FILE: 252N03.HTML
CLASS NOTES FOR ECONOMICS 252/ FALL 2005
DR. WILLIAM SHINGLETON
THESE NOTES ARE FOR SEPTEMBER 6-8
NEXT WEEK:
BUSINESS CYCLE CH
8
FIRST EXAMINATION CH 1-7
25 MULTIPLE CHOICE/ 3
POINTS EACH
1 25 POINT ESSAY
CLOSED BOOK/CLOSED NOTE/TIME
LIMIT
CHAPTER 8 IS NOT ON
THIS EXAM
REVIEW SUPPLY AND DEMAND USING QUIZ RESULTS
IT'S AS EASY
AS A, B, C
FINISH TOPICS FROM LAST WEEK
MEASURES OF ECONOMIC HEALTH
CH
THOSE (IN)FAMOUS NUMBERS
GDP
MEASURES OF INCOME AND OUTPUT
GDP...FINAL OUTPUT OF
US LOCATED RESOURCES
AN INDICATOR OF
POTENTIAL JOBS
DEFINE FINAL
OUTPUT
VALUE ADDED
VALUE ADDED TAX
NOMINAL VS REAL
PRICE INDEX
REAL PER CAPITA
DEPRECIATION
\ DPI...AFTER TAX INCOME
FINANCES OVER 70%
OF SALES
CAN BE CHANGED
BY
CHANGE IN GDP
CHANGE IN
TAXES
GDP REPORT END OF MONTH FROM SITE OR
http://www.bea.doc.gov/bea/newsrel/gdpnewsrelease.htm
BREAKDOWN OF GDP
2005 Q2/DECEMBER 22, 2004
1 Gross domestic
product 12,373
2
Personal consumption expenditures 8,668
3 Durable goods 1,035
4 Nondurable
goods 2,533
5 Services 5,100
6 Gross private
domestic investment 2,054
7 Fixed
investment 2,054
8 Nonresidential 1,313
9
Structures 326
10 Equipment and
software 987
11 Residential 740
12 Change in private
inventories 0.5
13 NET
EXPORTS -687
14 GROSS
Exports 1,304
15 Goods 904
16 Services 4006
17 GROSS
Imports 1,991
18 Goods 1,662
19 Services 330
20
Government expenditures 2,338
21 Federal 868
22 National
defense 581
23 Nondefense 287
24 State and local 1,470
GROWTH RATE
3.3 PCT 2005.Q2
3.3 AVERAGE OVER LAST 20 YEARS
POTENTIAL GDP VS ACTUAL GDP
JOBS/UNEMPLOYMENT
UNEMPLOYMENT RATE 4.9
LABOR SUPPLY (IN MILLIONS)
149.8(AUG05) 148.2 (DEC04) 146.8(DEC03) 142.6
(DEC00)
JOBS
142.4(AUG05) 140.1(DEC 04) 138.4(DEC03) 137.8 (DEC00)
UNEMPLOYED
7.4(AUG05) 8.0 (DEC 04) 8.4
(DEC03) 5.6 (DEC00)
UNEMPLOYMENT RATE
5.4 (DEC04) 5.7 (DEC03) 3.9 (DEC00)
JOBS/UNEMPLOYMENT
NUMBER OF JOBS VS UNEMPLOYMENT RATE
WHAT ARE THEY?
WHERE ARE WE
NOW? /LATEST 5.4/AUG04
CAN WE IMPROVE?
HOW?
LABOR MARKETS/UNEMPLOYMENT
FIRST FRIDAY OF
EACH MONTH
DATA: ESTABLISHMENT
VS HOUSEHOLD SURVEYS
TYPES OF UNEMPLOYMENT
VOLUNTARY/INVOLUNTARY
ONLY ECONOMISTS
COULD ASK...
COST TO SOCIETY
NATURAL
JOB SEARCH AND
UNEMPLOYMENT COMPENSATION
EFFICIENCY
USED BY 40%
OF UNEMPLOYED(APR03)
STRUCTURAL
MINIMUM WAGE
INDUCED
DISCRIMINATION
FRIEDMAN ON
BLACK TEENAGE UNEMPLOYMENT
SKILLS/LOCATION
MISMATCH
FRICTIONAL
CONSTRUCTIVE..CAPITALIST ROLE
OPPORTUNITY/FLEXIBILITY/OPTIMISM/TURNOVER
OLDER POPULATION
IMPLIES LOWER NATURAL RATE
REAL/CYCLICAL
UNEMPLOYMENT
QUANTITY SUPPLIED
VS QUANTITY DEMANDED
JOBS RELATED TO
REAL GDP
TRADE OFFS POLITICAL
ECONOMY...CONCENTRATED PAIN
SUPPLY OF LABOR (L)
L = L(LFPR,
POPULATION)
LFPR = F(WAGES, DEMOGRAPHICS, UNEMPLOYMENT RATE)
ROLE OF 1996 WELFARE
REFORM ACT
OVER 384,000 DISCOURAGED
WORKERS / BLS DATA
534,000
AUG 2004
260,000 IN
2000 (TEXT)
OVER
? MILLION UNDEREMPLOYED WORKERS
HOW MUCH REAL UNEMPLOYMENT IS THERE?
MEASUREMENT PROBLEM
DATA INTERPRETATION
PROBLEM
SOLUTIONS
EXTENT OF PROBLEM MUST FIRST BE IDENTIFIED
DIFFERENT CAUSES
REQUIRE DIFFERENT SOLUTIONS
UNEMPLOYMENT
COMPENSATION VS JOB TRAINING
FRICTIONAL VS
STRUCTURAL UNEMPLOYMENT
IMPERFECT CAPITAL
MARKETS
LONG TERM UNEMPLOYMENT
GENERAL VS
SPECIFIC SKILLS
CHILD CARE AND
ZERO UNEMPLOYMENT IS
PROBABLY NOT THE BEST GOAL
CAN THESE GOALS CALL FOR CONSISTENT POLICIES?
INFLATION/PRICE INDEX
PRICE INDEX
AVERAGES...SOME
INCREASES, SOME DECREASES
MARKETBASKET
BASE YEAR
USE: COST OF
LIVING
CALCULATION
EXAMPLE: 12
DAYS OF CHRISTMAS
CPI
CURRENT INFLATION
RATE 3.2//JUL05 VS 3.3/DEC 2004
CORE RATE
2.1 (W/O FOOD AND ENERGY)
USES 1982
84 BASE YEAR
MOST
WIDELY USED INDEX
FAMILY
SIZES
INCOME
LEVELS
A JOB FOR
AN ECONOMIST
COLA, COLA CAPS
NOT
COMPARABLE FOR DIFFERENT AREAS:
USED BY BUSINESS IN MANAGEMENT SHIFTS
OTHER PRICE MEASURES
PPI
GDP DEFLATOR
REAL VS NOMINAL VALUES
REAL =
NOMINAL/PRICE INDEX
REAL = CONSTANT
DOLLAR = 1982 DOLLAR
NOMINAL = CURRENT
DOLLAR
EXAMPLE: US WAGES
IN 2004
INFLATION VS CHANGE IN
PRICE LEVEL
RAY BRADY IN
INDIANAPOLIS/NBC IN 1989
DEFLATION
HYPERINFLATION/DISINFLATION
EFFECTS OF INFLATION
SHOELEATHER COSTS/
WASTED TIME
ANTICIPATED VS
UNANTICIPATED
WINNERS AND
LOSERS
BORROWERS AND
LENDERS
EXAMPLE:
MACROECONOMICS/POLICY GOALS
UNEMPLOYMENT
INFLATION
GROWTH
EXCHANGE RATE