02/02/16      Inflation & Interest Rates:

Nominal Interest Rate- % increase in $$$; the borrower must pay a lender for a loan.

                                     - NOT adjusted for inflation.

Real Interest Rate- he % increase in purchasing power; the borrower must pay a lender for a loan.

                              - adjusted for inflation

                              - Nominal interest rate - Inflation - Real interest rate

02/04/16      Unemployment:

The failure to use available resources, particularly labor, to produce desired goods and services.

Labor Force- above 16 years old

                     - able and willing to work
                     -employed to unemployed

Excluded from Labor Force:

1. Military
2. Students
3. Retired
4. Disabled
5. Homeowners
6. Mental Instituted People
7. People in jail/ prison
8. Those people not looking for a job.

Unemployment Rate- ideal rate 4% - 5% ( Full Employment / Natural Rate of Unemployment)

4 Types of Unemployment:

Frictional- those searching for a job 

                - temporary unemployed or in between jobs

                - transferable skills

                - ex. college; high school graduates

                - ex. laid off, looking for better jobs

Structural- changes in structure of labor force that makes some skills obsolete

                 - non transferable skills

                 - have to learn new skills to get a job 

                 - ex. move from NASA to automobile job

Frictional + Structural = NRU

Seasonal- due to time of year and nature of job.

                   Examples:

1.  School bus drivers
2.  Santa Claus/ Easter Bunny workers
3.  Lifeguards
4.  Firework stands
5.  Construction workers

Cyclical- results from economic downturns (recession)

             - as demand for goods/services fall, demand for labor and workers are laid off

             - NOT present where there is full employment

02/04/16         Inflation- increase in prices

Formula- Price Index in 2 years - Price Index in 1 year / Price Index in 1 year

Hurt by Inflation:

1. Savers
2. Lenders/ Creditors
3. People who are on a fixed income - (elderly, wellfare)

Helped by Inflation:

1. Delators; people who owe money; borrowers

Cost of Living Adjustments- automatic wage increase when inflation occurs (New York and California due to standard of living)

GDP Gap- the amount by which actual GDP falls short of potential GDP

Okun's Law- For every 1% in which actual enemployment rate exceeds the NRU, a GDP of about 2% occurs.
                    - Ex. In 2012 the unemplyment for Mexico was 7.4%. The NRU is 6%. Calculate GDP Gap.
(Actual) 7.4 - 6 (NRU) = 1.4 X 2 = 2.8

Rule of 70- used to determine how many years it takes for a value to double; given a particular annual growth rate.
                  - Ex. If you put $20,000 in the bank, and it earns a yearly interest of 7%. How many years will it take for your income to double? 10 years due to rule of 70.

02/01/16      Gross Domestic Product Cont...

National Income- (Personal Household + Taxes + Gov't Transfer Payment)

Nominal GDP- Value of output produced in current year prices (Price X Quantity)

Real GDP- value of output produced in constant based year prices.

                - adjusted for inflation (base year X Quantity)

                - real GDP to measure economic growth

                - measure increase in prices (inflation) use Nominal GDP

                - can increase from year to year if either price quantity increases

                - real increases only if output increases

                - earliest year ALWAYS = base year if not stated.

Nominal to Real GDP- 

(Nominal GDP / Real GDP) X 100

CPI- (most commonly used) measures cost of market basket of goods of a typical urban American family.

          - Cost of Market Basket of goods in a given year / "  " of goods in a based year.

01/28/16    Gross Domestic Product-  

the monetary value of all goods and services produced within a nation's geographic borders over a specified period of time.

Formula- C + IG + G + Xn

C- Personal Consumption Expenditures [65%] (Tory Burch, Louis Vuitton, etc..)

IG- Gross (total) Private Domestic Investment [17%] (House being built but not sold)

1.) Factory Equipment Maintenance   2.) New Factory Equipment   

3.) Construction of Housing    4.) Unsold Inventory Built

G- Government Spending: [20%] (Teacher salary in a year)

Xn- Net Exports (Exports - Imports)

GNP- Total Market Value of all final goods and services by citizens of that country on its land or foreign land.     Ex. Nike using Indonesia to make shoes.

NDP- Net Domestic Product (GDP - Depreciation)

NNP- Net National Product (GNP - Depreciation)

GNP- Gross National Product (GDP + Net Foreign Factor Payment)

Let's not forget Price Ceiling & Price Floors!

01/26/16      Circular Flow Diagram-

represents transactions in an economy

Product Market- firms sell goods/ services that produce to the households.

Factor Market- it is a place here households sell their resources and business by their resources.

Firms- organization that produces goods/ services for sale

Households- a person or group of people that share income

*There is no better way to understand this than with a visual representation!

Hey Guys! So to better understand the business cycle, here is some very helpful photos(:

01/14/16      Elasticity of Demand:

the measure of consumer reactions to price changes.

Elastic Demand- Demand sensitive to change in price E > 1  

                           - NOT a necessity

                           - Available substitutes

Inelastic Demand- Not very sensitive E<1

                             - Necessity

                             - Few or no substitutes

Unitary Demand- ALWAYS equal (=) to 1

Price Elasticity of Demand- (PED)

1. Quantity (new-old)

2. Price (new-old /old)

3. (%change in quantity demanded / % change in price)

Total Revenue- Total amount of money a firm receives from selling goods and services.

Formula- (price x quantity)

Production Costs-

Fixed Cost- a cost that doesn't change no matter the quantity produced.

                  - Ex. rent, mortgage, insurance, salaries

Variable Cost- a cost which rises/ falls depending upon how much is produced.

Marginal Cost- a cost of producing 1 more unit of a good.