- “China Shock” – rapid increase in imports from a large country eliminated some manufacturing jobs & workers not mobile More efficient manufacturing: “Making it in America” - A handful of companies are pulling away from the rest and their pay is much higher Google, Facebook, Apple, Goldman Sachs - Some professions in the U.S. pay very well: physicians, finance, executives, law s sometimes protected from competition - Increasing returns to skills (≠ education) Behavior of the US - Over the last 50 years, real GDP has grown - Over the last decade, the unemployment rate rose then fell - Since the 1970 the GDP deflator has not decreased - Since 1970, the labor force participation rate rose then fell - When we look at real GDP since 1970 or so, we see that recessions are not evenly spaced over the years. - Since 1970, real GDP is most likely to decrease now and then - The CPI rose most rapidly (or had the highest inflation rate) in the 1970s and early 1980s. This would be at the start of the period from 1970 until today. - Since 1950 to today, worldwide poverty rate has fallen the most Since your nominal income is growing at the rate of the CPI (i.e., the inflation rate for consumers), your real income (real wages) is unchanged in each of these years. (we work around inflation) %ΔCPI = nominal interest rate - inflation rate for consumers Where we convert a nominal amount to what its value would be in the base period of the CPI = “deflating” - CPI increases -> nominal price increases (ex: 100->105) We sometimes compute g = (final value / initial value) 1/(years between) - 1 - When computing for both inflation --- the annual rate of change in prices (we use either the CPI or the GDP deflator) and economic growth --- the annual rate of change of real GDP. A deficit is financed by the government borrowing from the investing public (like banks, individuals, and mutual funds; all decide voluntarily to lend to the government). %Δ real price = %Δ nominal price - %ΔCPI The federal deficit is federal expenditures (all the checks that the federal government writes; this is for both for transfers and for purchases) - federal taxes. transfer payments are when the government taxes one group and another receives those funds
ex: Social Security -- every worker pays Social Security taxes out of each paycheck and the funds are transferred to eligible retirees and disabled people Money i) it is the medium of exchange (i.e., used to make purchases), (ii) it is a store of value (many things can do this however), (iii) it is the unit of account (prices are measured in terms of money), and (iv) it is the standard of deferred payment (it is used in agreement to make payments in the future, like loan payments) The GDP deflator rises during recessions. - There is often disinflation Which of the following is the smallest in size? the current value of the GDP deflator The value of the CPI can be less than 100 - Today we see the CPI as having a value greater than 100 as prices have risen since the CPI's base period of 1982 - 1984.
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- Fall '10