Tuesday, February 9, 2016
Sunday, February 7, 2016
UNIT 2
Two ways to
calculate GDP (Expenditures and Income Approach)
·
-Expenditures
approach: add up all the spending on final goods and serious produced in a
given year.
*** Formula: GDP=C+IG+G+Xn (exports-imports) or
you can use this formula GDP=W(wages)+R(rent)+I(interest)+P(profits)+
statistical adjustment
- Income approach: add up all the income that resulted from selling all final goods and services produced in a given year
-Compensation of employees could include wages, salaries, fringe plus
- benefits, social security contributions, health, and pension play plus
- rent-income of property owner of the loan
-interest is the income of that is paid by someone to the owner of the loan plus
-corporate profit that is the income of the stock holder in a corporation
- proprietor’s income is income of a sole proprietor or a partnership
Method #2
- GDP- Indirect Business Taxes – Depreciation not Foreign payment
- Disposable personal income:National Income – Personal house hold taxes + your government Transfer payment.
ex: 2143-372+320=2091
ex: 2011-372+320=1951
- Depreciation = consumption of fixed capital
- Expenditures Approach
GDP= C+IG + G + xn
1810 + 437+577 (2824)
GDP= 940+220+475+(195-201)
GDP=1629
Budget deficit
- GDP deflator – it is a price index use to adjust from nominal to real GDP.
in the base year the GDP inflator always =100.
4 years after the base year the GDP is greater than 100
4 years before the bare years GDP deflator is less than 100
Consumer price index
It is the most commonly use measurements of inflation
-it measures cost in of a market basket of good of a typical urban American family.
Formula: cost of a market basket of goods in a given year.
CPI= of a market + basket of year intentional year
Nominal interest rate = it is the percentage increase in money, the borrower must pay the lender for a loan.
EX: borrow 1000
Interest 5%
Pay back $1050
Nominal % rate- not adjust for inflation
Real %rate – It is the percentage increase in purchasing power the borrower must pay lender for a loan (adjusted for inflation)
Real interest Rate : Nominal interest rate – inflation
Anticipated inflation – fisher Effect – How to calculated interest rate.
Excepted % rate + inflation premium
HURT BY INFLATION HELPED BY INFLATION
1. Savers 1. Debaters
2. Lenders/creditors (As students)
3. people who are on a
Fixed income (elderly,welfare)
Retirement
·
Statistical adjustment includes
a.
indirect
business taxes
b.
depreciation
(consumption fixed capital)
c.
net
foreign faction payment
·
Budget is
government purchase of goods and services plus government transfer payments
minus government tax and fee collection
Ø
+
= deficit
Ø
-
= surplus
-Trade: exports
minus imports
Ø
+=
surplus
Ø
-=
deficit
National Income
-NI= GDP minus
indirect business taxes minus deprecation minus net foreign factor payment
Disposable personal income is the national income minus
government transfer payments minus personal household investment minus
government transfer for
payments
Unemployment
(Unemployment is the failure to use available resources particular labor to produce desired goods and services)
-Underemployment is not when using talent, or having only
part time employment (under twelve hours)
-Labor force consist of those above 16 years old, able to
work
-Both the employment and unemployed falls in the labor force
Excluded from labor
- Military
- Students
- Retired People
- Disabled
- Homeworkers
- Metal Institutions
- Jail/Prison
- Those who are not looking for a job
-Unemployment rate is 4 to 5% equals full employment; natural
rate of unemployment (NRU)
-less than 4% in the Utopia
unemployment rate= (unemployed/( employed + unemployed)) X 100
Types of Unemployment
- Frictional unemployment:searching for a job, temporarily unemployed or in between jobs
-People
who fall into frictional unemployment have transferable skills
-Example:
better opportunity, or high school/college graduate
- Structural employment:changes in the structure of the labor force, which makes some skills and jobs obsolete
-They
don’t have transferable skills
-Example:
NASA Spaceship skills are non-transferable to car making
- Seasonal unemployment: depends on time of year or nature of job
A.) School
bus drivers
B.) Lifeguards
C.) Santa
Claus/ Easter Bunny Impersonator
D.) Contractor
(in pleasant weather only)
E.) Firework
sellers
- Cyclical unemployment: results from economic downturns such as recession, as demands for goods and services fall, demand for labor also falls and workers are laid off
- Recession: stores are closing; people getting laid off
-Anytime frictional and structural unemployment occurs equals
natural unemployment (NRU)
*****Full employment means there is no cyclical unemployment
GDP Gap, Okun’s Law, and Rule of 70
- GDP gap, it is the amount by which actual GDP falls short of potential GDP
- Okun’s Law states for every 1% in which actually unemployment rates exceed the NRU a GDP gap of about 2% exists
*****Example: In 2012, the unemployment rate for Mexico was 7.4%
the NRU for Mexico is 6%
(1.4%) (2) =2.8% loss of potential GDP
Rule of 70: is used to determine how many years it takes for
a value to double given a particular annual growth rate
******Example: If you put $20,000 in the bank, and it earns a
yearly interest of 7% how many years will it take for your income to double?
Solution: 70 over 7%= 10 years
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