This document discusses macroeconomic concepts related to unemployment and inflation. It defines key terms like the natural rate of unemployment, cyclical unemployment, structural unemployment, unemployment insurance, minimum wage laws, labor unions, efficiency wages, inflation, the quantity theory of money, money supply, velocity of money, price level, GDP deflator, and more. It also notes that inflation is caused by printing money faster than producing goods and services, leading to rising prices, and that the quantity theory of money shows the relationship between money supply, velocity, price level, and real GDP.

2. Lecture 10
Macroeconomics

3. Opening
Prayer

4. Quiz Master

5. In coming days, we will see the
greatest manifestations of the
Savior’s power that the world has
ever seen. Between now and the
time He returns ‘with power and
great glory’ He will bestow
countless privileges, blessings and
miracles upon the faithful.

6. Frédéric Bastiat
(1801-1850)
There is only one difference between a
bad economist and a good one: the bad
economist con
fi
nes himself to the
visible effect; the good economist takes
into account both the effect than can
be seen and those effects than must be
foreseen.
What is Seen andWhat in Not Seen,
1850

7. Natural Rate of
Unemployment
The normal rate of
unemployment around
which the unemployment
rate fluctuates

8. Cyclical
Unemployment
The deviation of
unemployment from its
natural rate

9. Structural
Unemployment
Creative
Destruction
10% a year

10. Unemployment
Insurance
Government program to
provide income when
workers become
unemployed

11. Unemployment
Insurance
Unintended Consequence
Moral Hazard
May prolong unemployment

12. Minimum Wage Laws
Government sets a
minimum wage that can
legally be paid
Price Floor

13. $0
$5
$10
$15
$20
0 10 20 30 40 50 60
Supply
Demand
Wage
Workers
Equilibrium
Wage
30 workers
30 jobs
no
unemployment
Minimum Wage
40 workers
20 jobs
20 unemployed
workers
Minimum Wage
20 workers
get a raise
10 workers
lose job
10 new
unemployed
workers
Minimum
Wage

14. Labor Union
Worker association that
negotiates with
employers over wages,
benefits, and conditions

15. Ef
fi
ciency Wages
Employee Wage Pizzas Productivity
Wage per Pizza
Bob $10 5 $2.00
Bill $20 12 $1.67

16. Ef
fi
ciency Wages
More Healthy
Lower Turnover
Higher Quality
More Effort

17. Chapter 12
In
fl
ation and the
Quantity Theory of
Money

18. Two Macro Headaches
Unemployment
In
fl
ation

19. Good Money
Bad Money

20. 100+ Currencies

33. The Two Problems of
Macroeconomics
Unemployment
In
fl
ation

34. one
unit
of
this
will buy ___ units of that

35. What is Money?
Trust

38. 2. Zimbabwe, Nov. 2008
Highest monthly in
fl
ation: 79,600,000,000%
Prices doubled every: 24.7 hours

43. If money loses trust
It loses its value

48. Recipe for Disaster
Print Money
Set Price Ceilings

49. What is Money?
Medium of Exchange
Store ofValue
Unit of Account

50. Medium of Exchange
Buyers give to sellers
Sellers accept from buyers

51. Unit of Account
Measurement
Prices
Debt

52. Store of Value
Trading time for time
Today for tomorrow
Tomorrow for today
Earn - Save - Spend

55. When you have lines waiting to buy your product, you can do
two things:
make more, or raise prices

59. Prices
Current
Constant

60. In
fl
ation
Cause:
Printing money faster than
making goods and services
Effect:
Rising prices

61. Nominal
vs.
Real

62. P2 - P1
P1
In
fl
ation Rate

63. Price Level
Average of
prices

64. In
fl
ation
GDP
De
fl
ator

65. Quantity Theory of Money
M = Money Supply
v = velocity
P = Price Level
YR = Real GDP

66. v = velocity
The average number of times
a dollar is used to purchase
fi
nal goods and services
within a year

67. Mv = PYR
Assume v andYR are
constant
M = P

68. M = P
In
fl
ation is
everywhere and
always a monetary
phenomenon
Milton Friedman