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Chapter 24-29

ECON 2030 Chapter Notes - Chapter 24-29: Open Market Operation, Government Spending, Monetary Base

Course Code
ECON 2030

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A. Introduction to macroeconomics
B. Economic Growth
1. An increase in the total output of an economy. It occurs when a society
acquires new resources or when it learns to produce more using existing resources.
2. Measure
3. Major Issue: Fluctuations over time
a. Long Run: Changes in Productivity
b. Short Run: Business Cycle
c. Recession, Depression, Expansion
d. Example: Productivity (“procyclical”)
C. Unemployment: The Basics
1. Definitions
a. Unemployment Rate
A. Unemployment: The Basics
1. Measurement: BLS Household survey
a. Employed- if they did any work at all during the reference week.
b. Unemployed-if they did not work during the reference week,
were available for work, and was avidly searching for work.
c. Not in Labor Force- if nothing above applies and they are of the
age to work.
d. Labor Force = a + b
e. Working age population = a + b + c
2. Examples
3. “True” problem of unemployment
a. Malemployment- people that are working a job that is not to their
skill level.
b. Discouraged workers- people that cannot find a job and give up.
4. Relationship with the business cycle
a. Countercyclical, with a lag
B. Unemployment: Four Types
1. Frictional- good type- search unemployment
a. 1 person unemployed; 1 job opening; and skills match.
b. Short-term; desirable
c. Examples- not omniscient
d. this is normal unemployment turnover caused by job skill
matchmaking problems.
2. Structural- bad type
a. this type is due to changes in the economy and a large number
of people lose their jobs in a certain area.
b. Long-term; undesirable; policies
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c. Examples
3. Cyclical- Ugly type
a. this is when the unemployment rate is higher than the friction
and the structural rates combined.
b. Short or long-term; very undesirable; policies
c. 2007-2009 when the unemployment rate rose from 4.6 to 9.3
4. Seasonal
a. Definition
b. Short-term; inevitable; adjustments
c. beach umbrella people, snowballs, ect.
C. Policy Goal: Full Employment
1. Definition
C. Inflation and Inflation Rates
1. Definitions
2. Measurement: Fixed basket of goods and services
a. Consumer Price Index (CPI)
b. Producer Price Index (PPI)
c. Total and Core inflation rates
A. Uses for the inflation rate
1. KEY RELATIONSHIP: Nominal and Real values
a. Real = Nominal – rate of inflation
* you can't compare the nominal and real values without looking at other sources.
Min Wage:
Nominal Real
In 1974- $1.90/hr 9.17/hr
In 2014- $7.25/hr 7.25/hr
2. Deflating
a. Convert nominal value into real value
b. Application: Minimum Wage—higher in 1974 or 2014?
3. Indexing
a. Adjust nominal value to hold real value constant
b. Application: Social Security benefits
B. True Costs of Inflation: NOT loss of purchasing power, rather...
1. Interference with long-run planning
a. Increased fluctuation in inflation rates = increased risk in
borrowing and lending
Higher interest rates hurt borrowers.
b. Fisher Effect: nominal interest rates and inflation rates
as interest rates go up nominal rates are up
A. Gross Domestic Product (GDP)
1. Measuring: Expenditure Approach (y = C + I + G + X – IM)
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