Ch. 8Equations To KnowUnemployment rate: number unemployed/labor forceLabor force: # unemployed + # employedLabor force participation rate: # in labor force/ adult populationemployment population ratio: # employed/adult populationDifferent types of employment: structural- workers that are looking for the jobs don’t have the skills -policies that increase structural unemployment -increasing minimum wage law-increasing unemployment benefits-changes in goverment spending-tends to be longer term (maybe they are in school, want to do an entry level job before)frictional- job search-workers have the skills for jobs available- tends to be short termcyclical- unemployed due to recession-lack of demand for good-business cycleIf the economy is in...No recession/ no boomfull employment= 95%only natural unemployment= 5%no cyclical unemploymentactual output= potentialRecessionactual output < potential outputactual unemployment > natural rateweak demand for resourcesBoom/Expansionactual output > potential outputactual unemployment < natural rateRemember...Potential GDP- output level that is sustainable long term***Inflation-low inflation not so bad-high inflation can cause recession or economic instability (bad for economy)Unemployment- in the labor force-no job-looking for work within the past 6 weeks-temporarily laid offNot in labor force-no job-not lookingCh. 16 Economic GrowthRule of 70: 70/ growth rate = years for income to double-Example: growth rate is 10% --> it will take 7 years for income to doubleKey sources of growth-Gains from trade-Entrepreneurial discovery-InvestmentLess (not) Important for Economic Growth-Population growth-Natural resources-Example: Hong Kong does not have many resources but has great economic growth-Foreign aid-Climate & locationCh. 18 International TradeTariffs & Quotas will lead to...-unintended bad consequences-politically motivated-open countries grow father than closed countriesFor Graphs you need to know how to read...2 Example Questions-How many cars w/ no trade? 300 carsWhat is the price of cars w/ no trade? $7,000Import or Export? You are now importing.Price w/ trade? $5,000How many made domestically? 250How many purchased domestically? 400How many import/export? 400- 250 = 150ImportWorld Price lower than domesticDomestic consumers are benfitingDomestic Producers are notExportIf world price is higher than domestic pricePrices of chickens with no trade: $1.50Import or Export? ExportPrice w/ trade? $2.50How many made domestically? 600How many purchased domestically? 350How many import/export? 600-350= 250Ch. 9 & 10Goods and Services marketshort run- resources prices are fixed-higher price level is good for producers (profits will be higher)3% annual growth is sustainable in the long run Loanable Funds Market Resource Market -Downward sloping demand for labor (higher wage rate, fewer you want to employ)-Upward sloping supply curve of employeesForeign Currency Exchange-Upward sloping supply curve comes from foreigners-to buy U.S. exports-net capital inflows-Downward sloping demand curve comes from U.S. residents-to buy U.S imports-net capital outflows-As you move up the y axis the dollar depriciates, being worth less-exports increase because U.S. goods are cheaper-imports decrease because foreign good are more expensive-As you move down the y axis the dollar appreciates, being worth more-exports decrease because U.S. goods are more expensive-imports increase because foreign goods are cheaperBusiness Cycle PhasesRecession (in short run)-Weak demand for resources-High unemployment-Low GDP -Profits are low for firmsRecession (in long run)-Resource prices fall-Interest rates fall-makes production cheaper for firms-after... it returns to full employmentBoom (short run)-strong demand for resources-high GDP & output-low employment-profits are highBoom (long run)-recourse prices & interest rates rise--makes production more expensive-profits return to normal-return to full employment There will be 50 questions on the test...Chapter Number of Questions8 816 918 99 810 8Ch. 8 Example Questions Jennifer is tending to her home garden while awaiting recall from her seasonal part-time job. The Bureau of Labor Statistics would classify Jennifer asAnswer: unemployed.In the early 1990s, the U.S. government substantially reduced defense expenditures. The resulting unemployment of defense-related workers, who possessed skills no longer needed by the economy, is an example ofAnswer: structural unemployment.The natural rate of unemployment equalsAnswer: the sum of frictional and structural unemployment.Which of the following is a true statement?Answer: Unanticipated inflation is a change in the general level of prices that catches most decision makers by surprise.Frictional unemployment is the result ofAnswer: imperfect information and temporary periods of unemployment while workers are changing jobs.The type of unemployment caused by changes in the business cycle isAnswer: cyclical unemployment.The natural rate of unemploymentAnswer: is associated with the economy's maximum sustainable output rate.The labor force participation rate isAnswer: the number of persons 16 years of age and older who are either employed or actively seeking work divided by the total noninstitutional population 16 years of age and older.Which of the following is a true statement?Answer: The concept of potential output might be thought of as the maximum sustainable output of the economy under normal circumstances.Suppose an economy is operating at its maximum sustainable output rate. Neither recession nor economic boom are present. Which of the following would be true?Answer: The economy would be considered at full employment.During this century, the growth rate of real GDP in the United States has averaged approximatelyAnswer: 3 percent.Use the data below to answer the following question(s).Population200 millionNumber employed120 millionNumber unemployed30 millionWhat is the employment/population ratio of the economy?Answer: 60 percentActual GDPAnswer: is less than potential GDP during recessions.Use the data below to answer the following question(s).Population200 millionNumber employed120 millionNumber unemployed30 millionWhat is the labor force participation rate of the economy?Answer: 75 percentEconomists use the term "business cycle" to refer toAnswer: fluctuations in the level of real output and employment.Use the data below to answer the following question(s).Population200 millionNumber
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