Name the type of unemployment
(F = frictional, C = Cyclical, S = Structural)
1. Recent college graduates
2. Former Myspace employees
3. Waitress laid off because of fewer customers
Calculate the unemployment rate of Travistan:
30 million people in labor force
3 million discouraged workers
10 million unemployed and looking for work
5. Calculate the GDP of Travistan in billions
Black Market = $ 10 Consumer spending = $15 Investment = $6
Government = $4 Imports = $10 Exports = $5
6. Calculate Travistan’s GDP per capita if there are 20 million citizens
20 million = .02 billion 7. Is this a rich or poor country?
Definition of money
• Medium of exchange
• Unit of Accounting
• Store of Value
Your G3 is advising the President of Zimbabwe on how to
improve the economy of his country.
Situation: Many blacks can not afford goods and food in the
markets. Business owners are allowed to charge whatever
price they want and since food is hard to find, its very
Local Zimbabwe businesses have a difficult time competing
with imports from the USA, South Africa and England. When
Zimbabwe businesses fail, people lose their jobs causing more
98% of the farm land is owned by white farmers, which was
taken in the 1800’s from native Africans. 90% of this country is
black and has no access to this farm land. The white farmers
pay low wages and often do not hire native blacks.
Many people in Zimbabwe do not have much money to buy
food with. The Zimbabwe dollar is a strong currency which is
difficult to get much of because the central bank doesn’t print
President Robert Mugabe
What if I told you?
• Million dollars?
• 25 Billion dollars?
• 100 Billion dollars
• Fiat currency =
value only because
we think it does
Why can’t we just print more money?
• Quantity theory of
Piles of currency in Zimbabwe
Hyperinflation in Zimbabwe
• Start of 2008
– 100 % inflation
• End of 2008-2009
– 10,000,000 %!!
– 10 X 6th inflation
What else causes inflation?
• Cost push theory
• Demand pull theory
Brainstorm 5 things a typical family
would buy in a month
• Rise in prices over
Always a percentage,
But unlike unemployment rate,
• “cost of living”
It can be more than 100, or
• Calculate using
1-3 % inflation = normal
• CPI =
New Prices – Old Prices
Who likes inflation?
Lenders on fixed interest rates
Borrowers on fixed interest rates
Real estate agents
Sony PS3 Price change %
• Gas in 2009: $2.50
Slovenia 2006, in Euros
Slovenia 2008, in Euros
CPI current year – CPI base year 265 SO 200
200 (2006) 32.5%
INFLATIO CPI base year
You try one
United States 2006, in $$$$
United States 2008, in $$$$
4. Calculate the US inflation rate
5. Is this a good rate or should we be worried?
6. What is deflation and why is it good?
7. Do you think fiat currency is better for a country than
representative currency? Explain.