOT included in the Labor Force Discouraged workers are NOT included in the labor force so when they stop looking for jobs unemployment rates decrease which is an inaccurate statistic Example Cuba s government forces people to have jobs but people just show up to work and don t do their job Unemployed A person who does not have a job but who is actively seeking a job or waiting to begin a job or return to a job Ex A contractor without jobs for a week Having 0 unemployment is bad Ex Cuba requires everyone to have a job o B Unemployment Rate of Unemployed Labor Force x 100 Military is excluded from this because they are considered to have a job Minimum wage laws raise unemployment rates in the U S Laws against firing personnel raises unemployment for Youth in Europe Unemployment is an inaccurate measure because it is hard to tell if U U E x 100 someone is actually willing and able to work o C Labor Force Participation Rate Labor Force Population x 100 Population includes only non institutionalized 16 year olds Half Glass Empty Method U E Population x 100 o D Employment to Population Ratio Employed Population x 100 Population includes only non institutionalized 16 year olds Half Glass Full Method E Population x 100 o Ex Population 90 Employed 40 Unemployed 10 Retired 15 Labor Force U E 10 40 50 Unemployment rate U U E x 100 10 10 40 x 100 10 50 x 100 20 Labor Force Participation Rate U E Population x 100 40 10 90 x 100 50 90 x 100 55 5555 Employment to Population Ratio E Population x 100 40 90 x 100 400 9 44 4444 Recession decrease in Real GDP for two or more consecutive quarters 1 quarter 3 months 2 quarters 6 months o When the graph trends downwards o Government laws interfere with the markets and have caused recessions to last longer o The Progressive Era increased Government Involvement After World War II Woodrow Wilson was president in 1913 and this marks the increase Federal Reserve is established Internal Revenue Service IRS is established Types of unemployment generally between 4 6 o A Natural Rate of Unemployment is the healthy rate of unemployment which is 1 Frictional Unemployment is when someone is between jobs This results from lack of information in the labor market Skills match jobs but jobs are hard to find AKA search time unemployment Ex You work at NASA and are qualifies but the supervisor fires you due to budget cuts Wendy s is hiring but you don t apply there instead you apply to places relevant to your field 2 Structural Unemployment your skills do not match a particular job o Affects changes in supply and demand Unemployment caused by changes in the structure of the economy Often is regional in nature Ex Levi Jeans Plant outsources to Mexico but workers aren t willing to move to keep their jobs o A Technological Unemployment results from changes in technology aka Creative Destruction Fallacy of composition this is good for the economy but not for the individual o B Seasonal Unemployment Ex Ski instructor in the summer o C Public Sector Unemployment Policy induced unemployment changes in government policy which results in unemployment Ex Minimum Wage Laws Ex Government Shutdown Fires non essential workers o B Cyclical Unemployment when the entire economy is sick and has unhealthy unemployment Name that unemployment 1 20 year old looking for their 1st job Frictional 2 College student in school full time not unemployed 3 Stay at home mom not unemployed 4 60 year old not actively seeking work discourage worker not unemployed 5 Economist returned to graduate school not unemployed 6 Laid of construction worker frictional 7 School administrator substituting until he finds a job underemployed
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