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40 Pages

Feb2

Course: ECONOMICS EC101, Spring 2011
School: BU
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Word Count: 1190

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Consumer The Price Index (CPI) (cont.) Measuring Inflation with the CPI (Review) The CPI vs. the GDP Deflator Unemployment Definition and Measurement Types of Unemployment Unemployment Among Specific Groups Copyright 2004 South-Western How the BLS constructs the CPI 1. Survey consumers to determine composition of the typical consumer's "basket" of goods. Copyright 2004 South-Western How the BLS constructs the CPI 1. Survey consumers to determine composition of the typical consumer's "basket" of goods. 2. Every month, collect data on prices of all items in the basket; compute cost of basket Copyright 2004 South-Western How the BLS constructs the CPI 1. Survey consumers to determine composition of the typical consumer's "basket" of goods. 2. Every month, collect data on prices of all items in the basket; compute cost of basket 3. CPI in any month equals Cost of basket in that month 100 Cost of basket in base period Copyright 2004 South-Western Calculating the CPI Inflation between period t and period t + n = Pt + n - Pt Pt where Pt+n = price index in period t+n Pt = price index in period t Copyright 2004 South-Western Pt + n Pt Calculating the Inflation Rate Year Pt + n Pt CPI 100 105.7 114.3 117.1 Inflation Rate 2002 2003 2004 2005 -- Copyright 2004 South-Western Pt + n Pt Calculating the Inflation Rate Year CPI Pt + n Pt Inflation Rate 2002 100 -105.7 - 100 = .057 100 2003 105.7 2004 114.3 2005 117.1 Copyright 2004 South-Western Pt + n Pt Calculating the Inflation Rate Year CPI Pt + n Pt Inflation Rate 2002 100 -105.7 - 100 = .057 100 114.3 - 105.7 = .081 105.7 2003 105.7 2004 114.3 2005 117.1 Copyright 2004 South-Western Pt + n Pt Calculating the Inflation Rate Year CPI Pt + n Pt Inflation Rate 2002 100 -105.7 - 100 = .057 100 114.3 - 105.7 = .081 105.7 117.1 - 114.3 = .025 114.3 Copyright 2004 South-Western 2003 105.7 2004 114.3 2005 117.1 Calculating the current price of a past price Value in time t + n dollars Pt + n = (Value in time t dollars) Pt Copyright 2004 South-Western Reasons why the CPI may overstate inflation Substitution bias: The CPI uses fixed weights, so it cannot reflect consumers' ability to substitute toward goods whose relative prices have fallen. Copyright 2004 South-Western Reasons why the CPI may overstate inflation Substitution bias: The CPI uses fixed weights, so it cannot reflect consumers' ability to substitute toward goods whose relative prices have fallen. Introduction of new goods: The introduction of new goods makes consumers better off and, in effect, increases the real value of the dollar. But it does not reduce the CPI, because the CPI uses fixed weights. Copyright 2004 South-Western Reasons why the CPI may overstate inflation Substitution bias: The CPI uses fixed weights, so it cannot reflect consumers' ability to substitute toward goods whose relative prices have fallen. Introduction of new goods: The introduction of new goods makes consumers better off and, in effect, increases the real value of the dollar. But it does not reduce the CPI, because the CPI uses fixed weights. Unmeasured changes in quality: Quality improvements increase the value of the dollar, but are often not fully measured. Copyright 2004 South-Western CPI vs. GDP Deflator CPI GDP Deflator Copyright 2004 South-Western CPI vs. GDP Deflator CPI Includes only goods typically bought by consumers GDP Deflator Copyright 2004 South-Western CPI vs. GDP Deflator CPI Includes only goods typically bought by consumers GDP Deflator Includes all goods Copyright 2004 South-Western CPI vs. GDP Deflator CPI Includes only goods typically bought by consumers Includes imported goods GDP Deflator Includes all goods Copyright 2004 South-Western CPI vs. GDP Deflator CPI Includes only goods typically bought by consumers Includes imported goods GDP Deflator Includes all goods Includes only domestic goods Copyright 2004 South-Western CPI vs. GDP Deflator CPI Includes only goods typically bought by consumers Includes imported goods GDP Deflator Includes all goods Includes only domestic goods \ Uses a fixed basket of goods Copyright 2004 South-Western CPI vs. GDP Deflator CPI Includes only goods typically bought by consumers Includes imported goods GDP Deflator Includes all goods Includes only domestic goods Uses a changing basket of goods \ Uses a fixed basket of goods Copyright 2004 South-Western Two measures of inflation in the U.S. 15% Percentage change from 12 months earlier 12% 6% 9% 3% 0% -3% 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 GDP deflator CPI Copyright 2004 South-Western BLS Monthly Employment Survey: Employment Categories Employed--worked, even part time, in the last two weeks Copyright 2004 South-Western BLS Monthly Employment Survey: Employment Categories Employed--worked, even part time, in the last two weeks Unemployed--did not work in last two weeks, but did look for job Copyright 2004 South-Western BLS Monthly Employment Survey: Employment Categories Employed Unemployed Labor Force Copyright 2004 South-Western BLS Monthly Employment Survey: Employment Categories Employed Unemployed Labor Force Number Unemployed Number in Labor Force Unemployment Rate = Copyright 2004 South-Western BLS Monthly Employment Survey: Employment Categories Employed Unemployed Labor Force Not in Labor Force--did not work or actively look for job in last two weeks Copyright 2004 South-Western 1 The breakdown of the population in 2007 The Bureau of Labor Statistics divides the adult population into three categories: employed, unemployed, and not in the labor force. Copyright 2004 South-Western 27 Types of Unemployment Frictional Copyright 2004 South-Western Types of Unemployment Frictional Structural Copyright 2004 South-Western Types of Unemployment Frictional Structural Natural Rate of Unemployment Copyright 2004 South-Western Types of Unemployment Frictional Structural Natural Rate of Unemployment, or NAIRU Non-Accelerating Inflation Rate of Unemployment Copyright 2004 South-Western Types of Unemployment Frictional Structural Cyclical Natural Rate of Unemployment Copyright 2004 South-Western Identifying Unemployment Natural rate of unemployment Normal rate of unemployment Around which the unemployment rate fluctuates Cyclical unemployment Deviation of unemployment from its natural rate Copyright 2004 South-Western 33 Actual and Natural Unemployment Rates 1890 - 2006 30 25 Actual Unemployment Percentage 20 15 10 Natural Unemployment 5 0 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 Year Copyright 2004 South-Western Identifying Unemployment How is unemployment measured? Unemployment rate Percentage of labor force that is unemployed Number of unemployed Unemployment rate = 100 Labor force Labor-force participation rate Percentage of adult population that is in the labor force Labor force Labor - force participation rate = 100 Adult population Copyright 2004 South-Western 35 The labor-market experiences of various demographic groups Demographic Group Adults (ages 20 and older) White, male White, female Black, male Black, female Teenagers (ages 1619) White, male White, female Black, male Black, female Unemployment Rate 3.7% 3.6 7.9 6.7 15.7 12.1 33.8 25.3 Labor-force Participation Rate 76.3% 60.1 71.2 64.0 44.3 44.6 29.4 31.2 1 This table shows the unemployment rate and the labor-force participation rate of various groups in the U.S. population for 2007 Copyright 2004 South-Western 36 Identifying Unemployment Labor-market experiences Women ages 20 and older Lower rates of labor-force participation than men Once in the labor force Men and women - similar rates of unemployment Blacks ages 20 and older Similar rates of labor-force participation as whites Much higher rates of unemployment Teenagers Lower rates of labor-force participation Much higher rates of unemployment than older workers Copyright 2004 South-Western 37 Labor-force participation of men and women in the U.S. economy Data on labor-force participation 1950 difference between participation rates 33% of women - working or looking for work 87% of men - working or looking for work 2007 difference between participation rates 59% of women - working or looking for work 73% of men - working or looking for work Copyright 2004 South-Western 38 Labor-force participation rates for men and women since 1950 3 This figure shows the percentage of adult men and women who are members of the labor force. It shows that over the past several decades, women have entered the labor force, and men have left it. Copyright 2004 South-Western 39 Labor-force participation of men and women in the U.S. economy Fall in men's labor-force participation Young men - stay in school longer Older men - retire earlier and live longer With more women employed More fathers now stay at home to raise their children Counted as being out of the labor force Full-time students Retirees Stay-at-home dads Copyright 2004 South-Western 40

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Feb4

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Unemployment (cont.) Types of Unemployment (Review) Minimum Wage Laws Unions Efficiency Wages Where Do Companies Get Funds? Financial Intermediation vs. Direct Finance Bank-Centered Systems vs. Market-Centered SystemsCopyright 2004 South-WesternBLS

Feb6Posted

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Present Discounted Value (PDV) Applications Exercises and Applications The Bond Market Bond Pricing Components of a bondCopyright 2004 South-WesternPDV Analysis Value of $100 one year from today at i = 10%: $100 (1 + .1) = $100(1.1) = $110Copyrigh

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Stocks and the Stock Market (cont.) Types of Exchanges Efficient Markets Hypothesis (EMH) Three FormsCopyright 2004 South-WesternTypes of Exchanges Physical "Floor" Exchanges NYSE AMEXCopyright 2004 South-WesternMajor U.S. Exchanges NYSE "Open

Feb13

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Feb17

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Feb18

BU - ECONOMICS - EC101

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Feb20

BU - ECONOMICS - EC101

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Gross Domestic Product (GDP)Copyright 2004 South-WesternGross Domestic Product (GDP) DefinitionGDP is the market value of all final goods and services produced within a country in a yearCopyright 2004 South-WesternGross Domestic Product (GDP) Definit

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Chapter 2 What are the purposes of performance measurement systems? o Communicate the company's strategic objectives o Motivate employees to help the company achieve its strategic objectives o Evaluate the performance of managers, employees, and operating

Feb27Posted

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