Quiz 5 Review.docx - Section 1 Measuring the Economy GDP Prices and Inflation 1.5 Be able to calculate the inflation rate(core and headline real wages

Quiz 5 Review.docx - Section 1 Measuring the Economy GDP...

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Section 1: Measuring the Economy: GDP, Prices, and Inflation 1.5 Be able to calculate the inflation rate (core and headline), real wages and real prices, and to be able to explain what they measure. (Ch. 8.3 & 9.4, and notes) Inflation rate = percent change in a price index (Most commonly GDP Deflator or CPI) Core CPI is when energy and food prices are ignored – Headline includes these two goods o o Nominal/real = gdp deflator Nominal price/wages - how many dollars it takes to buy something or hire someone Real price/wage explicitly removes inflation from nominal value o Percent change in real price (or wage) = percent change in nominal value – inflation rate Section 2: Why Economies Grow in the Long Run 2.10. Be able to explain how rising productivity can lead to falling employment in a given industry yet is essential for long-run growth. (notes) More output by fewer workers in a firm (more labor productivity – higher real wages) New industries employ the laid off and many others: employment rises Labor saving technology – key to rising prosperity Creative destruction 2.11 Be able to explain what the future might portend for economic growth in the U.S. (notes) Unlikely for American real incomes to double every generation as it has done the past 150 years Slowing human capital formation - A Falling labor force participation – L/pop o Labor force = (working + looking for a job) / (those over the age of 16) o High number of males not working o High number of baby boomers retiring Rising inequality of income o 103% change in highest quintile over last 35 years o 79% change in lowest quintile o 46% change in middle three quintiles o Middle income is rising the slowest o Bottom 4 quintiles aided by tax cuts and more transfers Innovation slow down – A o Innovation between 1900-1959 was a lot higher than the last 50 years U.S. economy less dynamic – A o Less people moving states - 3% to 1.5% o Less new businesses forming – 15% to 8% Knowledge Workers hiring rate rose, but routine cognitive, routine manual work decreased. Non routine manual work has steadily rose
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Section 3: The Business Cycle and Unemployment 3.1. Be able to explain how unemployment and the unemployment rate are calculated and be able to explain the terms that are used in these calculations (i.e., labor force, employment, and unemployment). (Ch. 9.1 and notes) The U.S. Census Bureau gathers data by interviewing adults in a sample of 60,000 households, chosen to represent the U.S. population, about the employment status of everyone in the household 16 years of age and older. Employed if they worked during the week before the survey or if they were temporarily away from their jobs because they were ill, on vacation, on strike, or for other reasons Unemployed if they did not work in the previous week but were available for work and had actively looked for work at some time during the previous four weeks Labor Force = employed + unemployed Unemployment Rate = Unemployed / labor force Long Term Unemployment – The percent of the unemployed who have been unemployed for 27 weeks or more 3.2. Be able to explain, correctly use, and calculate the underemployment rate (U-6) and the labor force
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