Unemployment: percentage of people who do not have jobs but are in the labor force

Labor force: number of people in a country that are classified as either employed or unemployed.

Ideal unemployment rate: 4-5%

Not in the labor force:

1. Kids
2. Military Personnel
3. Mentally insane
4. Incarcerated or in prison
5. Retired
6. Stay at home parents
7. Full time student
8. Discouraged workers (look for a job but can't find one)

Types of employment

1. Frictional

• used the words between jobs
• because they choose new opportunities, new choices, new lifestyles, or new educational levels

2. Structural

• technology changing
• associated with lack of skills or declining industry

3. Seasonal

• waiting for the right season to go to work
• ex: Santa Claus, lifeguard, Easter bunny, construction worker

4. Cyclical

• this is unemployment that occurs due to a swing in the economy
• deal with the business cycle 

Full employment: occurs when there's no cyclical employment

Why is unemployment bad?

1. Not enough consumption (GDP)
2. Too much poverty
3. Too much government assistance

Why is unemployment good?

1. There is less pressure to raise wages
2. There's more workers available for future expansions

Okun's law: for every 1% of unemployment above the NRU causes a 2% decline in real GDP.

So if unemployment is 3.5% we're giving up 7%

3.5 x 2 = 7

Inflation: a rise in the general level of prices
formula: new GDP deflator-old GDP deflator/old GDP deflator x 100
Inflation rate: measures the percentage increase in the price level over time; offers a key indicator of the economy's help
Deflation: decline in the general price level
Disinflation: occurs when the inflation rate declines
Consumer price index (CPI): measures inflation by tracking the yearly price of a fixed basket of consumer goods and services
indicates changes in the price level and cost of living
Find inflation rate using market basket data:
formula: current year market basket value - base year market basket value/base year market basket value x 100
Find inflation rate using price indexes:
formula: current year price index-base year price index/base year price index x 100
Estimating inflation using the rule of 70: formula: years needed to double inflation = 70/annual inflation rate
Rule of 70 is used to calculate the # of years it will take for the price level to double at any given rate of inflation
Determining real wages: formula: real wages=nominal wages/price level x 100
Finding real interest rate: formula: nominal interest rate-inflation premium
Standard inflation: 2-3%
Real interest rate: cost of borrowing or lending money that is adjusted for inflation
Nominal interest rate: unadjusted cost of borrowing or pending money

Causes of inflation:
A. Demand pull inflation: it is caused by an excess of demand over output that pull prices upward
B. Cost push inflation: caused by a rise in per unit production cost due to increasing resource cost
Effects of inflation:

• Anticipated inflation
• Unanticipated inflation

What is hurt by inflation?

• Fixed income (social security, scholarship, etc.)
• Savers
• Lenders/creditors

What is helped by inflation?

• Borrowers (debt will be repaid)

Nominal GDP: Value of output produced in current prices
can increase from year to year if either output or price increase 
formula: pxq
 
Real GDP: value of output produced in base year or constant prices
-adjusted for inflation
-can increase from year to year only if output increases
-formula: base year price  x current year quantity

Price index: is a measure of inflation by tracking changes in a market basket of goods compared with the base year
-formula: price of market basket of goods in current year/price of market basket of goods in base years x 100

GDP deflator: price index used to adjust from nominal GDP to real GDP
-in the base year, GDP deflator =100
-for years after the base year, GDP deflator >100
-for year before the base year, GDP deflator <100
-formula: nominal GDP/real GDP x100

Expenditure approach: adding up the market value of all domestic expenditures made on all final goods and services in a single year
Formula: GDP = C + Ig + G + Xn

Income Approach: adding up all the income earned by households and firms in a single year
Formula: GDP = W + R + I + P + Statistical Adjustments

• W: wages, salaries, compensation of employees
• R: rents, tenants to landlords, lease payments that corporations pay for the use of space
• I: interest, money paid by private businesses to the suppliers of loans used to purchase capital
• P: profit, corporate income taxes, dividends, undistributed corporate profits

*FORMULAS*
 
Budget: government purchases of goods and services + government transfer payments - government tax and fee collections
-if it is negative it is a budget surplus, if it is positive, it is a budget deficit

Trade:
 exports - imports
-if it is negative it is a trade deficit, if it is positive, it is a trade surplus

National Income: 

• GDP - indirect business taxes - depreciation - net foreign factor payment
• Compensation of employees + rental income + interest income + proprietor's income + corporate profits

Disposable Personal Income: 

National income -personal household taxes + government transfer payments

Gross National Product (GNP): 
GDP + net foreign factor income

National Net Product (NNP):
GNP - depreciation

National Domestic Product (NDP):
GDP - depreciation

Gross Domestic Product (GDP): total dollar value of all final goods and services produced within a country's borders within a given

What’s included in GDP?

C + Ig + G +Xn

• C: Consumption: takes 67% of the economy; final goods and services
• Ig: Gross private domestic investment: factory equipment maintenance, new factory equipment, construction of housing, unsold inventory of products built in a year
• G: Government spending Ex: buying new weapons, fort bend buying a new school
• Xn: Net exports: exports-imports

What's not included in GDP?

1. Used or secondhand goods
2. Intermediate goods: goods and services that are purchased for resale or for further processing or manufacturing
3. Non-market activities: volunteer work, babysit, illegal drug sales, trading, underground activities
4. Financial transactions: stocks, bonds, real estate
5. Gifts or transfer payments: scholarship, Christmas gift, social security, welfare payments
6. Foreign

Gross National Product (GNP): measure of hat its citizens produce and whether they produce these items within its borders

National income accounting: Economists collect statistics on production, income, investments, and savings

Circular flow model: represents transactions in a economy. All goods and services flow in a clockwise direction.
  
Product Market: this is the place where goods and services are produced by businesses and are bought and sold to households.     

• Firms sell, households buy 

Resource or factor market: the place where households sell resources and businesses by resources. 

• firms buy, households sell  

Households: person or a group of people that share their income        

• sell resources, buy products  

Firms: is an organization that produces goods and services for sale                                              

•  buy resources, sell products