5 february 2016

GDP Gap: the amount by which actual GDP falls short of potential GDP.

Okun's Law: for every 1% that the actual unemployment rat6e in which the actual unemployment excludes the actual rate at unemployment. A GDP gap of about 2%.
EXAMPLE-  In 2012 the unemployment rate for Mexico was 7.4% and the NRU was 6%

Rule of 70: It is used to determine how many years it will take for a value to double given a particular annual growth rate.

If you put $20,000 in the bank and it earns year interest of 7% how many years will it take your income  to double.

70 divided
-------------
interest rate

In the problem above you would do 70/ 7 which will give you 10%


ALWAYS DIVIDE BY 70

For more information on Okun's Law you can check this link:
https://www.youtube.com/watch?v=y-XArN4h8nw

For more information on Rule of 70 you can check this link
https://www.youtube.com/watch?v=AoQJz1N6pxc

4 February 2016

Unemployment- failure to use available resources particularly labor to produce desired goods and services.
*Example: people now working



Underemployment-  Examples: * When a school has so much talent but we don't use it
                                                   * Working less than 12 hours a week

Labor Force- above 16 years of age and those who are able and willing to work
                               (employ + unemployed)
                                 -equation above makes up the labor force

Not in labor force- Military (majority time in other countries), students, retired people, disabled. home makers (stay at home mother/ father), mental home institutes, jail/prison, those who are not looking for a job

Unemployment rate- 4-5%= full employment or Natural Rate of Unemployment (NRU)
* having a percentage under 4% is great

How to calculate the unemployment rate: 

                                                 # of unemployed
                             --------------------------------------------- x 100
                                # of employed + # of unemployed

  Types of unemployment

Frictional: those who are searching for a job, they are temporally unemployed or in between jobs, transferable skills but not working.

                   *Examples- college and high school graduates, people that were laid off 

Structural: change in structure of the labor force made some skills obsolete, these people have no transferable skills and their jobs may never come back. Must learn new skills to get a new job.

                *Example- NASA employee getting laid off

Seasonal: due to the time of year and the nature of the job 

                *Examples-school bus drivers, life guards, Santa Clause and Easter bunny impersonator,                        construction workers

Cyclical: unemployment that results in economic down turn such as recession as demand falls for goods and services, demand for labor falls and workers are laid off.

             -full employment means there is no cyclical unemployment

Equation:  Frictional + Structural= Natural Rate                                                                                           of Unemployment (NRU)

2 Febraury 2016

GDP Deflation- price index used to adjust from nominal to real GDP

equation:    Nominal GDP
                 ------------------- x 100 = GDP Deflation
                   Real GDP

- BASE =  Nominal and Real GDP

- in the base year the GDP defoliator equals to 100

- years after base year GDP defoliator is greater than 100

- years before the base year GDP defoliator is less than 100


Consumer Price Index ( CPI ) - most commonly used measurement of inflation

- measures the market basket of goods for a typical urban American family

equation:  Price of a market basket of goods in the current year price
               ------------------------------------------------------------------------ x 100
                 Price of the market basket of goods in the base year price


Inflation:

equation:   Price index in  year 2 - price index in year 1
                 -------------------------------------------------------- x 100
                                     Price index in year 1




REAL INTEREST RATES 
- percentage increase in purchasing power that the borrower must pay the lender for a loan.

equation:    Nominal interest rate - inflation

(answer is usually under 10)

-unanticipated inflation (not expected)

- adjusted for inflation


                                                                    VS

NOMINAL INTEREST RATES
- percentage increase in money the borrower must pay the lender for a loan

equation:       Nominal interest rate = expected interest rate + inflation premium

- Anticipated inflation
     * fisher effect

- not adjusted for inflation





                                                  UNANTICIPATED INFLATION
Hurt by inflation


1. Savers
2. Creditors/ lender ( people you owe)
3. People who are on a fixed income (Welfare, Elderly, Retire, Medicare, Medicate)

Hurt by inflation

1. People who owe debt




Cola adjustment (elderly)

-automatic wage increase when inflation occurs

     *New York
     *California
-cost of living adjustment

1 February 2016

• Budget Equation
• Government purchases of goods and services + government transfer payments - government tax and free collection.

• Trade Equation
• Export - Import

• National Income
• Compensation of employees + rental income + interest income + corporate profits + proprietors income
• GDP - indirect business taxes - depreciation - net foreign factor payment

• Disposable Personal Income (DPI)
• national income - personal household taxes + government transfer payment

• National Domestic Product
• GDP- depreciation

• Net National Product
• GNP - depreciation

• Gross National Product
• GDP + net foreign factor payment

• Budget
• Deficit +
• Surplus -

• Trade
• Surplus +
• Deficit -

• Normal GDP- is the value of out put produced in current year prices (quantity)
• Can increase from year to year if either out put or prices increases

• Real GDP- is the value of out produced in constant or based year prices (adjusted for inflation)
• can increase from year to year only if quantity increases

Deprecation is know as consumption of fixed capital

Use Real GDP to measure economic growth

Use Nominal GDP to measure price increase

29 January 2016

Two ways of calculating  GDP

1. EXPENDITURE APPROACH

       - add up all of the spending on final goods and services produced on a given year.

GDP= C+ Ig + G + Xn

C= Personal Consumption Expenditures

Ig= Gross Private Domestic Investment

G= Government Spending

Xn= (Exports - Imports)

(Most favorable, because it can be proven by receipts, paper work, documents)

2. INCOME APPROACH

   -add up all the income that resulted from selling all final goods and services produced in a given year.

WILLY REST IN PEACE + STATISTICAL ADUJUSTMENT 

GDP= W + R + I + P + S

W= wages

R= Rent

I= Interest

P=Profits

S= Statically Adjustment

       1. In direct business taxes

        2. depreciation (consumption of fixed capital)

         3. Net foreign factor payment

28 January 2016

• Gross Domestic Product (GDP)- total market value of all final goods and services produced within a countries border in given year.

• Gross national Product (GNP)- total market value of all final goods and services by citizens of that country on its land or foreign land.

• INCLUDED IN GDP
• C- Personal consumption expenditures (Your own Money, Wages, Income).
• IG- Gross private domestic investment  
• Factory equipment maintenance 
• New factory equipment
• Construction of housing
• Unsold inventory of products built in a year before
• G- Government spending
• Xn- Exports- Imports

• NOT INCLUDED IN GDP
• Intermediate Goods
    -Goods that require further processing, before ready for final use
     (car, all needs for a car such as window, gas tank, engine)
•   used/ second                                                                                                                         -avoid double counting (thrift shop clothes)
•  Purely Financial Transaction                                                                                                 - such as stocks and bonds

   - does not involve the product of goods and services. It is mainly a transient of assets.

  -something that is durable
• Illegal Activity -(drug)
• Unreported Business Activities (unreported tips)
•  Transfer Payments -private (scholarships)   -Public ( social security checks, welfare)
• Non- Market Activity -(volunteering, baby sitting, performing work for your self such as fixing the roof on your own home)

26 January 2016 (Unit 2)

• Circular Flow- It represents a transaction in a company.

• There are 2 markets
• Product Market- This is the place where goods and services are produced by businesses and they are bought by households.
• Factor/ Resource Market- This is the place where households sell resources and businesses buy resources.

• Firms- an organization that produces goods and sales

• Households- Person or group of people that share their income
• Sells factors of production to businesses
• EX: Waking up to school you are using factors of productions

• Firms rent or purchases land, which will be found in factor market

• Business demand resources from other businesses is also the factor market