Econ 100 Week 2

HOMEWORK DUE THURSDAY 09/06:
Bring enrollment form for adding.

Economy in the News:
- Labor force participation
- Paul Ryan's speech
  -- "Right now 23 million men and women are struggling to find work. Twenty-three million are unemployed or underemployed."
  -- 12.8 million are actually unemployed

Social security system:
  -- pay as you go-->the people who are working pay for those who are retired
  -- Older people staying in the workforce longer benefits younger

BLS --> A-15 Alternative Measures of Unemployment (gray areas)
(http://www.bls.gov)
 -- biggest number is the U-6 15%
 -- definition of U-6:
     U + persons "marginally attached" to the labor force + total employed part time for economic reasons =
    (to be marginally attached meaning: neither working, nor looked for work in the last four weeks, but persons who are available and wanted a job)
    PT-ers prefer to work FT but can't due to economy;  PT is considered employed
-- 2.5 million "marginally attached" there is 0.8 million discouraged workers
     --> so most people are not discouraged in the 15%
-- Ryan got his 23 million from the U-6 number = 15%

Types of Unemployment (3)
 1. Frictional Unemployment
   -- Those unemployed because it takes time for employees and employers to find each other.
   -- "making a match between a worker and employer"
   -- What is needed for a good match:
   -- May - graduating college - hard to get a job
   -- Always exists, generally a good thing
   -- Permanent feature of the macroeconomy
   -- It serves a purpose
   -- It's usually fairly short-term unemployment
2. Cyclical Unemployment
  -- Unusually high unemployment that occurs due to a recession
  --> When the economy recovers to a more normal level of production, cyclical unemployment goes away
  -- can be short term or long term
3. Structural Unemployment
  -- Tends to be long-term
  -- Results from a fundamental mismatch between job skills and job openings
  -- Often caused by technological progress--> replacing workers with machines
  -- Having a job skill in a declining industry: self check out, print media, mail
  -- Solution: job retraining programs, education
  -- At any given time, observed unemployment may consist of:
      frictional + structural (+ possibly cyclical) = TOTAL = 12.8 million

Natural rate of unemployment ( U*): long run average level of unemployment = U* ~ 5%
   [ Theoretical concept ]

GDP: Gross Domestic Product
  -- Value of a nation's total production
  -- Real V. Nominal GDP
  -- Real: adjusted for inflation
  -- Nominal: we sum the quantity of output produced x current market price for all goods and services that are produced in the economy
  -- Real GDP - measure holds price constant

            Nominal GPD        -        Real GDP
Year 1               100           -            100
Year 2               120           -            104
Year 3               140           -            103


Nominal GDP - determine if it's good or bad. When it goes up or down, could be either way, it depends on why it's going up.
Real GDP - Year 1 -->2 we produced more things so it's a good thing; Year 2-->3 bad we're making fewer products
* Economists prefer real GDP  - tells us how production is changing
Real GDP <-> Real Output

Business cycle: 
  -- A pattern of expansion and contraction of real GDP
  -- These cycles are endemic to market economies

                |              |     -  (Trend)
Real GDP |              | -
                |           -  |
                |       -      |
                |   -          |
                |________|____________
                             Time (100 years)

* First dotted line (above time) represents expansion up until it hits peak, then downturn to the trough, then recovery up back to peak or past (goes up and down)