Who's Hurt By Inflation & The 4 Types of Unemployment

A. Who's Hurt?
Savers, lenders, creditors, those on a fixed income.
B. Who Gains?
Debtors.
*COLA (Cost of Living Adjustment) automatically increases with inflation.
1. Unemployment- failure to use available resources particularly labor to produce goods and services
1a. Who's In the Labor Force? anyone above 16 years of age who's willing to work
1b. Who's Not In the Work Force? People in the military, homemakers, retired/ disabled people, people in mental institutions, and those not looking for work.
1c. Unemployment Rate- 4-5% = full employment of natural rate of unemployment (NRU)
2. How to Calculate Unemployment
(# of unemployed/ # of employed + # of unemployed x 100)
2a. Four Types of Unemployment
Frictional- people who are "in between jobs" they have transferable skills
Structural- changes in work force makes some skills obsolete. They don't have transferable skills
Seasonal- due to time of year, nature of season
Cyclical- unemployment that occurs because of recession
*Frictional & Structural are unavoidable types of unemployment.

Calculating GDP

1a. Income Approach- adding all the income that resulted from selling FINAL goods and services produced in a year.
 ( wages + rent + interest + profit +statistical adjustment)
1b. Expenditure Approach- adding all the spending on final goods and services produced in a given year.
(GDP = C (Personal Consumption) + Ig (Investments) + G (Government Spending) + Xn (Net Exports)
2a.
Compensation of Employees- wage + salaries or wage salary supplements such as welfare
Rent-income received by the households and businesses that supply resources
Interest- money paid to suppliers of loans
Proprietor's Income- comes from sole proprietorship and partnerships
Corporate Profits- could include dividends, corporate income taxes and undistributed corporate profits.
Statistical Adjustment- indirect business tax, consumption of fixed capital (depreciation) and net factor foreign payment.
3.Nominal v Real
Nominal GDP- quantity x current year price
Real GDP- quantity x base year price
-In the base year Nominal GDP = Real GDP, in years after the base year Nominal GDP > Real GDP. In years before base year Nominal GDP < Real GDP.
4. GDP Deflator
)Nominal GDP/Real GDP x100) - In years before the base year, deflator less than 100, in base year it equals 100 and in years after it's greater than 100.
5. Consumer Price Index
(cost of market basket of goods in a given year/ cost of market basket of goods in base year x 100)
6. Inflation
(Price Index In Current Year- Price Index In Year 1/ Price Index In Year 1 x 100)

GDP

A. What Is GDP? GDP is an abbreviation for Gross Domestic Product
Gross Domestic Product- the total market value of all final goods and services that is produced within a country's borders in a given year
B. What is GNP? GNP is an abbreviation for Gross National Product
Gross National Product- the total market value of all final goods and services by citizens of that country on its land or any other foreign lands.
C. What's Included in GDP?
   (65%)  C- Personal Consumption Expenditures
    (17%) Ig- Gross Private Domestic Investment
              Such as factory equipment, factory equipment maintenance, construction of housing, unsold inventory of products built in a year.
     (20%) G- Government Spending
     (-2%) Xn- Net Exports (Exports minus Imports)
D. What IS NOT included in GDP?
1. Intermediate Goods- goods that require further processing before they are ready for final use
2. Used or Secondhand Goods- not counted to avoid double counting
3. Purely Finacial Transactions- (stocks and bonds) not counted because it's not a good or service
4. Illegal Activities
5. Unreported Business Activity- (unreported tips)
6. Transfer Payments
  a. Public Payments (Social Security, Veterans, Welfare)
  b. Private Payments (Scholarship)
7. Non- market Activity (work you perform for yourself, babysitting for parents, etc.)

Unit 2 Introduction (Market Economy)

A. Vocabulary
Circular Flow Diagram- represents the transactions in an economy.
Product Market- the place where good and services are produced by businesses
Factor Market- the place where households sell resources and businesses buy resources.
Firms- an organization that produces goods and services for sale
Household- a person or group of people that share their income. (In addition they share the factors of production with businesses)
 Here's an example of a circular flow diagram:

Economics (1/21)

Peak- the highest point of real GDP. It exhibits the greatest amount of spending and the lowest unemployment. In this phase, inflation is a problem.
Expansion- also known as the recovery phase. Real GDP is increasing as a result of spending increasing and unemployment decreasing.
Contraction/ Recession- Real GDP declines for 6 months. In this phase, unemployment increases and spending reduces.
Trough- Lowest point of GDP, includes highest unemployment and least amount of spending.

Total Revenue (Equations Included)

Total Revenue - The total amount of money a firm receives from selling goods and services. PxQ = TR
Fixed Cost - a cost that does not change no matter how much of a good is produced. Ex: Mortgage, rent, salary
Variable Cost - a cost that rises or falls depending upon how much is produced. Ex: electricity depends upon usage
Marginal Cost - the cost of producing one more unit of a good.
Formulas:
TFC + TVC = TC
AFC + AVC = ATC
TFC/Q= AFC
TVC/Q=AVC
TC/Q= ATC
AFC x Q= TFC
AVC x Q= TVC

Elasticity of Demand (a.k.a. Now We Add Math) & Intro to Supply

                                                           Elasticity of Demand
A. Elasticity of Demand: a measure of how consumers react to a change in price.
B. Elastic v. Inelastic
Elastic -
Demand that is very sensitive to a change in price.
A product is elastic when it's greater than 1.
Product is not a necessity and there are available substitutes.
Inelastic -
Demand that is not very sensitive to a change in price.
A product is elastic when it is less than 1.
People will buy it no matter what.
C. How to calculate : Price Elasticity of Demand (PED)
Step 1: Calculate the Quantity
Subtract the old quantity from the new quantity and divide it by the old quantity.
Step 2 : Price
Subtract the old price from the new price and divide it by the old price.
Step 3 : PED
Take the percent change in quantity demanded and divide it by the percent change of the price. So the answer of step 1 divided by the answer of step 2.
                                                                          Supply
Supply is the quantities that producers/sellers are willing and able to produce at various prices.

Supply down = left, supply up = right

The Law of Supply: There is a direct relationship between price and quantity supplied. Change in price causes a "change in quantity supplied".

What causes a "change in supply"?

1. A change in expectations

2. Change in weather 

3. Change in the number of suppliers

4. Change in costs of production

5. Change in taxes or subsidies

6. Change in technology