Economics, Unit 4: Inflation, GDP, and Unemployment

What is the formula which makes up the GDP?

Consumer goods + Investment goods + Government services + (Exports - Imports (Net Imports)) = GDP

_________ helps us determine how the economy will do and precede growth. 2 examples are:

Lead Indicators....a) # of business failures b) average # of hours worked

________ helps us determine how the economy will do and follow growth. 2 examples are:

Lag Indicators....a) personal income b) consumer installment credit

Demand-Pull Inflation

When consumers demand more than is supplied.

Cost-Push Inflation

When the cost of production increases, so producers increase prices.

Structural Inflation

When demand shifts from one good to another, the demand for good B rises quickly, but the price for B is always much slower to drop.

Name two groups hurt by inflation:

a) Creditors b) Individuals with a Fixed Income

Name two groups helped by inflation:

a) Debtors b) Real Estate Investors

Name two ways to combat (fight) inflation:

a) COLA (Cost of Living Adjustment) b) ARM (Adjustable Rate Mortgage)

Name two of the MACRO effects on inflation:

a) Hyperinflation b) Bracket Creep

List 2 of the Human costs of Unemployment. For every 1

% increase in unemployment (over 6%):

a) 4,000 admissions to the mental hospital b) 500 liver cirrhosis deaths

What are 2 interesting things about the business cycle?

a) We only know where we have been, not where we are, or where we will go. b) Presidents are hired and fired by the business cycles, but they actually have little control.

Cyclical Unemployment

Unemployment caused by too little demand.

Full Employment

Described as being 4%-5%.

Seasonal Employment

Unemployment due to industry which affected by weather.

Structural Employment

Mismatches between job seekers and job openings.

Okun's Law

Each 1% of unemployment leads to 2% reduction in GDP.

Discouraged Workers

People who are not counted in the labor force because they are not looking for a job, but would look for a job if prospects were better.

Phantom Unemployed

People who say they are looking for a job, but are not.

Underemployed

Where workers are employed, but are not utilizing their skills.

Stagflation 1

Periods of inflation where the economy is not growing.

Frictional Unemployment

Unemployment which is temporary and is due to job search or relocating.

Stagflation

The combination of inflation and economic stagnation (economy not growing).

Depression

An extremely long and deep recession.

Unemployment

Anyone who is over 16 and is looking for a job.

Demand-Side Economics

Type of economics focused on stimulating or reducing the demand of goods and services.

Supply-Side Economics

Type of economics focused on stimulating or reducing the amount of good and services available to through tax cuts.

Inflation 2

Acceptable described as being under 3%.

Technological Unemployment

When workers are replaced by machines.

Labor Force

Over 16 and have a job or are looking for a job.