ECON 1020: Midterm 2

GDP

C + G + I + X - IM

Nominal GDP

Prices (current) * output

Real GDP

Prices (base year) * output

Real GDP per capita

Real GDP / population

Price Index

Market basket (current) / market basket (base) * 100

Inflation Rate

% change in price index/level

GDP Deflator

Nominal GDP/Real GDP * 100

Labor Force

# Employed + # Unemployed

Labor Force Participation Rate

Labor Force / Population 16+ * 100

Unemployment Rate

# Unemployed / Labor Force * 100

Natural Unemployment

frictional + structural

Actual Unemployment

natural + cyclical

How to convert nominal to real

divide by price level in CURRENT period and * 100

Real Interest Rate

Nominal interest rate - interest rate

Rule of 70

70/annual growth rate

Productivity

Real GDP/# workers

Comparative Advantage Sources

1. Changes in climate

2. Changes in factor endowments

3. Changes in technology

Producer Price Index

changes in prices of goods for producers

Inflation rate (image)

Consumer Price Index

Based on market basket for family of 4

Frictional unemployment

due to time workers spend in job search

Structural unemployment

When there are more people seeking jobs than jobs available at the current wage

• Caused by minimum wage, union, efficiency wages

Natural unemployment

Natural rate of unemployment based on changing demographics, government policies, labor markets

Cyclical unemployment

Deviation of the actual rate of unemployment from the natural rate. Based on the BUSINESS cycle

Employed

Currently working

• Full and part time

Unemployed

Not working but have looked for a job in past 4 weeks

NOT unemployed

• disabled

• students

• marginally attached (looked for work in 12 months, not 4 weeks)

• discouraged

• underemployed

What goes aggregate production function show?

Diminishing returns to physical capital

Productivity growth

GDP growth - Labor growth