Intro to Macro:

• Federal gov’t uses data to observe “unemployment”

  • Two programs 

    • BLS - collects data

    • BEA - analyzes data 

  • Unemployment needs to meet requirements 

    • 16+ 

    • Looking for work 

    • Not disabled/in a mental institution 

• Labor Force = (Unemployed + employed)

  • Unemployment rate: percentage of labor force that is unemployed

  • Labor Force Participation Rate 

    • % of the population that is either working or actively looking for work

    • (Labor Force ÷ Civilian Noninstitutional Population) x 100

• Issues w Calculating Unemployment

  • Discouraged workers - people don’t look for jobs (ex: covid)

  • Part-time workers

  • Numbers can be manipulated (i.e. 2010 and 2012 census data) 

    • People were struggling post COVID, but is not reflected in unemployment 

  • Underestimates the unemployment rate during bad economic times 

    • Ppl who have multiple part time jobs are considered employed

• Four Type of Unemployment

  • Seasonal

    • Business shuts down during certain seasons (ex. Six flags)

  • Cyclical

    • Follows the business cycle 

      • Demand goes up, more people required to make it 

      • Business cycle 

        • Peaks 

        • Troughs 

        • Expansion

        • Recession 

  • Frictional

    • When you leave a bad job for a better job 

    • Most favorable -- creates a PPF curve that is minorly inside of the curve 

  • Structural 

    • Overall structural change in the economy changes the jobs that are needed 

      • Fields have machinery instead of farm animals 

        • Produces at a different efficiency 

• Discouraged Workers

  • Discouraged workers - people don’t look for jobs (ex: covid)

• Inflation (Demand Pull / Cost Push)

  • Purchasing power

    • How much does my dollar buy me?

  • Demand Pull - Excessive spending relative to output

    • Too many dollars are chasing too few goods

      • Demand increases, price goes up 

    • Central bank issues too much money

  • Cost Push - Due to a rise in per-unit input costs

    • The costs of inputs are rising, and thus the cost of goods and services rising along with them

    • Supply shocks

    • Reduces real output; redistributes a decreased level of real income

• ♥ 😩 Pegging ✨🧚 Currencies 

  • the practice of attaching or tying a currency's exchange rate to another country's currency

• GDP = C + I + G + Nx

  • When GDP contracts, prices tend to go down and unemployment rises

• "Full Employment"

  • Achieving the natural rate of unemployment (~4-6% unemployment)

  • Unemployment helps create some good things (peopel leaving bad jobs for better ones)

• Income is influenced by age, sex, education, family background…

• Price Indexes 

  • Price Index = (cost of basket today / base year) x 100

  • CPI - cornucopia of goods that everybody buys 

    • i.e. eggs, butter, cheese, milk, household cleaners, soap, etc. 

    • CPI has limitations on consumer preferences or changes in what “everyone” owns 

    • Quality of products change overtime (i.e. Hershey’s chocolate bars) 

  • Chapwood - compares the national CPI index to their city-level series

• Purchasing Power Parity (PPP) 

  • Big Mac Index

    • If you can buy a burger here, you should be able to sell the dollar for euros and buy a burger in Europe (BUT YOU CANT LOL)

    • Comparing the economic value across countries 

  • Exchange Rates, Taxes/Fees, Labor, etc. 

    • The cost of labor in different countries and the unemployment rates change the value of products and services

    • Cost of exchanging the different monetary types 

  • Inflation causes purchasing power to diminish as the value of money goes down 

    • Diminished quantity and quality to try and keep up with inflation 

    • Price wars between companies 

    • When inflation is high, firms tend to take out loans, hire new employees, etc. as money is cheap 

    • When inflation is low, unemployment rises 

• “Interest Rate” - the price of (borrowing) money 

• Modern Economic Growth 

  • GDP per capita continues to rise 

• Saving

  • Trading off current money for future consumption 

• Investment 

  • Financial investment 

  • Economic investment 

  • “Future Production” 

• Sticky Prices - noticed by Keynes 

  • Prices do not change 

  • Menu prices, coin operated machines, etc. 

    • Cost of changing menu prices prevents them from changing prices 

• Flexible Prices 

  • Lobster, gasoline (in the US), etc. 

    • Lobster depends on how much is in stock that day 

• Uncertainty, Expectations, and Shocks

  • The future is uncertain

  • Expectations affect investment

  • Shocks

    • What happens is not what you expected

  • Demand shocks - a sudden event that increases or decreases demand for goods or services temporarily

  • Supply shocks - an unexpected event that changes the supply of a product or commodity, resulting in a sudden change in price

• Hayek - wants the market free; blames low interest rates 

• Keynes - wants to steer the market; blames “animal spirits” 

  • Pushes for spending and stocks (1920s)

  • 1914 - WW1 created; federal banks made

• Multiplier - gov’t spending of one dollar will add to the GDP by a “multiplied” ratio 

• Liquidity trap - no money is spent or given to the economy as ppl are hoarding their money 

  • Money is stuck in the banks

  • Intended to be solved with a trade deficit--import > export 

    • Making the situation worse

• WHAT IS GDP? - a dollar measure of production

  • Using dollar values creates problems

• Two Approaches to GDP

  • Income Approach

    • Count income derived from production

    • Wages, rental income, interest income, profit

    • GDP = W + R + i + PR

      • W: Salaries, wages, and fringe benefits (ex. health or retirement) includes unemployment insurance and government taxes for Social Security

      • R: Income received from property received by households (ex. Royalties from patents, copyrights, assets, and imputed rent)

      • I: Income received by households through the lending of money to corps and businesses; government and household interest payments are not included

      • PR: Amount firms have left after paying rent, interest on debt, and employee compensation; GDP involves accounting profit and not economic profit profits earned by businesses

  • Expenditures Approach

    • Count sum of money spent buying the final goods

    • Who buys the goods?

    • GDP = C + I + G + Nx

      • C: 

        • Durable goods

        • Nondurable (Consumer) Goods

        • Consumer expenditures for goods and services

        • DOmestic plus foreign goods produced

      • I: 

        • Machinery, equipment, and tools

        • All construction

        • Changes in inventory

        • Creation of new capital assets

        • Noninvestment transactions excluded

      • G:

        • Expenditures for goods and services

        • Expenditures for publicly owned capital

        • Excludes transfer payments

      • Nx

        • Export - Import = (X-M)

• Nominal vs. Real GDP

  • Nominal GDP - not including inflation

    • Uses prevailing price

  • Real GDP - including inflation

    • Reflect changes in prices

    • Use base year price

• Price Index = Price of market basket/price of same basket * 100

  • CPI calculator 

• Economic Growth 

  • Increase in real GDP/real GDP per capita 

    • Percentage rate of growth 

    • Growth as a goal 

    • Arithmetic of growth: Rules of 70

      • ~years needed to  double real GDP = 70/annual percentage rate of growth 

• Institutional Structures of Growth

  • Strong property rights

  • Patents and copyrights, etc…

• Unequal burdens 

  • Economic changes may not affect all groups the same

  • Factors include

    • Occupation

    • Age

    • Race

    • Gender 

    • Etc. 

• Non Economic Costs

  • Lost of skills/self respect 

  • Moral

  • Family unit problems

  • Poverty

  • Racial and ethnic tensions 

  • Suicide, homocide, etc. etc. 

• The 4 phases of the business cycle (Expansion, Recession, Peak, Trough)

  • Expansion:the economy experiences relatively rapid growth, interest rates tend to be low, and production increases

  • Peak: when growth hits its maximum rate. Prices and economic indicators may stabilize for a short period before reversing to the downside.

  • Recession: growth slows, employment falls, and prices stagnate. As demand decreases, businesses may not immediately adjust production levels, leading to oversaturated markets with surplus supply and a downward movement in prices

  • Trough: reached when the economy hits a low point, with supply and demand hitting bottom before recovery. The low point in the cycle represents a painful moment for the economy, with a widespread negative impact from stagnating spending and income

• GDP (Nominal, Real, Per Capita etc), Aggregate Demand, Formula, Net Exports (X-M)

  • GDP - measure of aggregate output; the attempt to calculate how many good and services we are able to produce 

  • Monetary vs. Weight Measure 

  • Avoid multiple counting 

    • Market value of final goods 

    • Ignore intermediate goods

    • Count value added

  • Shortcomings 

    • Nonmarket activities

      • barters/favors

        • They are a form of productivity, but its not counted

    • Leisure

      • Sux to be happy ig

      • Does not get counted

    • Improved product quality

    • The underground economy

      • Drugs ✨

    • GDP and the environment

      • Pollution 

    • Composition and distribution of  the output

    • Non Economic sources of well-being

    • Household Production

      • Living at home; housewives 

  • Nominal value - excludes inflation 

    • Price expressed in today’s dollars

    • ex) $100 i get today, nominal value will still be $100 next yr

  • Real value - includes inflation 

    • Value expressed in purchasing power, which varies with the overall price level 

    • ex) $100 i get today, its real value a year later will depend on the purchasing power of money 

      • If inflation, the real value of the $100 is diminished

• Final / Intermediate Goods

  • Final Goods 

    • Ignoring intermediate goods, just counting the value that is added 

    • Excludes: 

      • Public transport payments 

      • Private transfer payments 

        • Purchase of movie tickets included BUT getting the money from your parents is not 

      • Stock/bond market transactions 

      • Intermediate goods 

        • Not counting when production groups purchase materials

        • Ex. Don’t count parts bought to make a car only the price the car sold for 

      • Second-hand sales

        • Goodwill 

      • Domestic firms producing/selling abroad (GNP) 

        • Toyotas made in Japan sold here 

  • Intermediate Goods 

    • Bought in the process of making a product to sell 

• Government Transfer Payments

• "Full Employment"

  • Achieving the natural rate of unemployment (~4-6% unemployment)

  • Unemployment helps create some good things

• Unemployment / Labor Force Participation Rate, Definitions and how it's calculated.

  • Unemployment needs to meet requirements 

    • 16+ 

    • Looking for work 

    • Not disabled/in a mental institution 

  • Calculated by doing (unemployed population) / (labor force)

  • Labor Force Participation Rate 

    • % of the population that is either working or actively looking for work

    • (Labor Force ÷ Civilian Noninstitutional Population) x 100

• Types of Unemployment

  • Seasonal

    • Business shuts down during certain seasons (ex. Six flags)

  • Cyclical

    • Follows the business cycle 

      • Demand goes up, more people required to make it 

  • Frictional

    • When you leave a bad job for a better job 

    • Most favorable -- creates a PPF curve that is minorly inside of the curve 

  • Structural 

    • Overall structural change in the economy changes the jobs that are needed 

• Discouraged Workers

  • Discouraged workers - people who don’t look for jobs (ex: covid)

• Inflation (Demand Pull / Cost Push)

  • Purchasing power

    • How much does my dollar buy me?

  • Demand Pull - Excessive spending relative to output

    • Too many dollars are chasing too few goods

      • Demand increases, price goes up 

    • Central bank issues too much money

  • Cost Push - Due to a rise in per-unit input costs

    • The costs of inputs are rising, and thus the cost of goods and services rising along with them

    • Supply shocks

    • Reduces real output; redistributes a decreased level of real income

• Supply & Demand Shocks

  • Shocks - what happens is not what you expect 

    • Demand shocks - sudden drop/increase in demand (tax cuts or stimulus checks)

    • Supply shocks - unforeseen drop or increase of supply 

      • i.e. natural disasters cause supply to drop rapidly 

• "Sticky Prices" (Menu Prices)

  • Prices that will not change 

  • Cost of changing menu costs more than the menu changes

• Price Indexes (CPI, Chapwood, etc) and what they do

  • Price Index = (cost of basket today / base year) x 100

  • CPI - cornucopia of goods that everybody buys 

    • i.e. eggs, butter, cheese, milk, household cleaners, soap, etc. 

    • CPI has limitations on consumer preferences or changes in what “everyone” owns 

    • Quality of products change overtime (i.e. Hershey’s chocolate bars) 

  • Chapwood - compares the national CPI index to their city-level series

• PPF Curve and how GDP / Unemployment pertains to it topically.

  • If we are more productive, it expands

    • GDP is a measurement of production 

  • Unemployment 

    • Curve assumes that we’re using the curve efficiently

      • Making the assumption that unemployment does not reflect productivity below optimal levels 

      • Reallocating labor resources more efficiently

• BLS (Bureau of Labor Statistics) / BEA (Bureau of Economic Analysis) 

• "Crowding-Out Effect

  •  increased government borrowing and spending causing a reduction in private spending.