Notesale: Turn your study into money

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CASSY FREDERICK

MACROECONOMICS

SEC B

1
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Generally speaking, the business
cycle is measured and tracked in terms of Real GDP and unemployment
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Business Cycle

2
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It is a point at which an expansionary phase ends and a contractionary
phase begins
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It
can also be called a recession
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A recession lasts from peak to trough
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This is associated with increasing inflation rates and declining
unemployment rates
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It is a point at which a contractionary phase
ends and an expansionary phase begins
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Distinguish between unemployed and employed
Unemployed is defined to be people in a country who are not gainfully employed, but are willing
and able to work and actively seek employment whereas employed are persons currently at work,
including part time workers
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Distinguish between voluntary and involuntary unemployment
Voluntary unemployment is the situation in which people are not willing to work at the
equilibrium wage rate (They willingly do not work because of not being able to find
employment of his/her choice)
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5
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of persons unemployed
213 million – 146 million= 67 million
Unemployment rate
67/213 * 100= 31
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Cuba’s labor force is 2106987
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Six types of unemployment
Frictional unemployment is the time period between jobs when a worker is searching for, or
transitioning from one job to another
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For example, when a person completes
school and starts searching for a job or if an employee resigns their job and searches for a job with
a higher salary
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For
example; computer skills are required, as opposed to skills of typing on a typewriter or when
human beings are replaced by robots in a car assembly line
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Cyclical unemployment is associated with the business cycle, when economic output falls, as
measured by the gross domestic product (GDP), the business cycle is low and cyclical
unemployment will rise
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when the
economy is in recession
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If the
cyclical unemployment is long term, it is called demand deficient unemployment (caused by a
lack of aggregate demand)
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Examples of industries where demand, production and
employment are seasonal include tourism and leisure, farming, construction and retailing
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Real wage unemployment: The Real Wage unemployment occurs when wages are above the
equilibrium level causing the supply of labour to be greater than demand
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It indicates what an hour’s worth of work can buy
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8
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 To reduce Cyclical Unemployment;
Expansionary fiscal and monetary policies can be used and would increase aggregate demand
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For fiscal policy involves the cutting of tax or a reduction in interest rates and an increase in
government spending on unemployment benefits or welfare
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Providing facilities to increase availability and flexibility, and combating bias against certain
workers, jobs or location
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This
helps give them new confidence
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Difference between cost-push inflation and demand push inflation

Demand-pull inflation: is inflation is that it is caused by excessive demand on the
part of consumers while firms are unable to expand output beyond their productive
capacity
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For instance,
demands by unions for higher wages have been labeled as wage push inflation
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10
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Redistribution of income can occur because some
ages and salaries increase more rapidly than the price level while others increase
slowly
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When inflation is expected; the redistribution
of income and wealth results are smaller, since individuals take actions to protect
themselves from the effects of inflation
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o Rapidly changing prices can make it risky to enter into long term contracts

o Inflation can decrease the production of goods and services; since it wear down the
purchasing power of money people allocate more resource ds to reducing money
holdings and less resources for production
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Barry Haworth
University of Louisville
Department of Economics
Economics 202

Solving for Equilibrium Real GDP

To calculate equilibrium real GDP (or income), we need a starting point
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This makes GDP, Net Domestic
Product, National Income and Personal Income all equal to one another (which means we can
ignore national income accounts like NDP, NI and PI)
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That said, now we need a set of equations which describe the economy:
(a) C = 0
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We also observe that $1,000 is spent on investment (purchase of machinery and
equipment), and that the government spends $800, while receiving $100 in taxes
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Step 1 - Recall missing equations
a
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The last equation, however, is only true at
the equilibrium
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Step 2 - Set up the problem
a
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(a') C = 0
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Take equations (a'), (b), (c), (d), (e) and (f), and substitute them into the (h) equation
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8(Y - 100) + 480] + 1,000 + 800 + 0 - 0
c
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Y = [0
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Rather than assume this to be the case for all, let's include
as many of the steps as possible
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a
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Y = 0
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Simplify the RHS of the equation
Y = 0
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Rearrange the equation
Y - 0
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Factor out the variable Y
(1-0
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Simplify
0
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Divide both sides by 0
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2
g
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Of course, now that we have a solution for
equilibrium real GDP, or Y*, we can ask all sorts of interesting questions like:



What happens if investment goes up by $200?
What happens if the government raises total taxes by $100?

Etc
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, etc
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stay tuned

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