AGENDA, )Check Modules 11/12 2)Update on quizzes/projects/article reviews 3)Quantity Control (finish!) 4)Circular Flow Diagram 5)GDP 6)Real GDP 7)HW: Module 13/14 1

WELCOME TO MACROECONOMICS!!! National income & product accounts = how we measure a country’s wealth (MEP – measurement of economic performance) (“national accounts”) – consumer spending, sales of producers, business investments, government purchases, etc Circular Flow Diagram – Households Firms Product Markets Factor Markets 2 Represents flow of money versus flow of goods and services

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Advanced CFD: 4 Adds in Government, Financial Institutions, International Transactions

CIRCULAR FLOW DIAGRAM The big things: Flow of money into each market or sector is equal to the flower of money coming out of that market or sector Households engage in consumer spending Households earn income by wages from labor, stocks, bonds, income from interest/rent People do not spend all of their disposable income – put some into savings 5

GOVERNMENT ROLE? Government gets taxes Government gives “govt transfers” – what are these? Government buys goods/services (govt purchases) International Trade – imports and exports Foreign Lending 6 ** Imports and exports may be gov’t OR individual but counted for national accounts!

AGENDA, )Check Modules 13/14 2)GDP (what is it? Calculating) 3)Real GDP 4)Practice Question 5)Unemployment 6)Hand out tests, project grades 7)HW: Module 15/Summary Remember: Quiz over Modules 8-15 next Wednesday! 7

GROSS DOMESTIC PRODUCT GDP = total value of goods and services produced in an economy in a given time period We compare economies using GDP *final goods versus intermediate goods Formula for calculating GDP GDP = C+I+G+X-IM 8 KNOW THIS !!

GDP DOES INCLUDE -final goods/services -investment spending - Changes to inventories DOES NOT INCLUDE - Intermediate goods/services - Inputs - Used goods - Stocks/bonds - Foreign produced goods/services 9

REAL GDP What is the problem with “regular” GDP? Real GDP versus nominal GDP = Aggregate Output = 10

REAL GDP GDP per capita Why is it important? How do we measure? 11

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PRACTICE: Atoll K is small island nation. Its population total is 400, and it has 100 wage earners who earn an average of $50 per year. Each wage earner spends $40 per year buying local goods and services and $2.50 buying imports. The island exports a total of $800 worth of goods. The Government tax rate is 10% and all government money is spent on building infrastrcuture and supporting schools. There is only one industry (uranium mining) on the island and it employs every wage earner. The industry spends $600 each year on new mining equipment. What is the GDP? 13

ANSWER Y = C + I + E + G, where E = X – M C = 100 x $40 = $4000 Total Consumer Spending I = 600 Total spent on Investment X = 800 Total received from Exports M = 100 x $2.5 = -250 Total spent on Imports G =.1 x (100 x $50) = 500 (10% of total income for workers) $5650 Total = GDP 14

AGENDA, )Check Module 15 2)Finish Unit Two (unemployment) *no Modules 14/15 on Quiz 2 3)Quiz overview 4)Review content (practice problems) 5)Pass out project rubrics, rest of quizzes Notes: *Quiz Wednesday 9/26 *Y Block 9/26 – optional session to go over quiz *Y Block 10/2 – optional extra quiz to show mastery 15

UNEMPLOYMENT RATE Employed – Congrats, you have a job! Unemployed – jobless, looking for jobs, available for work (actively seeking in past 4 weeks) Not unemployed, not employed: - Happily retired - Disabled - In school 16

UNEMPLOYMENT RATE Labor Force = sum of Employed and Unemployed Labor Force Participation Rate = (labor force/total pop. 16 and over) X 100 Unemployment Rate = (# of unemployed workers/labor force) X 100 How measured? = Current population survey - monthly (Sample Size 60,000) 17 Know it!! Love it!!

UNEMPLOYMENT RATE “Good” = about 4%, people get worried when it rises above about 8% Never will reach 0% Can understate unemployment “discouraged workers” “Marginally attached workers” “underemployed workers” = Bureau of Labor Statistics calculates the broader measure of labor underutilization * U6 = unemployed rate + three above 18

UNEMPLOYMENT Job changes: - new technologies emerge - consumers’ tastes change - structural changes - poor management/bad performance Frictional Unemployment = unemply. Due to time workers spend in the job search - job creation/destruction - workers entering/re-entering workforce 19

STRUCTURAL UNEMPLOYMENT When # of workers exceeds # of jobs at a certain pay level Employment and the Labor Market – supply and demand 20 Causes of S.U.: Minimum Wages Labor Unions Efficiency Wages Public Policy

UNEMPLOYMENT Natural Rate of Unemployment = frictional + structural Actual Rate of Unemployment = natural + cyclical Natural Unemployment changes because… - labor force changes - labor market institutions - changes in govt. policies 21 Cyclical is unemployment that results from the business cycle Additional type of unemployment isn’t one of “Big Three” (frictional, structural, cyclical) but also important: seasonal, resulting from jobs that naturally end/begin with a season/event

QUIZ REVIEW - Price Controls (Ceilings, Floors) -Quantity Supplied, Quantity Demanded (at certain prices) -Effects of ceilings, floors (shortage, surplus) -Inefficiencies/Problems - Quantity Controls (Quotas) -Price Supplied versus Price Demanded -“Wedge” -Problems/Inefficiencies - Circular Flow Diagram (what is it? Parts? Purpose?) 22

QUIZ REVIEW - GDP (what goes in it, calculating it) - Real GDP (difference between it and nominal, how do we calculate, what does it show?) - Unemployment -How to calculate -Kinds of unemployment -Supply/demand of wages showing shortage/surplus of workers 23