Macro Econ Ch 22 + 23

Measuring GDP and economic growth + Monitoring jobs and inflation

GDP- Expenditure approach

Y = AE

GDP- Income approach

Y = C + I + G + (X-M)

GNP

The GDP + the net income from factors of production owned in other countries

Nominal GDP

The value of final goods produced that year valued at the prices of that year

Real GDP

The value of final goods produced that year valued at the prices of a reference year

Potential GDP

The maximum level of real GDP that can be produced while avoiding shortages of labour, capital, land and entrepreneurial abilities. Max resources in a sustainable way.

Labour force

The sum of people employed and unemployed

Working age

People aged 15+ who aren’t in jail, hospital or institutional care

Unemployed

Available for work but no work in reference week, actively working or tried starting a business, would start in reference week or has a job starting in the future

Discouraged workers

Is a marginally attached worker who isn’t working or looking for work usually cause of previous failure. Part of broad definition of unemployment

Unemployment rate

% of people in the labour force that are not employed

Absorption rate

% of people in the working age population that are employed

Labour force participation rate

% of people of the working age that are participating in the labour force

Frictional unemployment

Unemployment from the process of job creation and destruction

Structural unemployment

Unemployment cause by change in technology or international competition changing the skills needed

Youth unemployment

Youth that are unemployed

Cyclical unemployment

Unemployment caused by recession and expansion

‘Natural’ unemployment

Unemployment from structural and fictional change when there is no cyclical change.

The scale of structural change

The amount of jobs created or lost by the changes in technology and competition

The real wage rate

The money wage rate divided by the price level

Unemployment benefits

This increases unemployment rates by lowering the opportunity cost of the job search

Consumer price index

Measures the average prices paid for a fixed basket of goods

Personal consumption expenditure deflator

Inflation indicator that is calculated based on consumer goods and services excluding government spending and investments

GDP deflator

Inflation indicator calculated based on the prices of all goods and services included in the GDP

Full employment

When the unemployment rate equals the natural unemployment rate