Review Sheet Midterm 2

Review Sheet Midterm 2 - Ian Overbaugh Macroeconomic Goals...

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I a n   O v e r b a u g h E c o n   M i d t e r m   2  | 1 Macroeconomic Goals Economic Growth Full Employment Price Stability Chapter 7: Unemployment and Inflation Types of Unemployment: Frictional o Results from the fact that workers must search for appropriate job offers o Examples Moving from job to job Graduating seniors Found job, but not job they’re looking for Structural o Results from a poor match of workers’ abilities and skills with current  requirements of employers o Industries grow, industries die o Examples Mergers Outsourcing Cyclical o Results from business recessions that occur when aggregate demand is  insufficient to create full employment o Examples Bad unemployment Many industries failing Seasonal o Results from seasonal pattern of work in specific industries o Construction, teaching Full Employment: Sum of frictional, structural, and seasonal unemployment Cyclical = 0 About 5 – 6% unemployment (94-95% Employment) Long Run Also called  Natural Rate of Unemployment o Unemployment rate that is estimated to prevail in the long run when all workers  and employers have fully adjusted to any changes in the economy o When  seasonally  adjusted the natural rate of unemployment should only take  into account  frictional  and  structural  unemployment Wednesday, May 13, 2009
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E c o n   M i d t e r m   2  | 2 Inflation:  an upward movement in the  average  level of prices ON AVERAGE Expectations is one of the driving forces Matters when you’re borrowing and saving money Affects Purchasing Power;  the value of money for buying goods and services o Buy less with the dollar Price Index: o Also referred to as price level, prices, GPD Deflator o     Cost of today’s market basket                100 Cost of market basket in base year o Real world price indexes Consumer Price Index (CPI) Producer Price Index (PPI) GPD Deflator;  LARGEST OF PRICE INDICES Nominal v. Real: o Nominal – price expressed in today’s dollars o Real – nominal adjusted for inflation Inflation favors people that borrow Protecting against inflation o Cost-of-living adjustments (COLAs) Clauses in contracts that allow for increases in specified nominal values  to account for changes in the cost of living Raise equal to inflation Business Fluctuations: The ups and downs in overall business economic activity o Economic growth o Employment o Price level Types o Expansion o Contraction o Recession o Depression Chapter 8: Economic Growth National Income Accounting:  a measurement system used to estimate national income and 
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This note was uploaded on 03/31/2008 for the course ECON 004 taught by Professor Graf,pauledwin during the Spring '07 term at Penn State.

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Review Sheet Midterm 2 - Ian Overbaugh Macroeconomic Goals...

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