MACROECONOMICS CHAP 20 Unemployment rate = #U/#LF Frictional unemployment = short-term unemployment that arises from the process of matching

workers with jobs Structural unemployment = unemployment that arises from a persistent mismatch between the skills and attributes of workers and the requirements of jobs Cyclical unemployment = unemployment caused by a business cycle recession Natural rate of unemployment = the normal rate of unemployment, consisting of frictional unemployment plus structural unemployment Inflation rate = the percentage increase in the price level from one year to the next Consumer price index (CPI) = an average of the prices of the goods and services purchased by the typical urban family of four CPI = (Expenditures in the current year / Expenditures in the base year) x 100 Four biases that cause changes in CPI to overstate true inflation rate by 0.5 percentage point to 1 percentage point: Substitution bias Increase in quality bias New product bias Outlet bias

Producer price index (PPI) = an average of the prices received by producers of goods and services at all stages of the production process MACROECONOMICS CHAP 21 Business cycle = alternating periods of economic expansion and economic recession Long-run economic growth = the process by which rising productivity increases the average standard of living (real GDP per capita)

Long-run economic growth due to: Technology (patents, R&D) Capital accumulation Human capital (education)

Increases in real GDP per capita depend on increases in labor productivity. Labor productivity = the quantity of goods and services that can be produced by one worker or by one hour of worked Capital = manufactured goods that are used to produce other goods and services Technology = processes a firm uses to turn inputs into outputs of goods and services Potential GDP = the level of real GDP attained when all firms are producing at capacity To calculate how many years it will take real GDP per capita to double: Rule of 70 Number of years to double = 70/Growth rate Business cycle

Real GDP increase smoothly in an expansion to a business cycle peak and then decreases smoothly in a recession to a business cycle trough, which is followed by another expansion. A recession = losing 2 quarters of output Y = C + I + G + NX Closed economy: Y = C + I + G Sprivate = Y + TR C T Spublic = T G TR S = Sprivate + Spublic

S=YCG S=I In the case of a budget deficit, T < G + TR (public saving is negative)