What are the effects of Economic Growth?
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What are the effects of Economic Growth?

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Inflation, Unemployment

Inflation, Unemployment

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What are the effects of Economic Growth? What are the effects of Economic Growth? Presentation Transcript

  • What are effects of Economic growth?
    Unemployment and Inflation
  • Basic Laborious terms
    Labor Force:
    # of people employed + # of people unemployed
    Doesn’t include:
    Students, kids, retired people, the homeless
  • Who’s “employed”?
    ≥ 16 years with a job
    Must work 1 hour per week
    ≥ 16 years w/o a job
    Actively searching for a job
    EMPLOYED
    UNEMPLOYED
  • How do you calculate…
    # unemployed
    _______________________
    # of people in the labor force
    % of working age population in labor force
    Unemployment Rate
    Labor Force Participation Rate
  • LABOR FORCE INDICATORS (2005)
  • 4 TYPES OF UNEMPLOYMENT
    Frictional
    Voluntarily between jobs
    College graduates
    PBJ is healthy and natural!
    Structural
    Mismatch of skills
    Don’t have technology
    skills
  • 4 TYPES OF UNEMPLOYMENT
    Cyclical
    Increases during a recession
    Decreases during an expansion
    Seasonal
    Changes due to weather
  • Unemployment and Recessions
    The average unemployment rate was 5.9%
  • FULL EMPLOYMENT
    AKA
    THE NATURAL RATE OF UNEMPLOYMENT
    When there is no cyclical unemployment
    Full potential!
    4-5%
  • THE NATURAL RATE
    Cyclical unemployment is shown by the shaded regions.
  • CPI and Inflation
    How do we measure Prices?
  • Consumer Price Index
    Measures the average price of goods that urban consumers buy
    400 consumer goods and services
    Can be from abroad
    http://www.bls.gov/cpi/tables.htm
  • What’s in the CPI?
  • CPI (a) =50/50=
    100
    Cost of CPI @ current price
    x 100
    Cost of CPI basket @ base price
    CPI(b)= 70/50
    x 100 =140
    How do we Calculate CPI?
  • Inflation is the gradual increase of prices (from CPI)
    Inflation
    CPI in current year  CPI in previous year
    x 100
    Inflation rate =
    CPI in previous year
  • $$$ Types of Inflation $$$
    Demand Pull Inflation:
    Excess demand for products causing shortages
    “Too much money chasin’ too few goods!”
    Cost Push Inflation:
    Inward Supply Shifts
    Caused by high input costs
    1970s  high price of oil
  • The effects of inflation…
  • To protect against inflation:
    Lenders add an inflation premium:
    Nominal interest rate = real interest rate + expected inflation
    Firms add the COLA
    Changes with inflation
    Real income = nominal income/ price index