Macro the Big Picture

Piece 2 Measuring the

economy

Answer this question in at least 4 sentences:

How do you know if our economy is experiencing

growth?

What do you know?Can you define these

terms?• Gross• Unemployment• Cyclical• Frictional• Inflation• Stagflation

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 StandardSSEMA1 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 StandardsRH.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 ideasRH.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 uncertainWHST.11-12.9 Draw evidence from informational texts to support analysis, reflection, and research.

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

1. Income2. Unemployment3. Prices

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)

= $

GDPGDP 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.

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.

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.

1. Intermediate products

2. Secondhand sales

3. Nonmarket transactions

4. Underground economy

GDP in Action 1. 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 .

2. Explain what growth would look like for your classroom?

UnemploymentRemember 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?

Who counts?

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.

Which of these examples would count as a part of the labor force?

1. A stay at home dad2. A recent college graduate3. A 25 year old inmate4. A 15 year old high school

student looking for a summer job

5. A 60 year old retired train conductor who is trying to work as a barista

The Labor Force includes…

Who counts?

1. No2. Yes3. No4. No5. Yes

Which of these examples would count as a part of the labor force?

1. A stay at home dad2. A recent college graduate3. A 25 year old inmate4. A 15 year old high school

student looking for a summer job

5. A 60 year old retired train conductor who is trying to work as a barista

So how is unemployment calculated?

Number of unemployed persons

Civilian labor force= % unemployed

6,122,000166,452,000

= .036779 = 3.6%

Take a moment to calculate the

unemployment rate in your classroom

What should unemployment be?

As a class discuss: What do you think the unemployment rate

SHOULD be.Can the unemployment rate ever be 0%?

Where are we now?1. What is the highest that

unemployment has been since June 2014?

2. Describe the trends in unemployment shown by this graph.

3. How much farther does unemployment need to drop to reach the goal your class agreed on?

US Bureau of Labor Statisticshttp://www.bls.gov/news.release/pdf/empsit.pdf

Types of UnemploymentThe 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

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

Types of Unemployment1. Write down 3

examples of frictional unemployment.

2. Choose 1 of them to illustrate on your paper.

Types of UnemploymentClass Discussion

What should you do if you became structurally

unemployed?

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

Types of UnemploymentCyclical- 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

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

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?

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?• Define Gross 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

Why do prices matter?Prices are interrelated with employment

and GDP. Can you explain how?

InflationInflation 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?

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.

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.

Different types of InflationInflation 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%.

Different types of InflationOn 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

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.

So how can we measure inflation?

Next StepTotal 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:

4,2402,012

= 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?

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.

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

1. 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 1999

B. that the unemployment rate for all workers was a serious economic problem by the late 1990s

C. 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 1999

D. that the percentage of unemployed workers in Group 2 was higher than the percentage of all workers who were unemployed from 1995 to 1999

Try These

2. The BEST example of structural unemployment in an economy is someone

A. between jobs or entering the work force

B. out of work due to a change in the business cycle

C. out of work due to a seasonal downturn in business

D. whose job skills do not match the economy’s needs

Try These3. 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?

A. Seasonal

B. Cyclical

C. Structural

D. Frictional

4. Of the following groups, the one hurt the LEAST by unanticipated inflation is

A. workers who have cost-of-living adjustments in their labor contracts

B. people who have saved money in accounts with a fixed interest rate

C. banks that have made long term, fixed rate mortgage loans

D. consumers who buy goods and services at prevailing market prices

5. 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?

A. structuralB. seasonalC. frictionalD. cyclical

Answer Key1. C2. D 3. B4. A5. C

Resources• US Bureau of Labor Statistics News Release July 2012

http://www.bls.gov/news.release/pdf/empsit.pdf • Consumer Price Index, US Bureau of Labor Statistics

http://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/D

ocuments/Milestones/Assessment%20Guides/GM%20Economics%20EOC%20Assessment%20Guide%20081715.pdf

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