Macro the Big Picture

1. Piece 2Measuring the economy Macro the Big Picture

2. Can you define these terms? • Gross • Unemployment • Cyclical • Frictional • Inflation • Stagflation What do you know? Answer this question in at least 4 sentences: How do you know if our economy is experiencing growth?

3. By the end of this lesson you should know…. Essential Questions • How do the types of unemployment experienced by a nation reflect scarcity in the market for labor? • How does unemployment affect Gross Domestic Product? • Why should countries be concerned with inflation? Terms • Unemployment • Labor force • GDP • Structural, Cyclical and Frictional unemployment • Inflation • Stagflation • Hyperinflation • Consumer Price Index Georgia Performance Standard SSEMA1 The student will illustrate the means by which economic activity is measured. a. Explain that overall levels of income, employment, and prices are determined by the spending and production decisions of households, businesses, government, and net exports. b. Define Gross Domestic Product (GDP), economic growth, unemployment, Consumer Price Index (CPI), inflation, stagflation, and aggregate supply and aggregate demand. c. Explain how economic growth, inflation, and unemployment are calculated. d. Identify structural, cyclical, and frictional unemployment. . Literacy Standards RH.11-12.2 Determine the central ideas or information of a primary or secondary source; provide an accurate summary that makes clear the relationships among the key details and ideas RH.11-12.3 Evaluate various explanations for actions or events and determine which explanation best accords with textual evidence, acknowledging where the text leaves matters uncertain WHST.11-12.9 Draw evidence from informational texts to support analysis, reflection, and research.

4. How can you measure the economy? When we look at our economy to determine what changes need to be made, we need to have accurate data. That data should measure both the goods and services that a country produces. When getting a good economic picture, we need to take all of the following economic activity into account • Income • Unemployment • Prices

5. How can you measure a nation’s income? In order to determine how much money our country makes, we often use GDP. Gross Domestic Product or GDP is the value in dollars of the total amount of goods and services produced in a nations borders in one year. Gross + Domestic + Product (Total value)(inside the country)(goods and services) = $

6. GDP GDP is easy to calculate, add up all the goods, services and structures sold in a one year period and multiply each by their prices. It is not possible to record absolutely everything so economists use techniques to estimate GDP quarterly.

7. What is NOT included in GDP? • Intermediate products- goods that are used to produce other goods like capitol goods. • Secondhand sales- like used car dealerships, thrift stores or used book dealers. These transactions go from one owner to another and do not produce a new product. • Nonmarket transactions- these are services that you do for yourself that do not require a purchase outside of your home like home repairs, mowing your lawn or doing your own taxes. You are providing a service that has a value that is not counted. • Underground economy- examples of this include illegal gambling, prostitution or garage sales. These are cash activities that people do to make money but are not reported for legal tax collecting purposes.

8. What is NOT included in GDP? Take 3 minutes and list as many examples as you can of each of these activities that are NOT counted in GDP. You cannot use any of the examples given in the previous slide. • Intermediate products • Secondhand sales • Nonmarket transactions • Underground economy

9. GDP in Action • Add up the total dollar amount of goods and services produced by the people in your room in one year to determine how much your class adds to the country’s GDP . • Explain what growth would look like for your classroom?

10. Unemployment Remember when you learned about the production possibilities frontier? In order to produce on the frontier and maximize a country’s potential it is necessary to have all resources working efficiently. This is why employment is critical to economic growth. So we should start off with some questions: • Who counts as part of our labor force? • How does a country determine the percentage of workers that should be productive but are not? • What is our country’s unemployment goal? • Can you end unemployment? • Are there different kinds of unemployment?

11. Who counts? Which of these examples would count as a part of the labor force? A stay at home dad A recent college graduate A 25 year old inmate A 15 year old high school student looking for a summer job A 60 year old retired train conductor who is trying to work as a barista The Labor Force includes… Our labor force consists of everyone 16 and up who is either employed OR actively looking for a job. It does not include those in the military or those who are unable to work.

12. Who counts? Which of these examples would count as a part of the labor force? A stay at home dad A recent college graduate A 25 year old inmate A 15 year old high school student looking for a summer job A 60 year old retired train conductor who is trying to work as a barista • No • Yes • No • No • Yes

13. So how is unemployment calculated? = % unemployed Number of unemployed persons Civilian labor force 6,122,000 166,452,000 = .036779 = 3.6%

14. Take a moment to calculate the unemployment rate in your classroom

15. What should unemployment be? As a class discuss: What do you think the unemployment rate SHOULD be. Can the unemployment rate ever be 0%?

16. Where are we now? • What is the highest that unemployment has been since June 2014? • Describe the trends in unemployment shown by this graph. • How much farther does unemployment need to drop to reach the goal your class agreed on? US Bureau of Labor Statistics http://www.bls.gov/news.release/pdf/empsit.pdf

17. Types of Unemployment The Full Employment and Balanced Growth Act of 1978 states a goal of 4% for unemployment, which based on US historical data, is very low. This goal however does not give us enough information to determine how to address unemployment because there are several different reasons why people in our labor force are unemployed. There are four basic types of unemployment: • Frictional • Structural • Cyclical • Seasonal

18. Types of Unemployment Frictional- this is the most common type of unemployment, it occurs when workers are between jobs and is usually short term. This type of unemployment will never be 0%. Examples: someone quitting their job to find a better one, someone who gets fired for their performance, someone who leaves a job to find one in a different city Write down 3 examples of frictional unemployment. Choose 1 of them to illustrate on your paper.

19. Types of Unemployment Structural- this type occurs when there is a change in how the economy operates due to a change in consumer tastes and preference or from new technology or progress. Examples: outsourcing production to China, the change from video tapes to DVD’s, when people started buying cars instead of horses and buggies Class Discussion What should you do if you became structurally unemployed?

20. Types of Unemployment Seasonal- this type of unemployment occurs when work is dependent on weather or for certain jobs that are available only certain times of the year. Examples: a Six Flags worker in November, a Toy’s R Us employee after Christmas Cyclical- this type of unemployment occurs because of changes in the business cycle Examples: a banker who lost their job in 2009 when the bank closed, a factory worker in Detroit who lost their job in 2008

21. Quick WriteWrite at least 5 sentences in response to ONE of the following questions: Which type of unemployment do you think should be targeted right now to help our economy? Who’s job should it be to make sure unemployment is at the correct level?

22. So far can you… Answer these Questions? • How do the types of unemployment experienced by a nation reflect scarcity in the market for labor? • How does unemployment affect Gross Domestic Product? Define these Terms? • Unemployment • Labor force • GDP • Structural, Cyclical and Frictional unemployment • Perform these Standards? • DefineGross Domestic Product (GDP), economic growth and unemployment • Explain how economic growth and unemployment are calculated. • Identify structural, cyclical, and frictional unemployment. . We still need to learn about Prices

23. Why do prices matter? Prices are interrelated with employment and GDP. Can you explain how?

24. Inflation Inflation is an increase in the level of prices in the economy. We have all experienced this at the gas pump on a regular basis. Some inflation is normal, as people’s incomes rise because of economic growth, so do prices. There is a normal rate of increase that we want to maintain because inflation is harmful to specific groups of people. Who does inflation hurt?

25. Who does Inflation hurt? • Those on fixed incomes. The income of people who live on retirement or social security never changes, so increases in prices mean that they have less money to live on each month.

26. Who does Inflation hurt? • Inflation hurts lenders because the money that is paid back is worth less. • Finally inflation hurts savers because the money they save will buy less when they take it out of savings.

27. Different types of Inflation Inflation can occur in a society without economic growth. Because the economy is stagnant-showing no activity- this is called stagflation. In the 1980’s the US experienced stagflation when OPEC, the Organization of Petroleum Exporting Countries, raised the price of oil by almost 10%.

28. Different types of Inflation On occasion, if a country is facing a political or economic crisis, inflation can get out of control. Extreme inflation is called Hyperinflation. Examples of hyperinflation are Germany in the 1920’s after WWI when inflation occurred at a rate over 300% and most recently Zimbabwe in 2006 when prices rose at a rate of 1,000%. German children playing with stacks of money in the 1920’s

29. So how can we measure inflation? In order to measure how much prices have risen we need to have a common group of goods and services that people have purchased over the last years called a market basket. Items like a house, healthcare, peanut butter, etc. Next we need a base year, this year will be used as a basis for comparison. The US Bureau of Labor Statistics uses years 1982 to 1984 as the base year.

30. So how can we measure inflation? Next Step Total the cost of the market basket in the base year, and divide it by the total of the market basket this year. If the market basket in 1982-84 was 2,012 and today it is 4, 240 then your equation would be: 4,240 2,012 = 2.107 or 210.7% The result is called the Consumer Price Index which is a series of statistical data that tracks changes in price on a monthly basis. But how do we interpret that?

31. So how do you translate CPI? Today CPI was 210.7, exactly one year ago CPI was 201.4. To find out how much inflation has occurred, complete the formula (210.7-201.4) = 9.3 = 0.046 = 4.6% 201.4 201.4 So in the last year inflation has occurred at a rate of 4.6%. The Full Employment and Balanced Growth Act of 1978 states a goal of 3% for inflation. This relates to the US social and economic goal of stability.

32. Now you should be able to…. Answer these Questions • How do the types of unemployment experienced by a nation reflect scarcity in the market for labor? • How does unemployment affect Gross Domestic Product? • Why should countries be concerned with inflation? Define these Terms • Unemployment • Labor force • GDP • Structural, Cyclical and Frictional unemployment • Inflation • Stagflation • Hyperinflation • Consumer Price Index • Perform these Standards • Illustrate the means by which economic activity is measured. • Explain that overall levels of income, employment, and prices are determined by the spending and production decisions of households, businesses, government, and net exports. • Define Gross Domestic Product (GDP), economic growth, unemployment, Consumer Price Index (CPI), inflation, stagflation • Explain how economic growth, inflation, and unemployment are calculated. • Identify structural, cyclical, and frictional unemployment. Sample Questions

33. Try These • The data in the bar graph showsA. that the number of unemployed workers in Group 1 is greater than the number of unemployed workers in Group 2 from 1995 to 1999B. that the unemployment rate for all workers was a serious economic problem by the late 1990sC. that the percentage of unemployed workers in Group 1 was roughly twice as high as the percentage of all unemployed workers in the labor force from 1995 to 1999D. that the percentage of unemployed workers in Group 2 was higher than the percentage of all workers who were unemployed from 1995 to 1999

34. Try These • The BEST example of structural unemployment in an economy is someone • between jobs or entering the work force • out of work due to a change in the business cycle • out of work due to a seasonal downturn in business • whose job skills do not match the economy’s needs • Carol’s teaching contract was not renewed this year because the county downsized due to the recent recession. Carol is experiencing which type of unemployment? • Seasonal • Cyclical • Structural • Frictional

35. Of the following groups, the one hurt the LEAST by unanticipated inflation is • workers who have cost-of-living adjustments in their labor contracts • people who have saved money in accounts with a fixed interest rate • banks that have made long term, fixed rate mortgage loans • consumers who buy goods and services at prevailing market prices • Peggy, a recent college graduate, decides to look for a job instead of going to graduate school. If she is unable to find a job that suits her interests right away, what type of unemployment is she MOST likely experiencing? • structural • seasonal • frictional • cyclical

36. Answer Key • C • D • B • A • C

37. Resources • US Bureau of Labor Statistics News Release July 2012http://www.bls.gov/news.release/pdf/empsit.pdf • Consumer Price Index, US Bureau of Labor Statisticshttp://www.bls.gov/cpi/ • Organization of Petroleum Exporting Countries (OPEC)http://www.opec.org/opec_web/en/ • Georgia Department of Education’s Economics/Business/Free Enterprise EOC Assessment Guide • http://www.gadoe.org/Curriculum-Instruction-and-Assessment/Assessment/Documents/Milestones/Assessment%20Guides/GM%20Economics%20EOC%20Assessment%20Guide%20081715.pdf

38. Resources • Economics GPS Frameworks: Unit 4- “The Government and the Economy: Superhero or Villain”https://www.georgiastandards.org/Frameworks/GSO%20Frameworks/Economics%20Unit%204.pdf • Georgia Department of Education Released EOCT’s and answer keyshttp://www.doe.k12.ga.us/Curriculum-Instruction-and-Assessment/Assessment/Pages/EOCT-Released-Tests.aspx