Economics 231: Principles of Macroeconomics

Here is your final extra credit question based on today's news.

The Bureau of Labor Statistics released their April employment report.  Answer these questions based on the report.  (1 point each for 3 possible extra credit points)

1.  What happened to the unemployment rate in April, and how many net new jobs were created in April?

2.  The answer to #1 may seem confusing to people who do not understand the definition of unemployment you learned in class.  Why?

3.  What was the labor force participation rate in April, and how did that compare to what it was in March?

econ231_4.ppt

As always, this is not an exhaustive list.  However, if you really know and understand the concepts mentioned here, you should do a lot better than if you don't.

hw231_6.pdf

Not really in the form of a top 10 list this time, but here are some thoughts on the things you should definitely know for the third exam.

• Employment and unemployment
• Know the types of unemployment (frictional, structural, cyclical).
• Know how to calculate labor market statistics (in class exercise).
• Understand the differences between US and European labor markets that cause differences in unemployment rates.

• Inflation
• Basic definition (page 218):  Inflation is the percentage increase in the price level (deflation is a decrease).  Though individual prices may be rising and falling, inflation refers to the average.
• Difference between price indexes (CPI, PPI, GDP deflator)
• Hyperinflation:  Extremely high inflation.  No precise definition but you know it when you see it.
• Notable hyperinflations:  Germany 1919-1923 (assisted Hitler's rise to power), Hungary 1945-1946 (highest monthly inflation on record), Zimbabwe 2001-2008 (most recent example and almost broke Hungary's record)
• Quantity theory:  MV=PY  (know what it each variable represents)
• Quantity theory is also written %change in M + %change in V = %change in P + %change in Y
• "Inflation is always and everywhere a monetary phenomenon" and "In the long run, money is neutral":  Know what is meant by these statements.
• What is the relationship between inflation and real and nominal interest rates?
• What are the costs of inflation?  Why is it hard to stop?

• Business cycle model and transmission mechanisms
• Understand the graph of the model (see pages 255-258 for examples)
• Solow growth curve is like a supply curve, it describes productive capacity.
• Aggregate demand curve is determined by spending and the money supply.
• Know the difference between Real Business Cycle theory and New Keynesian Theory
• Real business cycle theory does not have the short run aggregate supply curve; New Keynesian theory does.
• New Keynesian theory relies on sticky wages or sticky prices to generate a short run aggregate supply curve that is upward sloping.
• Review pages 255-258 closely to see how output and inflation respond to different shocks (i.e. changes in AD or shifts in the Solow growth curve).
• Intertemporal substitution, irreversible investment, and time bunching are examples of transmission mechanisms that can affect the business cycle.