Jan. 27.2016
Gross domestic product (GDP)- market value of all final goods and services produced within a nation in a given year
-what's not included in GDP
1. Intermediate goods-something that need further processing
2. Used or second hand goods- already been accounted for
3. Purely financial transactions-stocks and bonds
4. Illegal activities( drugs)
5. Unreported business activity-tips
6. Non-market activities- volunteering, babysitting
7. Transfer payments- scholarships, welfare payments, social security.
Jan.28,2016
Included in GDP
1. C-personal consumption expenditure 65% of American economy based on this
2. Ig-gross private domestic investment, factory equipment maintenance, nee factory equipment, construction of housing, unsold inventory or product built in a year 17%
3. G- government spending 20%
4. Xn-net exports (exports-imports) -2%
GNP-gross national product, total value of all final goods and services by citizens of that country on its land or foreign land.
1-29-16
2 ways of calculating GDP
1. Expenditure Approach- add up all of spending on final goods and services produced in a given year. GDP=C+Ig+G+Xn. (Export-import)
2. Income approach- adds up all income that results from selling all final goods and services produced in a given year. W+R+I+P+statistical adjustments(indirect buissness taxes, depreciation, net foreign factor payment)
1. Compensation of employees-wages and salaries, pensions, insurance, health and welfare
2. Rents- income received by property owners
3. Interest-money paid by private businesses to the suppliers of loans
4. Corporate profits- income of the corporation stock holders, dividends, and corporate income taxes
5. Proprietor income- income that comes from enterpenuers and partners in a business
Feb 2,2016
-Nominal interest rates-percentage increase in money the borrower must pay the lender for a loan. Not adjusted for inflation.
*unanticipated inflation
-real interest rate- percentage increase in purchasing power the borrower must pay the lender for a loan. Adjusted for inflation. (Nominal interest rate-inflation=real interest rate.)
*Anticipated inflation- fisher effect
Nominal interest rate=expected interest rate+inflation premium.
Hurt by inflation
1. Savers
2. Lenders/ creditors
3. People who are on a fixed income (elderly, welfare)
Helped by inflation
1. Debtors
Cost of living adjustments(cola)
- automatic wage increase when inflation occurs (New York and California)
Feb. 4 2016
- Unemployment- failure to use available resources. Particularly labor to produce desired goods and services
- Labor force=employed and unemployed
-above 16 years old
-able and willing to work
-Not labor force
1. military
2. Students
3. Retired
4. Disabled
5. Homemakers
6. Mental institution
7. Jail
8. Those who are not looking for a job.
Unemployment rate-4 to 5% ideal rate of unemployment=full employment or natural rate of unemployment(NRU)
- how to calculate unemployment rate=# of unemployed/(# of employed+# of unemployed) x 100
4 types of unemployment-
- Frictional- those who are searching for a job. Temporarily unemployed. In between jobs. Transferable skills. College or high school graduates. Laid off. Leave job looking for better job.
- Structural unemployment- changes in structure of labor force. That makes some skills obsolete. These workers do not have transferable skills. Workers have to learn new skills.
- Seasonal unemployment- due to the time of year and nature of the job.
-school bus drivers
-life guards
-Santa clause impersonators
-construction workers
- cyclical-economic downturns such as a recession. As demand from goods and services falls and demand for labor falls and workers are laid off
-Walmart
-Macy's
- frictional +structural employment=NRU
- Full employment= no cyclical employment.
February 5th 2016
- GDP gap- amount by which actual GDP falls short of potential GDP
- Okun's law- for every 1 percent in which the actual unemployment rate exceeds the NRU a GDP of about 2 percent occurs. Ex: in 2012 the unemployment rate for Mexico was 7.4% the NRU for Mexico is 6%.
-7.4-6=1.4x2=2.8. Actual unemployment rate-NRU
- rule of 70- used to determine how many years it takes for a value to double. Given a particular annual growth rate.
-ex: if you put 20k in the bank and it earns a yearly interest of 7 percent how many years will it take for your income to double? Answer= 10. 70/7= how many years it takes to double.
70/annual interest rate.
https://www.youtube.com/watch?v=3x_GFkfp2kA <-------open video for more information
