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Lecture 3

ECON 201 Lecture 3: Econ201Week3
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Department
Economics
Course
ECON 201
Professor
Dennis O' Dea
Semester
Spring

Description
11 April 2017 Article Response due Friday Midterm 1 Next Tuesday: Chapters 1, 2, 3, 6, 7, 8 Read Chapter 8 What data do macroeconomics look at? ● GDP ● Inflation ● Unemployment GDP ● Market value of all sales of Final goods ○ Or sum of value-added by all firms ○ Or sum of payments to all factors ● Measures the Market Value of all economic activity ○ Misses activity that isn’t traded in a market GDP and the Meaning of Life ● Rich is better ● Money matters less as you grow richer Nominal GDP vs. Real GDP ● Nominal gDP is measured using today’s prices ○ P x Q in any given year ■ P is the “Aggregate Price Level”, Macro P ○ Maks comparing GDP across time hard ○ Did output rise, or just prices? ● We want a way to measure Q only ○ Calculate PxQ, assuming prices somehow stayed “constant” at a base year’s prices ○ Which year? Somewhat arbitrary, not too long ago Price Indexes and Aggregate Price Level ● The aggregate price level is a measure of the overall level of prices in the economy ● To measure the aggregate price level, economists calculate the cost of purchasing a market basket ● A price index is the ratio of the current cost of that market basket to the cost in a base year, multiplied by 100 Indexing to the GDP ● Chained dollars is the method of calculating changes in the CPI using the average between the growth rate calculated using an early base year and the growth rate calculated using a late base year ● Probably more accurate; leads to smaller estimates of inflation Other Price Measures ● A similar to CPI for goods purchased by firms is the producer price index ● Economists also use the GDP deflator, which measures the price level by calculating the ratio of nominal GDP to real GDP Unemployment Rate ● Employments is the number of people currently employed in the economy, either full time or part time ● Unemployment is the number of people who are actively looking for work but aren’t currently employed ● The labor force is equal to the sum of employment and unemployment ● The labor force participation rate is the percentage of the population aged 16 or older that is in the labor force ● The unemployment rate is the percentage of the total number of people in the labor force who are unemployed ● Marginally attached workers would like to be employed and have looked for a job in the recent past but are not currently looking for work ● Discouraged workers are non-working people who are capable of working but have given up looking for a job because of the state of the labor market ● Underemployment is the number of people who work part time because they cannot find full-time jobs The Nature of Unemployment ● Workers who spend time looking for employment are engaged in job search ● Frictional unemployment is unemployment due to the time workers spend in job search ● Structural unemployment is unemployment that results when there are more people seeking jobs in a labor market than there ar
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