unit 3.14-3.16 review
Unit 3.14: Overview of Macroeconomics
Definition of Macroeconomics:
Macroeconomics involves the examination of the behavior of the whole economy.
Key components of macroeconomic study include:
Circulation of money and resources
Labor supply (Ls) and labor demand (LD) in the workforce market
The roles of corporations, government, and households in the economy
Financial markets, savings, and investments
Gross Domestic Product (GDP):
Definition: GDP is defined as the total dollar value of all final goods and services produced by resources located in a nation. It is an essential measure of economic activity and health.
Nominal GDP:
Nominal GDP values in billions of US dollars are categorized as follows:
$10,000+
$5,000-$10,000
$2,000-$5,000
$1,000-$2,000
$500-$1,000
$200-$500
$100-$200
$50-$100
$20-$50
$10-$20
$0-$10
GDP Per Capita:
GDP per capita serves as an indicator of living standards around the world.
According to 2018 data, the breakdown of GDP per capita (in $) is:
$100K and More
$50K-$99.9K
$20K - $49.9K
$10K-$19.9K
$5K-$9.9K
$1K-$4.9K
Less than $1K
GDP Growth Rate:
GDP growth rates vary significantly by country, as reported in the International Monetary Fund (IMF) World Economic Outlook Database, April 2020.
Growth rates are classified as follows:
Above 2%
1-5%
0%
Recent Trends in GDP:
GDP has experienced significant decreases.
Recent data shows an historical decrease of -9.5%.
Relation Between Economic Freedom and GDP Growth:
Analyzing the top ten economies based on Economic Freedom (according to the Heritage Foundation) shows correlations with GDP growth rate forecasts.
Countries mentioned include United Kingdom, United States, Germany, China, Brazil, etc.
High economic freedom often correlates with higher GDP growth forecasts.
Effects of Population Increases on GDP:
Relationship between population growth and GDP per capita in the U.S. shows fluctuations that affect economic projections.
Labor and Productivity:
Inquiry into whether labor benefits sufficiently from increased productivity.
Real GDP per capita and median household income are charted, contributing to discussions on economic inequality.
Importance of GDP:
GDP tracks national economic progress and standards of living.
Influences domestic economic policy decisions and plays a critical role in international affairs, affecting trade and foreign aid policies.
Limitations of GDP as an Economic Measure:
GDP does not account for the quality of goods produced.
GDP fails to measure wealth distribution and income equality.
Underground (black market) economic activities are not included.
Externalities such as environmental damage are disregarded.
GDP assesses production by geographic location rather than national ownership, leading to discrepancies with Gross National Product (GNP).
Alternative Measures of Economic Development:
The Human Development Index (HDI) is used to evaluate broader aspects of well-being beyond GDP.
HDI categories are:
≥ 0.900
0.850-0.899
HDI incorporates factors including life expectancy, education levels, and per capita income.
Understanding GDP Components:
Included in GDP:
Consumption: Household spending on goods (groceries, clothes) and services (haircuts).
Investment: Expenditures by businesses and households on fixed assets (new homes, inventories).
Government Expenditures: Spending at all levels (local, state, federal) on public infrastructure (roads, schools).
Net Exports: The value of a country's exports minus its imports.
GDP Formula: GDP = Consumption + Investment + Government Spending + Net Exports
Not Included in GDP:
Intermediate goods
Used goods
Underground economic production
Financial transactions
Household production activities
Transfer payments
Breakdown of GDP Components by Percentage:
Average percentages of GDP since 2003 are:
Government: 19%
Investment: 16%
Consumption: 70%
Net Exports: Negative 1%
Growth Rates and Economic Performance:
A sustainable year-over-year GDP growth rate of around 2% is considered realistic for economic health.
Real vs Nominal GDP:
Nominal GDP: GDP expressed in current year prices, not adjusted for inflation.
Real GDP: GDP expressed in base year prices, providing a clearer view of economic growth by adjusting for inflation. An increase in real GDP signifies genuine economic growth.
Limitations in GDP Measurement:
GDP does not encompass income distribution, non-monetary outputs (e.g., bartering), desirable externalities (like leisure or environmental quality), and social well-being indicators. Correlation exists with the standard of living, yet it does not definitively measure it.
Unit 3.15: Poverty & Distribution of Income
Understanding Poverty:
Definition of Poverty: A condition in which people do not have enough income to provide for their basic needs.
Determining Poverty:
Poverty Line: The minimum level of income deemed necessary to achieve an adequate standard of living in a given country.
Annual Household Income and Poverty Line in the U.S.:
Visualization: Annual income levels represented on a bar graph indicating poverty status.
Example Income Range:
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
Minimum Wage Discussion:
Question raised: "Is the minimum wage a living wage?"
Statement: "WE Can't Survive on $8.25/hr"
The Working Poor:
Definition: Individuals who are employed but earn below the poverty guidelines.
Minimum Wage Calculation:
Minimum Wage x 2000 (hours worked in a year) = Annual Income
Federal Poverty Levels (2020):
Income thresholds based on household size for classifications:
138% Level: $17,236
150% Level: $18,735
200% Level: $24,980
250% Level: $31,225
300% Level: $37,470
400% Level: $49,960
Specific Income Levels for Other Households:
Varying levels based on household size from (B to M) featuring income ranges that correspond to poverty for 2019-2020.
Poverty Comparison Examples:
Child Poverty Rate (2013):
McHenry County, Illinois: Child Poverty Rate: 9.2% vs Illinois statewide average: 20.6%; noted changes over previous years.
Bankruptcies per 1,000 People (2013):
McHenry County: 4.60
Illinois: 5.05
Global Poverty Statistics:
Chart with categories: Population living on less than $1.25 a day:
Under 2%
2%-5%
6%-20%
21%-40%
41%-60%
61%-80%
No data available
Percentage of Population Living Below National Poverty Lines: Various thresholds from <10% to >60%.
Characteristics of Likely Poor Individuals in America:
Family belongs to a minority group.
Head of family is a female.
Head of family has no high school diploma.
Head of family affected by physical or mental illness.
Family resides in a rural or urban area.
Education and Poverty Correlation:
Education Levels vs. Poverty Rates:
No High School Diploma: Poverty Rate: 25%
High School Diploma: Poverty Rate: 11%
Two Years of College (Associate Degree): Poverty Rate: 7%
Four Years of College (Bachelor’s Degree): Poverty Rate: 2%
Six Years of College (Master’s Degree): Poverty Rate: 0.3%
Causes of Poverty:
Unemployment.
Low productivity.
Low educational levels, no skills, etc.
Restrictions on job entry.
Discrimination.
Cycle of Poverty:
Consequences of being poor in America include:
Poorer health.
Reduced educational opportunities.
Higher rates of experiencing violence.
Results of Poverty:
Notable outcomes include precarious livelihoods and social exclusions, physical limitations, complications in gender relationships, and a lack of security, which can lead to exploitation or abuse by those in power.
Strategies for Reducing Poverty:
Key interventions include:
Invest in infrastructure and capital to create jobs.
Government programs aimed at supporting those in need (educational opportunities, skills training, welfare programs including food stamps and other aid options).
Unit 3.16: Unemployment
Definition of Unemployment:
Unemployment refers to individuals who are willing and able to work and are actively seeking work, but who do not currently work.
Unemployment Rates:
Rate of Unemployment (% Breakdown):
95-100%
90-94.9%
85-89.9%
80-84.9%
75-79.9%
70-74.9%
65-69.9%
60-64.9%
55-59.9%
50-54.9%
45-49.9%
40-44.9%
35-39.9%
30-34.9%
25-29.9%
20-24.9%
15-19.9%
10-14.9%
5-9.9%
0-4.9%
No data available
Historical Unemployment Rate (1890-2008):
The unemployment rate in the United States has varied significantly from 1890 to 2008, with key data points linked to economic events (e.g. Great Depression, post-war periods). This variation is graphically represented over the years.
Employment Statistics:
Net Change in Employment Per Month:
Change documented in thousands of jobs created or lost monthly from January 2009 to January 2017.
Positive values indicate job creation; negative values indicate job loss.
Analysis of notable variations in the unemployment rate.
Measuring Unemployment:
Unemployment Rate Formula:
Unemployment Rate = (Number Unemployed / Civilian Labor Force) × 100
Exclusions from Unemployment Statistics:
Individuals not counted as unemployed include:
Not of employable age
Unable to work due to illness or disability
Members of the armed services
Incarcerated or committed individuals
Willfully not seeking work.
Underemployed Individuals:
Underemployment includes being underqualified for one's job or earning less than qualifications suggest.
Disheartened individuals who have ceased looking for work also fall outside the unemployment statistic.
Recent Unemployment Analysis:
Overall trends reveal shifts in labor force participation rates, especially among marginalized groups, while the unemployment rate has fallen in recent years but does not tell the complete story.
U3 vs. U6 Unemployment:
U3: Official unemployment rate reflects individuals actively looking for jobs.
U6: A broader measure that includes underemployment and those who have given up job searching.
Unemployment Rate vs. Labor Force Participation Rate:
Comparative statistics presented in a graph showing the relationship over the years.
Regional Specifics:
Unemployment rates by county (2021):
Categories include rates 8.0% or higher, with U.S. average at 5.3%.
Racial Bias in Employment Data:
Data analysis reveals that Native Americans have faced higher economic stressors compared to other groups, highlighting the impact of job losses and reduced hours across racial lines.
Employment Losses During Recessions:
Comparison of payroll job losses during various recessions, showing COVID-19 recession introduced unprecedented job losses.
Data presented in terms of percentage differences in job numbers since employment peak across different recessions.
Types of Unemployment:
Structural Unemployment:
Caused by a mismatch of skills and employers' needs, often requiring workforce relocation.
Cyclical Unemployment:
Occurs due to lack of demand in the economy, reducing hiring.
Frictional Unemployment:
Refers to individuals temporarily out of work, often voluntarily seeking better job opportunities.
Seasonal Unemployment:
Tied to seasonal jobs that fluctuate throughout the year.
Most Important Types of Unemployment to Address:
Structural unemployment represents long-term issues related to skills mismatch, while cyclical unemployment highlights broader economic conditions.
Mitigating Unemployment Strategies:
Strategies include:
Improving educational systems to enhance worker skills.
Investment in infrastructure projects to create jobs.
Tax decreases to stimulate economic growth and job creation.
Provision of subsidies or incentives for businesses to hire.
Controversial discussion around lowering the minimum wage as an encouragement for hiring.