Economic Trends And US Labor Flashcards
Economic Growth
- When an economy’s long-run potential output increases.
- Long-term growth measured by a shift in an economy’s Production Possibilities Curve and rightward shift in the Long Run Aggregate Supply Curve (LRAS)
- Higher standard of living/lower unemployment
- Short-term growth (12 months) measured by percentage change in GDP
Types of Unemployment
- Frictional
- Structural
- Cyclical
- Seasonal
- Disguised
Frictional Unemployment
- Due to temporary transitions in the employees’ lives (moving, graduating)
- Leading cause of unemployment
Structural Unemployment
- Mismatch between the types of available employment and the workers’ demographics (their skills)
Cyclical Unemployment
- Due to reduced demand for services and goods within the economy (thus, businesses offer less jobs)
Disguised Unemployment
- Does not affect the aggregate economic output. Happens when there is low productivity and the existence of affluent workers who are willing to fill the few jobs.
Consumer Confidence Index
- Survey of large portion of US tha summarizes the feelings of consumers about their current and future outlook.
- Released monthly by The Conference Board; consists of 5 questions.
- Present Situation Index (2 questions)
- Expectations Index (3 questions about their feelings towards the future)
Criticism: score is a “Lagging Indicator”: it tends to Follow events instead of predicting them. Also, it gave high Present score during Pandemic
Using Consumer Confidence Index
- Index Value= score for all 5 questions. Compared to score from 1985, which had 100%
- Less Confident = any Index Value below 100
- More confident = any Index Value above 100.
- Present Index tends to be >140, and expectations index tends to be <100
2 Ways to measure GDP
- Expenditure approach
- Income approach
Both should yield the same GDP result.
Full Employment GDP (Potential Output)
- Describes a healthy economy producing at its potential.
- Represents an economy’s output when operating at the lowest sustainable rate of unemployment. (2-4%)
- Achieved when there is an equilibrium between Aggregate Demand and Short and Long term Aggregate supply.
- The only unemployment that occurs is frictional unemployment
- Inflation NOT accelerating
- Savings equals investment
Aggregate Demand
- The total amount of money being spent by consumers, investment, the government, and foreign countries at a given price level.
- Essentially, what people are willing to spend at the current price of goods and services.
Aggregate Supply
- The total output by firms at a given price level.
- In other words, the amount of goods and services that companies are willing to supply at the given price level.
- Measure in short-term (wages sticky, affecting cost of production)
- Also measured in long-term (wages more flexible)
Economy at Full Employment GDP
The point on a graph at which the lines for all of the below intersect:
1. Aggregate Demand (AD)
2. Short-run Aggregate Supply (SRAS)
3. Long-run Aggregate Supply (LRAS)
Difference between long-term Economic Growth and temporary increases.
- As Economic Growth occurs, LRAS moves to the right of the graph, and AD and SRAS adjust accordingly, creating even higher Full Employment GDP over time.
- In a short-term change, these values will be out of alignment and thus Full Employment GDP will not be met.
Recessionary Gap
- Economy is producing UNDER its potential output (Full Employment GDP)
- AD line under the potential output point on the graph.
- Unemployment is high
- Deflation occurs because demand is low, and firms have to lower prices to encourage spending.
Inflationary Gap
- Economy produces OVER its potential output (Full Employment GDP)
- AD line above the Potential Output point on the graph.
- Unemployment is Lower Than Sustainable
- AD increases, but supply stays the same. With increased demand, firms raise prices, causing inflation.
Non-accelerating Inflation Rate
- Price stability experienced when an economy is at its potential output. (Thus, full employment of 2-4%)
Real GDP per Capita
- Value of national output / population
Drivers of Standard of Living
- Savings Rate
- Population
- Productivity (most important)
A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.
How is savings directly connected to economic growth?
Money in savings accounts gets loaned out to businesses who invest in the economy.
Standards of living will increase when a ______ grows faster than the ________.
Economy, population.
Why is real GDP a poor indicator of economic growth?
Real GDP is a short run measure, and economic growth is a long run potential.
What do exceptions to the minimum wage laws refer to?
Groups of workers not covered by minimum wage laws.
The full time student exemption of minimum wage allows which of these?
85% of minimum wage and limited working hours:
1. No more than hours per day and 20 hours per week.
