Unemployment: unemployed= not employed-available for work & attempted to find job w/in last 4wks.

Not in Lab For: not employed/unemployed, FT

students, homemakers, retirees, stay@home dads. LaborForce= Total # of emp&unemp. Unemployment Rate: (#unemp/LF)x100. LF Participation Rate:
LF/adult population. Women of working age(25-54) have lower LFP rate than men (In LF, unemp is same for men&women). Cyclical Unemp= deviation
of unempl from its natural rate. Discouraged workers=want to work/cant find. Unemployed= not trying hard (want govt help, or being paid under table).
Frictional Unemp= when worker searches for job best suit their skills. Structural Unem= #jobs<jobs needed (longer unemp periods, wages above equil-
min wage laws, unions, efficiency wages). Unemp Ins= 50% wages for 6mos- govt program- only if LAID OFF (inc unempl, decr hardship of being
unemp). Efficiency wages= inc. in equilibrium wages paid to incr. productivity (improve worker health, turnover, quality, effort).
Monetary System: commodity$=gold, cigar, etc (comm. w/ intrinsic value). Gold standard=gold as $. Fxns of $= med of exch, unit of acct, store of
value. Fiat $= money w/o intrinsic value (outside of being $). Money Stock(m1&m2) M1: demand deposits, travelers checks, check dep., currency. M2: all
of M1, savings and small deposits, $market mutual funds. Feds job is to regulate banks&ensure banking system. (control MS by FOMC). Open-market
operation: purch&sale of govt bonds FOMC increase MS: open market purch & decrease MS: OM sale. Fractional Reserve Bankng: hold fraction of
deposits as reserves (reserveratio). ReserveReq: min amt of reserves that must be held (setbyFeds). Excess reserves: holding amts above legal limits.
Banks create $(Assets&Liab) inc MS but NOT create wealth. BankCapitol:$put into bank by owner. Leverage=useofborrowed$forinvestment.
Leverage Ratio:Assets/bankcapitol.FEDS lending to banks= incr MS, give disount rate, give to highest bidder (auction) & highest bidder pays highest IR.
Discount rate of FedLoans High=decr MS, LOW=incr MS. Higher Int Rates on Reserves=banks want to hold more reserves. Increase in IR on
Reserves= incr in RR, decr in $mult, decr MS. Bank Runs= depositors think bankruptcy is happening, bank must close until some loans repaid. Feds
guarantee banks by FDIC. Fed Fund Rate= IR of overnight lans btwn bankslender has excess reserves, borrower needs reserves. FFR target Open-
marketOp: Buy bonds to decr FFR, incr MS. Sell bonds to incr FFR, decr MS.
$ Growth & Inflation: $ Demanded: # of wealth ppl want to hold (dwnwrd sloping) $Supply: determined by Fed Bank Syst (vertical slope). In LongRun-
things adjust to MD=MS. Economy is in equilibrium if fed DOUBLES the MS: print bills and drop them on market OR open-market purchase. NEW
EQ: supply curve shifts to RT, value of $ decreases, PL increases. Quant Theory of Money: Q of $ (value) determines PL, growth rate in Q of $
determines Inflation Rate. Monetary Injection (Adjusting Process)Excess MS, increase in D of goods&services, Price of G&S increases, increase in PL,
Increase in MD, new equilibrium. Nominal Variables: measured in monetary units (dollar, euro) Real variables: measured in physical units (relative
prices, real wages, RIR). Hyperinflation: exceeds 50% per month, PL increase morethan 100fold per year. Shoeleather cost: resources wasted when
inflation encourages people to decrease holdings. Menu Costs: cost of changing prices, inflation increases menu costs that firms must bear. Inflation Tax:
revenue the govt raises by printing money--- there is a tax on everyone who holds money resulting in rise in prices and decrease in dollar value.
INFLATION DISCOURAGES SAVING, INCR TAX BURDEN, & EXAGG CAPTL GAIN. Friedman Rule: moderate deflation will lower NIR and
reduce cost of holding $.
Aggregate Demand & Supply: Recession= economic contraction (period of declining real incomes and rising unemployment) Change in MS affect
nominal variables (prices), but NOT real variables (real GDP, unemployment) money neutrality. AD-AS Model is used to explain short run
fluctuations around its long run trend. Y=C+I+G+NX. PL and Consumption (WEALTH effect) Decrease in PL= increase in real value of money,
consumers wealthier, increase in consumer spending, increase in Q of Dem Goods. PL and Investment (IR effect) decrease in PL= decrease in IR,
increase in spending on investment goods, increase in Q of Dem G&S. AD Curve might shift when there are changes in: Consumption changes in
taxes, wealth, stock market boom (increase in consumer spending= AD shift RT) Investment: Better tech, tax policy, MS (increase in investment = shift
RT). Government Puchases: Build new roads, national defense funding (increase in G = shift RT) Net Exports: Recession in Europe, change in exchange
rate (increase in NX = shift RT). LRAS PL does not affect this. (Supplies of labor, capitol and natural resources, available tech). SRAS an increase
in MS leads to higher output, but NOT in LRAS. LRAS may shift if: any change in natural level of output, change in labor, capital, natural
resources(discover new oil, PL of oil decreases, inputs of production decrease, firm profit more and increases output= increase in LRAS), or changes in
technological knowledge. Changes in labor: Q of L increase = AS shifts RT. Nat Rate of Unemp increases= shifts LT. New discovery in natural resources
or tech= shift RT (intl trade or govt reg). I n long run: LRAS continually shifts RT b/c of tech progress & AD shifts to RT b/c monetary policy, and
increase in MS. RESULT: Continuing growth in output and inflation. I n short run: Increase of overall PL in economy raise the Q of G&S supplied.
Decrease= reduced (these reasons explain SRAS upward slope). SRAS slopes upward b/c: 1. sticky wages= Nominal wages slow to adjust, LT
contracts, notions of fairness and based on expected prices(not immediate) If PL < expected firms produce less output and vice versa; 2. Sticky prices=
Prices of G&S slow to adjust to changing economy, menu costs (costs to adjusting prices); 3. Misperceptions theory= changes in overall PL temporarily
mislead suppliers about changes and they respond accordingly. AS curve: Q of output supplied= Natural level of output + a(actual PL-expected PL) where
a is # that determines how much output responds to changes in PL. If expected PL increases AS shifts LT. Where AD=LRAS, it is natural level of
output and actual PL. Where AD=SRAS, expected PL=actual PL. AD SHIFT LT from wave of pessismism. AS shifts: increase production costs= LT,
Stabilizing economy w/ Fiscal Policy (Pros/Cons): Pros When AD is too small, high unemployment, policy makers boost govt spending, cut taxes,
and expand MS. When AD is excessive, High inflation, govt spending is cut, raised taxes, decrease MS (more stable economy- benefits everyone)
Cons Monetary/fiscal policy do not affect economy immediately, work with a long lag (MPolicy- about 6 mos/FPolicy- long process may take years),
Economic forecasting is highly imprecise. By trying to stabilize, policymakers can actually do the opposite (econ conditions change easily).
Automatic Stabilizers: (keeps an economy more stable during a recession) makes shock smaller, changes in fiscal policy during recession that stimulate
AD, the tax system. Ex: food stamps, unemployment insurance, medical insurance, social security. (INCOME decreases, CONSUMPTION increases)
because when paid less, taxes are less and therefore you end up with more money=morespending OR get unemployment insurance which still gets you
money and still lets you spend.