Five Major Concerns
1 Production (GDP) 2 Economic Growth 3 Employment 4 Inflation 5 Debt
Macro
- “aggregate”
* Whole
Business Cycle
Ups and downs in production over time
Stages in the Business Cycle
- Peak
- Contraction (Recession)
- Trough
- Expansion
Leading Indicators
1 Reduction in hours of the average work week
2 Rise in unemployment insurance claim
3 Increase in prices of raw materials
4 Drop in the quantity of money circulating
Recession
2 or more consecutive quarters of GDP decline
Unemployment
Being willing and able to work, actively looking but haven’t found a job
Adult Population
civilization, free, adults
Labor Force Participation Rate
A measure at how optimistic people are about the economy
How do the LFPR of men compared to that of women?
Women rise because of higher opportunity cost
Discouraged Workers
Still unemployed after six months
Types of Unemployment
- Frictional
- Structural
- Cyclical
- Seasonal
Frictional Unemployment
- Caused by frictions in normal jobs processes
- Economists do not worry about this type
- Example: someone is offered two jobs, are unemployed for the moment as they decide on which job to pick
Structural Unemployment
- Caused by employee skills not aligning with what employees want
- Employees are left unto retraining themselves
- Example: 80s computer programmer lost job for 10 years leaving skills to become outdated
Cyclical Unemployment
- Government worries about this type the most
- Recession causes this from laid off workers
- Employees lose job because of economy failing and not of his/her own fault
Seasonal Unemployment
• Employees get off the job when certain seasons pass
Natural rate
Includes only frictional and structural unemployment when seasonally adjusted
What happened in 2008/2009?
Market crashed after a housing bubble (people buying houses on debt) burst
Nominal Values
Raw number
Real Values
- Adjusted number
* What we are really paying for
Inflation
Rise in average prices
Deflation
Drop in average prices
Cost of Inflation
1 Higher nominal rates if you can anticipate
2 COLA (cost of living adjustment)
3 Menu cost of repricing
4 More inflation