9. Calculation of Civilian Unemployment Rate Annual rate Number of civilians unemployed Size of total civilian labor force = where the size of the total civilian labor force is determined by subtracting those not seeking jobs (homemakers, students, etc.) from the total non- institutional population (those not in prison) over 16 years of age as well as those who are in military service. Page 280
10. An Example Assume the following values: Total labor force 1 143.8 million Members of armed services 1.7 million Employed persons 136.2 million Annual rate 143.8 – 1.7 – 136.2 143.8 – 1.7 = = .0415 or 4.15 percent 1 The total labor force equals total population minus those not seeking employment over age 16 and those in institutions. Page 280
11.
12. Page 281 Unemployment rate during the great depression was 25% Full employment barometer?
15. Measuring the CPI The consumer price index is a weighted average of the prices consumers pay for goods and services. It is measured by: CPI = Or : CPI = W FB (P FB ) + W H (P H ) + … + W OTHER (P OTHER ) = 14.914 (P FB ) + 42.427 (P H ) + … + 3.276 (P OTHER ) Cost of market basket in current year Cost of market basket in base year × 100 See Table 14.1 on page 281 Page 282
16. Rate of Inflation The rate of inflation can be measured by the percent change in the CPI, or: Inflation rate = current CPI – previous CPI previous CPI If the CPI was 179.9 in 2007 and 184.0 in 2008, the annual rate of inflation in 2000 would be: Inflation rate = (184.0 – 179.9) ÷ 179.9 = .0228 or 2.28% Page 283
17. Inflation thought to be “ under control” in this range Page 284 Brought about a major monetary policy action described in Chapter 13
18. Page 285 When describing growth in the economy on the nightly newscast, the newscaster will refer to the growth in real GDP after adjustments for inflation. In the above example, real GDP grew over the 1992-1999 period, but not at the rate implied by comparisons in nominal terms.
19. Page 285 Some examples of annual rates of inflation around the world vs. U.S.
21. Page 288 Phillips curve named after British economist A. W. Phillips…
22. Page 288 Policies that reduce unemployment may increase inflation in the short run, and vice versa…
23. Page 286 Demand oriented policies that shift the aggregate demand curve from AD 2 to AD 3 “pull up” the general price level from P 0 to P 1 . This small increase in inflation may make sense since output increased from Y 2 to Y 3 , which would lower unemployment.
24. Page 286 Demand oriented policies to maximize output at the economy’s potential or Y POT may bring about a substantial increase in the general price level (and hence rate of inflation) for a relatively small gain in output and employment.
25. Page 289 Both demand and supply oriented policies stimulate aggregate output.
26. Page 289 But demand expansion policy “ pulls up” the general price level….
27. Page 289 … while supply oriented policies that enhance productivity reduce the general price level.
28. Page 289 In reality, both forms of policy are typically carried out at the same time.