AP MACRO UNIT II. Measurement of Economic Performance (12–16%)
Textbook chapter 6, 7, 8
resource
http://tw.neisd.net/webpages/dmayer/teacher.cfm?subpage=195888
http://education-portal.com/academy/course/macroeconomics-course.html
A. National income accounts
1. Circular flow
2. Gross domestic product
3. Components of gross domestic product
4. Real versus nominal gross domestic product
B. Inflation measurement and adjustment
1. Price indices
2. Nominal and real values
3. Costs of inflation
C. Unemployment
1. Definition and measurement
2. Types of unemployment
3. Natural rate of unemployment.



HOMEWORK
1) http://128.241.192.223/uploads/APMacroUnit2.pdf
i will print these for you
2) respond to the article IPOD WHERE IS IT COUNTED IN GDP?
http://www.nytimes.com/2007/06/28/business/worldbusiness/28scene.html?_r=2

3) Answer the following questions
Measurement of Economic Performance( QUESTIONS HAND IN FOR GRADE)
1) Real GDP is a measure of what three concepts?.......................................................................................................
2) What is the expenditure approach to calculating real GDP?....................................................................................
3) What is the income approach to calculating real GDP?.............................................................................................
4) Use the following to calculate the real GDP…………………………………………………………………
a. Disposable income = $9 trillion
· Imports = $1 trillion
· Depreciation = $1 trillion
· Saving = $1 trillion
· Government Spending = $3 trillion
· Exports = $850 billion
· Net Private Investment = $2 trillion

5) What’s the difference between Nominal GDP and Real GDP………………………………………………………
6) If the nominal GDP is $15 trillion and the price index is 150, then the real GDP…………………………………
7) How is an increase in real GDP distinct from an increase in nominal GDP………………………………………
8) Assume that the typical consumer buys 30 lbs. of cheese, 2 spandex unitards and 1 pair of inline skates in any given year. Construct a CPI with this additional information. In the base year of 2007 cheese was $2 per lb., unitards were $5 and inline skates were $20. In 2008 cheese prices remained constant, unitards increased in price by $1 and inline skates increased to $25. In 2009 cheese prices doubled, unitards returned to their 2007 level and inline skates saw a 10% increase.

a. CPI in 2007 =………………………………………

b. CPI in 2008 =………………………………………

c. CPI in 2009 =………………………………………

d. Calculate the inflation rate between 2007 and 2008…………………………………………

e.Calculate the inflation rate between 2008 and 2009…………………………………………

9) What are some weaknesses of the CPI as a measure of general price inflation?......................................
………………………………………………………………………
10) In general which groups benefit from unanticipated inflation and which are harmed……………………
………………………………………………………………………………………
11) What is deflation and who does it harm…………………………………………………………………
..................................................................................................................................................................................
12) If banks paid 2.5% on a 1 year certificate of deposit and deflation was 0.5%, then the real interest rate earned by savers was…………………………………………………………………………………
13) If expected inflation is 3% and households demand a real return of 2%, then the lowest nominal interest rate for which t
hey would rationally lend their savings is……………………………………………………………
14) Which of the following would be officially classified as unemployed?

a. Stay-at-home mom
b. Recent college graduate applying for jobs
c. A homeless man asking for money on the street corner
d. A 40 year old who sleeps all day on his parent’s couch and hasn’t shown up to work in 2 months

15) Refer to question 17. Which type of unemployment is present at point A that is not present at point B or C?.......................
16) What types of unemployment are always present in the economy……………………………………………………………………
17) How might the official unemployment rate understate actual unemployment……………………………………………………..
18) Why do decreases in GDP lead to higher unemployment rates, but increases in GDP not necessarily lead to lower unemployment rates……………………………………………………………………………………………………………………………..

CHAPTER 6 , 7 , 8 TERMS OVERVIEW
1) macroeconomics…………………………………………………………
2) microeconomics…………………………………………………………
3) short run…………………………………………………………………
4) economic aggregates……………………………………………………
5) business cycle……………………………………………………………
6) depression………………………………………………………………
7) recession………………………………………………………………
8) expansions………………………………………………………………
9) employment……………………………………………………………
10) unemployment…………………………………………………………
11) labor force………………………………………………………………
12) discouraged workers……………………………………………………
13) unemployment rate……………………………………………………
14) underemployment………………………………………………………
15) aggregate output………………………………………………………
16) stabilization policy……………………………………………………
17) monetary policy………………………………………………………
18) fiscal policy…………………………………………………………
19) long-run growth………………………………………………………
20) nominal measure………………………………………………………
21) real measure……………………………………………………………
22) aggregate price level…………………………………………………
23) inflation………………………………………………………………
24) deflation……………………………………………………………
25) price stability………………………………………………………
26) inflation rate…………………………………………………………
27) closed economy………………………………………………………
28) open-economy………………………………………………………
29) exchange rate………………………………………………………
30) trade balance……………………………………………………
31) capital flow………………………………………………………………

WORD BANK FOR CHAPTER 6 TEST
FISCAL POLICY
RECESSION
INFLATION RATE
STABILIZATION POLICY
MACROECONOMICS
NOMINAL MEASURE
UNEMPLOYMENT
SHORT RUN
INFLATION
TRADE BALANCE
BUSINESS SCYCLE
PRICE STABILITY
DEFLATION
MICROECONOMICS
CAPITAL FLOW
EXPANSION
OPEN-ECONOMY
LABOUR FORCE
UNEMPLOYMENT RATE
REAL MEASURE
EXCHANGE RATE
CLOSED ECONOMY
AGGREGATE PRICE LEVEL
LONG-RUN GROWTH
AGGREGATE OUTPUT
MONETARY POLICY
ECONOMIC AGGREGATES
DEPRESSION
EMPLOYMENT
DISCOURAGED WORKERS



WORD BANK FOR CHAPTER 7 TEST
Market basket
Household
Government
Accounts
Firms
Government transfers
Bond
Goods and services
Factor
Rest-of the world
Financial



WEB RESOURCES
1) http://welkerswikinomics.com/downloads/Unit%203.1-3.2%20Macroeconomic%20Indicators%20and%20Intro%20to%20Development.pdf
2) http://tw.neisd.net/webpages/dmayer/teacher.cfm?subpage=195888
3)http://www.sparknotes.com/economics/macro/measuring1/summary.html
4) USA CONSUMPTION http://www.visualeconomics.com/how-the-average-us-consumer-spends-their-paycheck/
http://www.visualeconomics.com/how-much-americans-spend-on-shopping
5) WORLD UNEMPLOYMENT RATES http://www.visualeconomics.com/unemployment-rates-around-the-world/
6) GDP AS A RATIO TO DEBT http://www.visualeconomics.com/gdp-vs-national-debt-by-country/


IN CLASS ACTIVITY
ECONOMICS AT THE MOVIES NOMINAL VS REAL MOVIIE BOX OFFICE SALE
http://www.econedlink.org/lessons/index.php?lid=1010&type=educator





II. Basic Economic Measurements SUMMARY

1) Gross Domestic Product (Expenditures Approach the one we use )
Expenditures approach: GDP = C + Ig + G + Xn
C = personal consumption expenditures (durable consumer goods, nondurable consumer goods, consumer expenditures for services)
Ig = gross private domestic investment (all final purchases of capital by businesses,
all construction, changes in inventories)
G = government purchases (government spending on products and resources)
Xn = net exports (exports – imports)
Some types of transactions do not involve purchasing of a final good or service, so they should not be counted in GDP. These include public transfer payments (social security, welfare, etc), private transfer payments (monetary gifts, etc), security transactions (stocks and bonds), and secondhand sales (they don’t reflect current production).


2) Gross Domestic Product(Income Approach)
GDP = Compensation of employees + Rents + Interest + Proprietors’ income + Corporate profits (Corporate income taxes + dividends + undistributed corporate profits) + indirect business taxes + depreciation (consumption of fixed capital) + net foreign factor income

3) GDP GROWTH If the growth rate is between 2-4%, it is considered “acceptable”.
Nominal vs. Real GDP Nominal GDP is sometimes inaccurate because if there is a lot of inflation, the actual
GDP growth isn’t as high as the figures seem to say. Therefore, we have a measure of
GDP that is adjusted for inflation: real GDP.


4) Difference between approaches
The expenditures approach tells us GDP by telling us how much the final user pays for
each thing, giving us the value of the final product. The income approach adds all the
wage, rent, interest, and profit incomes created in producing the product. They both
add up to the same amount because money spent on a product is received as income
by those who helped to make it.

5) Multiple counting/Value added
If we were to count the prices of intermediate goods instead of final goods in the
expenditures approach, since the value of final goods already includes the value of
intermediate goods, it would be counting the same thing multiple times, making GDP
seem higher than it really is.
To avoid multiple counting, accountants calculate only the value added by each firm in
each stage of the product, instead of just how much each firm sells its product to the next firm.
NDP GDP includes the money spent for replacing capital goods used by the year’s
production, so it somewhat exaggerates the value of the output available. NDP makes
allowance for this money spent by subtracting depreciation (consumption of fixed
capital) from GDP. For NDP to grow year to year, the stock of capital must increase.

6) NI (National Income) includes all income earned by US-owned resources, whether located
at home or abroad. To calculate NI, we must subtract net foreign factor income earned
in the United States (since it isn’t US-owned resources) and the indirect business taxes
(since government isn’t an economic resource and indirect taxes aren’t a payment )

7) PI (Personal Income) includes all income received, whether earned or unearned. This is NI
– social security contributions – corporate income taxes – undistributed corporate
profits + transfer payments

8) DI (disposable income) This is the amount of money households can spend. It is PI minus personal taxes.

9) CPI (consumer price index) This is a measure of inflation. It is calculated by the formula price in specific year
CPI= 100 price in base year/period = ⋅ Inflation
If the rate of inflation is less than 3 percent (and greater than 0 percent, of course), it is considered “acceptable”.



10) Types of Inflation

a) Demand-pull inflation: more spending than the economy’s capacity to produce. The
excess demand increases the prices of the limited real output, causing prices to rise.
b) Cost-Push (Supply-side) inflation: Per-unit production costs (total input cost ÷ units
of output) rise, reducing the amount of companies willing to sell products at the
current price level. Then, supply decreases, causing the price level to increase.
c) Wage-price spiral; As price level rises, labor will demand and get higher nominal wages. Businesses will agree, hoping to get back the money by increasing prices. Then, as prices increase even more, labor will find that it has a reason to demand even more wage increases, but
that causes more prices increases, and so on.
11) Rule of 70;If we divide 70 by the annual rate of inflation, this quotient is the number of years it takes for inflation to double the price level.
12) Fighting inflation =We can fight inflation by trying to reduce demand or by trying to prevent a wage-price spiral from getting out of hand. We can use either fiscal or monetary policy (means of doing so is explained later). Fiscal action will result in a budget surplus.
13) Real vs. Nominal values= A Nominal value is an unadjusted value. A Real value is a nominal value adjusted for inflation. herefore, we can’t just look at nominal values when trying to determine the status of false impression that the economy is doing well when the real value is perhaps even decreasing.
14) Inflationary expectations= The effects of unexpected inflation are:
It hurts people with fixed nominal incomes, since the money they earn isn’t worth as
much anymore. It hurts people who save in fixed-value accounts It benefits debtors
(borrowers) while hurting creditors (lenders). The effects of inflation can be lessened if people expect it (anticipated inflation), since then they can get a chance to prepare for the damages that the inflation may cause.
For example, a person who has a fixed nominal income can try to adjust it if they know
that its value is going to decrease. Many unions have labor contracts with cost-of-
living adjustment (COLA) clauses, in which workers’ wages increase if there is
inflation.


15)Unemployment (Types)
a) Frictional – includes workers who are searching for jobs or waiting to take jobs in the
near future. This unemployment is inevitable, since many workers switch to better jobs.
b) Structural – changes over time in consumer demand and technology change the
“structure” of total demand for labor. Some skills will not be needed as much or
become obsolete, and new skills will appear. This is a mismatch between job seekers’
skills and the skills needed for the job. This is also inevitable because the demand for
labor will always change over time as new technologies arise.
c) Cyclical – this type of unemployment is caused by recession. People who are laid off
because of decreased overall spending in the economy.
Full employment This is NOT zero unemployment, as frictional and structural unemployment are regarded as unavoidable in an economy. Therefore, full employment means no cyclical unemployment, and the full-employment rate is equal to the frictional plus structural rates. It is also called the natural rate of unemployment.

d) Solutions= In order to decrease cyclical unemployment, we must try to increase overall spending in the economy so businesses find their inventories decreasing and so hire more people. We do this by increasing aggregate demand with fiscal or monetary policy.
Calculation Unemployment means unemployment in the labor force, not the whole population.
Solutions= In order to decrease cyclical unemployment, we must try to increase overall spending 
 in the economy so businesses find their inventories decreasing and so hire more people. We do this by increasing aggregate demand with fiscal or monetary policy.

Calculation Unemployment means unemployment in the labor force, not the whole population.
The labor force is total population = under 16 and/or institutionalized – people not in
the labor force.


16) Criticism of unemployment rate
The unemployment rate has been subject to some criticism, however.
First of all, part-time workers are counted as fully employed; however, some part-time
workers are people who can’t get a full-time job because of recession. This tends to
understate the unemployment rate.
Also, discouraged workers who are not actively searching for jobs anymore are not
counted in the labor force. This understates the unemployment rate, especially in
recession. GDP Gap This is the amount by which actual GDP falls short of potential GDP (the GDP that can
be attained at the natural rate of unemployment).
Okun’s Law For every 1 percentage point that the actual unemployment rate exceeds the natural
rate, a GDP gap of about 2% occurs.
For example, if the actual rate is 6% and the natural rate is 4%, there will be a GDP
gap of 4%.

























CHAPTER 6 TRACKING THE MACRO ECONOMY
GDP stands for Gross Domestic Product, which is the total market value of all final goods and services produced within a country, usually measured over a year. GDP is the most inclusive measure of an economy's output. Nominal GDP measures the output of goods and services in current prices while real GDP measures the output of goods and services in constant prices. Real GDP is adjusted for the effects of inflation. The reference to "final" goods and services means that all goods are counted as they are finally produced; that is, there is no need to count the output of the steel industry, which is an "intermediate" input, because the value of the steel will be counted in cars, refrigerators, buildings and all the other final uses of steel. The reference to what is "produced" emphasizes that not all sales of goods represent new production. For example, a new house is included in GDP in the year it is built, but the sale price of a house that was built years ago and resold this year is not included in this year's GDP.
Finally, the emphasis on market value means that GDP measures what the economy spends money on, which may not always capture well-being. For example, GDP does not directly measure education, health, life expectancy, leisure, protection from crime or environmental protection, but only the amounts of money that are spent with regard to these goals.Per capita GDP is calculated by dividing GDP by the population. Per capita GDP is useful for making comparisons between countries with different population levels or at different points in time. The GDP of China is much higher than that of Switzerland, because China has so many more people, but the per capita GDP of Switzerland is much higher than that of China.Potential GDP is the level of output when non-labor resources are fully employed. Even if the economy has reached its potential GDP, there will still be people unemployed, and this is called the natural level of unemployment.
Activity 1; are the following included or excluded in calculating GDP (USA)
a) hamburger buns bought by McDonals for making Big Macs.
b) a used economics textbook.
c) a new pair of Levi jeans.
d) newly purchased shares in Google stock
e) a new Chrysler PT cruiser.
f) a new Lexus SUV.
g) A newly purchased $10,000 Treasury Bill
h) a cup of coffee purchaed at starbucks

Activity 2;who’s spending rate the following in order
a)consumer spending,
b) government spending,
c) investment spending
d) net exports.

Activity 3 lets assume that only 2 goods aer produced in an economy bread and cake. Question 1 calculate Nominal GDP in 2004 and 2005
Question 2 calculate Real GDP in 2004 and 2005

2004
2005
Quantiy of bread (billions)
5,000
6,000
Price of bread
$2.50
$2.25
Quantity of cake (billions)
1,200
1,150
Price of cake
$4.00
$3.80


EXPANDED CIRCULAR FLOW is the flow of money through the Economy, demonstrates the manner in which money flows from producers to households, govt, and the rest of the world and vice versa. Lets break it down.
1) 4 MAJOR ECONONIC AGENTS;producers-households-govt-rest of world
2) 3 MARKETS product- factor –financial















PART A) NATIONAL INCOME ACCOUNTS
1) http://www.reffonomics.com/TRB/NationalAccounting/nationalaccounting3.swf
2) What's the Difference Between Nominal and Real?



An economic variable expressed in nominal terms uses the prices that applied at that particular time. For example, the nominal GDP of the U.S. economy in 2000 was $9.8 trillion; the price of a gallon of gasoline in the United States in 2000 was $1.50 per gallon; and the interest rate charged by banks to their most trustworthy borrowers in 2000 was 9.2 percent.
In contrast, an economic variable expressed in real terms is adjusted for the effects of inflation. Adjusting economic variables from nominal to real terms is commonly done to facilitate comparisons between different points in time. For example, the U.S. GDP in 1990 was $5.8 trillion. The nominal U.S. GDP in 1990 is expressed in the dollars prevailing in 1990, while the nominal U.S. GDP in 2000 is expressed in the dollars prevailing in 2000. But because of inflation between 1990 and 2000, a dollar was worth less in 2000 than in 1990. If the nominal U.S. GDP in 1990 was expressed in terms of the dollars in 2000, it would need to be increased by 32 percent to account for inflation--from $5.8 trillion to $7.6 trillion. Thus, the real increase in GDP from 1990 to 2000 is a rise from $7.6 trillion (the 1990 GDP expressed in year 2000 dollars) to $9.8 trillion (the 2000 GDP expressed in year 2000 dollars).
Similarly, the price of gasoline in 1990 was about $1.20 per gallon. With 32 percent inflation between 1990 and 2000, the nominal price of gasoline in 1990, expressed in year 2000 dollars, would be $1.58 ($1.20 x 1.32). By this measure, even though the nominal price of gasoline at $1.50 a gallon in 2000 was higher than in 1990, the real price of gasoline was lower in 2000 than it was in 1990.

To calculate a real interest rate, after adjusting for inflation, use the formula: real interest rate = nominal interest rate - rate of inflation. In 2000, for example, the rate of inflation in the U.S. economy was 3.4 percent. Thus, the real interest rate was 9.2 percent - 3.4 percent = 5.8 percent. A loan is repaid in the future, so if inflation exists, the dollars used to repay the loan are worth less than the dollars that were originally loaned out. Economies with high rates of inflation will also have high nominal interest rates, because lenders wish to receive a positive real interest rate, and thus the nominal interest rate must be higher than the rate of inflation that they expect to occur.




Real Variables and Nominal Variables Explained
By **Mike Moffatt**, About.com

2a). Nominal Interest Rates vs. Real Interest Rates
Suppose we buy a 1 year bond for face value that pays 6% at the end of the year. We pay $100 at the beginning of the year and get $106 at the end of the year. Thus the bond pays an interest rate of 6%. This 6% is the nominal interest rate, as we have not accounted for inflation. Whenever people speak of the interest rate they're talking about the nominal interest rate, unless they state otherwise.
Now suppose the inflation rate is 3% for that year. We can buy a basket of goods today and it will cost $100, or we can buy that basket next year and it will cost $103. If we buy the bond with a 6% nominal interest rate for $100, sell it after a year and get $106, buy a basket of goods for $103, we will have $3 left over. So after factoring in inflation, our $100 bond will earn us $3 in income; a real interest rate of 3%. The relationship between the nominal interest rate, inflation, and the real interest rate is described by the Fisher Equation:
2b)Real Interest Rate = Nominal Interest Rate - Inflation
If inflation is positive, which it generally is, then the real interest rate is lower than the nominal interest rate. If we have deflation and the inflation rate is negative, then the real interest rate will be larger.
2c) Nominal GDP Growth vs. Real GDP Growth
GDP, or Gross Domestic Product is the value of all the goods and services produced in a country. The Nominal Gross Domestic Product measures the value of all the goods and services produced expressed in current prices. On the other hand, Real Gross Domestic Product measures the value of all the goods and services produced expressed in the prices of some base year. An example:
Suppose in the year 2000, the economy of a country produced $100 billion worth of goods and services based on year 2000 prices. Since we're using 2000 as a basis year, the nominal and real GDP are the same. In the year 2001, the economy produced $110B worth of goods and services based on year 2001 prices. Those same goods and services are instead valued at $105B if year 2000 prices are used. Then:
Year 2000 Nominal GDP = $100B, Real GDP = $100B
Year 2001 Nominal GDP = $110B, Real GDP = $105B
Nominal GDP Growth Rate = 10%
Real GDP Growth Rate = 5%
Once again, if inflation is positive, then the Nominal GDP and Nominal GDP Growth Rate will be less than their nominal counterparts. The difference between Nominal GDP and Real GDP is used to measure inflation in a statistic called The GDP Deflator.
2d) Nominal Wages vs. Real Wages
These work in the same way as the nominal interest rate. So if your nominal wage is $50,000 in 2002 and $55,000 in 2003, but the price level has risen by 12%, then your $55,000 in 2003 buys what $49,107 would have in 2002, so your real wage has gone done. You can calculate a real wage in terms of some base year by the following:
2e) Real Wage = Nominal Wage / 1 + % Increase in Prices Since Base Year
Where a 34% increase in prices since the base year is expressed as 0.34.
2f) Other Real Variables
Almost all other real variables can be calculated in the manner as Real Wages. The Federal Reserve keeps statistics on items such as the Real Change in Private Inventories, Real Disposable Income, Real Government Expenditures, Real Private Residential Fixed Investment, etc. These are all statistics which account for inflation by using a base year for prices.













PART B ) GDP AND CIRCULAR FLOW
1)http://www.reffonomics.com/TRB/NationalAccounting/nationalaccounting3.swf




2) NOTES; GDP stands for Gross Domestic Product, which is the total market value of all final goods and services produced within a country, usually measured over a year. GDP is the most inclusive measure of an economy's output. Nominal GDP measures the output of goods and services in current prices while real GDP measures the output of goods and services in constant prices. Real GDP is adjusted for the effects of inflation. The reference to "final" goods and services means that all goods are counted as they are finally produced; that is, there is no need to count the output of the steel industry, which is an "intermediate" input, because the value of the steel will be counted in cars, refrigerators, buildings and all the other final uses of steel. The reference to what is "produced" emphasizes that not all sales of goods represent new production. For example, a new house is included in GDP in the year it is built, but the sale price of a house that was built years ago and resold this year is not included in this year's GDP.
Finally, the emphasis on market value means that GDP measures what the economy spends money on, which may not always capture well-being. For example, GDP does not directly measure education, health, life expectancy, leisure, protection from crime or environmental protection, but only the amounts of money that are spent with regard to these goals.
Per capita GDP is calculated by dividing GDP by the population. Per capita GDP is useful for making comparisons between countries with different population levels or at different points in time. The GDP of China is much higher than that of Switzerland, because China has so many more people, but the per capita GDP of Switzerland is much higher than that of China.

Potential GDP is the level of output when non-labor resources are fully employed. Even if the economy has reached its potential GDP, there will still be people unemployed, and this is called the natural level of unemployment.


3) GDP – To be, or not to be…counted? That is the question

Directions: For each of the following, determine whether or not it is counted in GDP. If it’s counted, then tell me whether its Consumption, Investment, Government Spending, Net Exports, Rent, Wages, Interest or Profit. If it’s not counted, then explain why.

1. Paris Hilton earns $7.50/hr working at the local grocery store.


2. Shaun purchases a brand new Toyota Tundra made in San Antonio.


3. The United States Marine Corps invades Austin, Texas and in the process spends $5 billion. Austin surrenders.


4. On vacation, Hugo Chavez purchases a Goofy hat at Walt Disney’s Magic Kingdom. He then declares himself supreme leader of Tomorrow Land.


5. My father-in-law receives a monthly check for the oil pumped off of his property.


6. Intel spends $300 million building a semiconductor factory in San Jose, Costa Rica.


7. Intel spends $300 million building a semiconductor factory in San Jose, California.


8. Former British Prime Minister Tony Blair decides to start a boy band and purchases a used Volkswagen Euro Van in which to tour South Texas.


9. Lindsey Lohan buys a new John Deere Tractor for her organic farm in New Hampshire.


10. John Deere Tractor receives payment from Lindsey Lohan for a new tractor.


11. Richard receives a $500,000 stock dividend.


12. Sabastian buys himself a $500,000 house that was built 50 years ago. It burns to the ground the next day. Uninsured.


13. North East ISPS builds a new high school…in Canada. Parents are angry because of the lengthy commute.


14. Russian President Vladimir Putin orders a dozen Krispy Kreme glazed donuts and has them shipped to the Kremlin. He later hides in his office and eats the entire dozen without sharing.


15. After leaving office, George W. Bush clears 50 acres of cedar on his ranch in Crawford, Texas and plants native live oaks. He then sells pollution permits to Al Gore so that Al can sequester the carbon emissions from his SUV.













PART C ) INFLATION

Inflation is an increase in the average price level in the economy. A positive rate of inflation does not mean that every single price increases, nor that all prices increase by the same amount, nor that the price of some goods didn't fall. It represents an average price increase for the goods and services in the economy. The Consumer Price Index is a measure of inflation that tells how much the price of a representative bundle of goods and services purchased by consumers has increased. The GDP deflator is a measure of inflation that tells how much the price of all goods included in GDP has increased (GDP includes consumer goods and services and also machinery and equipment bought by firms, purchases of goods and services by government and the impact of exports and imports).

INFLATION = A rise in the general or average price level of all the goods and services produced in an economy. Can be caused by pressure from the demand side of the market (demand-pull inflation) or pressure from the supply side of the market (cost-push inflation).
Consumer Price Index (CPI)= A price index that measures the cost of a fixed basket of consumer goods and services and compares the cost of this basket in one time period with its cost in some base period. Changes in the CPI are used to measure inflation.






  1. Give 2 definitions of inflation

  1. If the CPI is 100 in 2004 and 103 in 2005, then what is the inflation rate

  2. If the CPI is 75 in 1996 and 100 in 2004, then what is the inflation rate between 1996 and 2004?



4. Suppose that a typical consumer buys the following quantities of three commodities in 1993 and 1994.

Commodity
Quantity
1993 per Unit Price
1994 per Unit Price
Food
5 units
$6.00
$5.00
Clothing
2 units
$7.00
$9.00
Shelter
3 units
$12.00
$19.00

What can be concluded about the consumer price index (CPI) for this individual from 1993 to 1994?


5. Suppose the price level in the United States has risen in the past year, but production of goods and services has remained constant. Based on this information, which of the following is true?


Nominal GDP

Real GDP

a.
Increased
Increased
b.
No change
Decreased
c.
Decreased
Decreased
d.
Increased
No change
e.
Decreased
Increased

6. Which of the following are harmed by unanticipated high rates of inflation?

i. Borrowers repaying a long-term loan at a fixed interest rate
ii. Savers who have put their money in long-term assets that pay fixed interest
iii. Workers who have negotiated cost-of-living adjustments into their contracts
iv. Persons living on fixed incomes










PART D ) UNEMPLOYMENT
http://www.orlandosentinel.com/business/os-pec-ripple-effect-flash,0,5125947.flash

1) http://www.reffonomics.com/TRB/chapter20/unemployment3.swf


Employment refers to people who have jobs. Unemployment occurs when people wish to work but cannot find jobs. The adult population of working age can be divided into three groups. Those who are "not in the labor force" are those adults who do not have jobs and are not seeking jobs. Those who are in the labor force are then split into two groups: those who are employed, and those who don't have jobs but are looking for them. The employment/population ratio is the number of people with jobs divided by the total adult population of working age. The labor force participation rate is the number of people in the labor force divided by the total adult population of working age. The unemployment rate is the number of unemployed people divided by the number of people in the labor force. Because people can choose whether or not to enter the labor force, employment and unemployment can simultaneously increase or decrease.Unemployment Rate=The number of unemployed people, expressed as a percentage of the labor force.Labor Force=The people in a nation who are aged 16 or over and are employed or actively looking for work.
Unemployment=The number of people without jobs who are actively seeking work.

2) Classifying Unemployment


1. What does it mean to be unemployed?

2. Determine which of the following are unemployed. If unemployed, then determine the type of unemployment. If not unemployed, then write down ‘not in labor force.’

a. Leo cannot find work as a mall Santa in January.

b. Oswald eaves her job to become a stay at home mom.

c. Crystal is laid off of work when the economy experiences a recession.

d. Bram dropped out of his G.E.D. program and has difficulty finding work.

e. Louie the human calculator is replaced by the TI-83.

f. Luz leaves his job as a teacher to look for work in the fast food industry.

g. Irene graduates from college and begins looking for work.

h. Isaac has difficulty finding a job as a life guard after Labor Day.

i. Robin likes to sleep on the couch all day and at night play Halo 3. He has difficulty finding a girlfriend.

j. David cannot find work in the typewriter repair industry.