What are the effects of Economic Growth?

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Inflation, Unemployment

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What are the effects of Economic Growth?

  1. 1. What are effects of Economic growth?<br />Unemployment and Inflation<br />
  2. 2. Basic Laborious terms<br /> Labor Force:<br /># of people employed + # of people unemployed<br />Doesn’t include:<br />Students, kids, retired people, the homeless<br />
  3. 3. Who’s “employed”?<br />≥ 16 years with a job<br />Must work 1 hour per week <br />≥ 16 years w/o a job<br />Actively searching for a job<br />EMPLOYED <br />UNEMPLOYED<br />
  4. 4. How do you calculate…<br /># unemployed<br />_______________________<br /> # of people in the labor force<br />% of working age population in labor force<br />Unemployment Rate<br />Labor Force Participation Rate<br />
  5. 5. LABOR FORCE INDICATORS (2005)<br />
  6. 6. 4 TYPES OF UNEMPLOYMENT<br />Frictional<br />Voluntarily between jobs<br />College graduates<br />PBJ is healthy and natural!<br />Structural<br />Mismatch of skills<br />Don’t have technology<br />skills<br />
  7. 7. 4 TYPES OF UNEMPLOYMENT<br />Cyclical<br />Increases during a recession <br />Decreases during an expansion<br />Seasonal<br />Changes due to weather<br />
  8. 8. Unemployment and Recessions<br />The average unemployment rate was 5.9%<br />
  9. 9. FULL EMPLOYMENT<br />AKA<br />THE NATURAL RATE OF UNEMPLOYMENT<br />When there is no cyclical unemployment<br />Full potential! <br />4-5%<br />
  10. 10. THE NATURAL RATE<br />Cyclical unemployment is shown by the shaded regions.<br />
  11. 11. CPI and Inflation<br />How do we measure Prices?<br />
  12. 12. Consumer Price Index<br />Measures the average price of goods that urban consumers buy<br />400 consumer goods and services<br />Can be from abroad<br />http://www.bls.gov/cpi/tables.htm<br />
  13. 13. What’s in the CPI?<br />
  14. 14. CPI (a) =50/50=<br />100<br />Cost of CPI @ current price<br />x 100<br />Cost of CPI basket @ base price<br />CPI(b)= 70/50<br />x 100 =140<br />How do we Calculate CPI?<br />
  15. 15. Inflation is the gradual increase of prices (from CPI)<br />Inflation<br />CPI in current year  CPI in previous year<br />x 100<br />Inflation rate =<br />CPI in previous year<br />
  16. 16. $$$ Types of Inflation $$$<br />Demand Pull Inflation:<br />Excess demand for products causing shortages<br />“Too much money chasin’ too few goods!”<br />Cost Push Inflation:<br />Inward Supply Shifts<br />Caused by high input costs<br />1970s  high price of oil<br />
  17. 17. The effects of inflation…<br />
  18. 18. To protect against inflation:<br />Lenders add an inflation premium:<br />Nominal interest rate = real interest rate + expected inflation<br />Firms add the COLA<br />Changes with inflation<br />Real income = nominal income/ price index<br />

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