Test 3 (BUSA 110)

How do you split the population to get the number of unemployed citizens?

Institutional vs. civilian → under 16 vs. over 16 → doesn’t want to work vs. does want to work → has a job vs. doesn’t have a job

What is LF and what is it made of?

LF = labor force

Civilians, older than 16, wants to work

What does the unemployment rate measure and what’s its formula?

Measures # of civilians over 16 that want to work but don’t have a job

(unemployed/LF)*1

If you were a drug dealer or illegal immigrant, would you be counted as employed?

Yes, all work is counted as employment, illegal or legal

What is LFPR and what’s its formula?

LFPR = labor force participation rate

(LF/working age population)*1

What is included in the working age population?

Civilians over 16

What are the 3 types of unemployment?

Frictional, structural, and cyclical

Frictional unemployment

A short-term, voluntary period of joblessness when workers transition between jobs, move to a new location, or enter/reenter the workforce

Structural unemployment

A long-term, involuntary period of joblessness where workers lose their jobs due to fundamental shifts in the economy, like technology replacing certain skills

Cyclical unemployment

Unemployment caused by recessions and downturns in the business cycle

Is any unemployment good?

Yes, frictional unemployment represents healthy competition, the young replacing the old, and incentives for economic mobility

Yes, structural unemployment represents technological advancement

No, cyclical unemployment should be at 0

What numbers represent a good unemployment rate? What about a bad one?

4-5% = good

6-7% = bad

Data that changes over time

Time-series data

Data collected at a specific point of time

Cross-sectional data

When looking at time-series, what should you pay attention to?

Frequency (monthly, quarterly, annually)

Starting and ending data

What are some important seasonal patterns?

Generally lower unemployment during the summer

Higher sales during holiday season

What is SA data?

SA = seasonally adjusted

Smooths out data for more accurate comparison

Visually, what would SA data look like compared with NSA data?

SA would be a flatter line while NSA would rise and fall

Review of optimization: what are the 3 parts to an optimization problem?

Goal, endogenous variables, exogenous variables

Review of optimization: what is used to solve optimization problem and why is it not always accurate?

Solver (numerical) and calculus (analytical)

Solver can produce disastrous results (incorrect), miserable results (no answer), and false precision (too accurate)

To avoid making these mistakes, you make a graph

If you want to study more than one variable in an optimization problem, you should visualize it how?

With a 3D graph

Constraint

Condition that limits the optimal solution

Tangency

Where 2 points meet

Draw 2 graphs: one that represents unconstrained optimization and another one that represents constrained optimization. On the constrained optimization graph, draw 3 points: wasteful, optimal, and invisible.

Review of comparative statics: What are the 4 steps of comparative statics?

Initial, shock, new, compare

How does comparative statics work with constraints?

Initial constraint and solution

Shock with new constraint

New solution

Compare

Elasticity

A number that represents the responsiveness of a variable on another variable

What is the template for talking about elasticity?

[Exogenous variable] elasticity of [endogenous variable]

Elasticity formula

Percent change of Y/Percentage change of X

What is Y? What is X?

Y = endogenous variable

X = exogenous variable

How do you calculate percentage change?

(new-initial)/initial

Elasticity is…

unitless, which allows you to compare many different variables

Interpretation of elasticity

1) If positive, then the variables move in the same direction. If negative, then the variables move in different directions.

2) If absolute value is more than 1, elastic. If absolute value is less than 1, inelastic.

Elasticity can show…

Competitiveness of a market, nature of demand, and # of substitutes