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 5-6-7

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 OPPORTUNITY FOR WOMEN

 

     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 LONDON TIMES

 

 

    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:

                              HOUSTON(127) VS NEW YORK(146)

                             USE http://www.accra.org/

 

                             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: U.S. GOVERNMENT

 

 

MACROECONOMICS/POLICY GOALS

          UNEMPLOYMENT

          INFLATION

          GROWTH

          EXCHANGE RATE