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Unformatted text preview: Lecture 4 Principles of Macroeconomics Econ 2 Spring, 2009 Unemployment • How many people unemployed? • A) 1 million • B) 6 million • C) 10 million • D) 13 million • E) 18 million Unemployment • How many people unemployed? • D) 13 million Tracking the Economy • Obama: Job creation • 3 to 4 million jobs • Job Openings and Labor Turnover Survey Aplia • Problems labeled practice are just that, they are NOT graded • Problems labeled as graded are the ones that count Iclicker • If the serial number is missing • See Mat Some NH 2nd floor from 46 today • If your points are not showing up by tomorrow (perm number): See if your Iclicker serial number is there (Year 1) Quantity Index Method 2: by value quantity weight total apples 2 $0.50 per apple $1.00 of apples oranges 3 $0.25 per orange $0.75 of oranges Tot. prod. $1.75 of fruit Quantity Index Year 2 quantity weight total apples 2 $1.00 per apple $2.00 of apples oranges 3 $0.50 per orange $1.50 of oranges Tot. prod. $3.50 of fruit Real and Nominal • Now, add another year of data Quantity Index Year 3 quantity weight total apples 4 $1.00 per apple $4.00 of apples oranges 6 $0.50 per orange $3.00 of oranges Tot. prod. $7.00 of fruit Real and Nominal • Nominal GDP in year 3 = $7.00 • What is Real GDP in year 3? • With year 1 as the base year: • Use quantities in the given year • Evaluated using prices in the base year Real GDP Year 3 • Real GDP in Year 3 (with Year 1 as base year) is: • A) $1.00 • B) $1.75 • C) $2.00 • D) $3.50 • E) $7.00 Real GDP Year 3 • Real GDP in Year 3 (with Year 1 as base year) is: • D) $3.50 Real and Nominal • Year 3 quantities: • 4 apples and 6 oranges • Base year (year 1) prices: • $0.50 per apple; $0.25 per orange • Real GDP in year 3 (year 1 prices): 4 x $0.50 + 6 x $0.25 = $3.50 Real and Nominal • Real GDP in year 3= 4 x $0.50 + 6 x $0.25 = $3.50 • How does this compare with year 1? • Since the base year is year 1, nominal and real are the same in year 1: • Real GDP in year 1 = 2 x $0.50 + 3 x $0.25 = $1.75 Real and Nominal • Real GDP in year 3: $3.50 • Real GDP in year 1: $1.75 • The point: • Since real GDP is twice as high in year 3 it means we have twice as many goods to consume in year 3 The distinction between real and nominal GDP suggests a measure of the “ price level ,” defined to be the average of the prices of an economy’s goods and services. In practice, the price level is measured by an index of average prices. Consumer Price Index: CPI A price index calculated as the current cost of a fixed basket of consumer goods divided by the cost of the basket in the base period. Calculating the CPI • Method: • Pick a base year • Determine a basket of goods consumed by an average urban family (baseyear basket) • The BLS then sends their minions to survey prices of these items at stores each month Calculating the CPI • Bureau of Labor Statistics (BLS) is the agency responsible for calculating the CPI • NPR, Calculating the CPI Calculating the CPI CPI t = Cost of baseyear basket in year t Cost of baseyear basket in base year Calculating the CPI...
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This note was uploaded on 11/01/2009 for the course ECON ECON2 taught by Professor Rupert during the Spring '09 term at UCSB.
 Spring '09
 Rupert
 Macroeconomics, Unemployment

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