Short QuizName the type of unemployment

(F = frictional, C = Cyclical, S = Structural)

1. Recent college graduates

2. Former Myspace employees

3. Waitress laid off because of fewer customers4. Calculate the unemployment rate of Travistan:

30 million people in labor force

3 million discouraged workers

10 million unemployed and looking for work

5. Calculate the GDP of Travistan in billions

Black Market = $ 10 Consumer spending = $15 Investment = $6Government = $4 Imports = $10 Exports = $5

6. Calculate Travistan’s GDP per capita if there are 20 million citizens

20 million = .02 billion 7. Is this a rich or poor country?

Definition of money

• Medium of exchange

• Unit of Accounting

• Store of Value

MoneyCommodity money

Currency

Rome

Currency

Ancient China

Currency

RepresentativeCurrency

Advantages?Disadvantages?

Currency

FiatCurrency

Currency

FiatCurrency

Currency

FiatCurrency

Currency

FiatCurrency

CurrencyFiatCurrency

Advantages?Disadvantages?

The Euro conversion to US 1.50

Fiat CurrencyAdvantagesDisadvantages?

US/Mex/Can?

Foreign exchanges

Near Money

• Debit cards

• Gift Cards

• Financial Assets

Inflation• Rise in

prices over time

• “cost of living”

• “The real value of currency”

GDP

• GDP = C + I + G + (Exports – Imports)

• Which one is affected by inflation?

Why does inflation happen?

Zimbabwe

Population:

13 million

GDP: 4.72 billion

GDP/Capita:

$402

Unemployment:

66%

Your G3 is advising the President of Zimbabwe on how to improve the economy of his country.

Situation: Many blacks can not afford goods and food in the markets. Business owners are allowed to charge whatever

price they want and since food is hard to find, its very expensive.

Local Zimbabwe businesses have a difficult time competing with imports from the USA, South Africa and England. When

Zimbabwe businesses fail, people lose their jobs causing more unemployment.

98% of the farm land is owned by white farmers, which was taken in the 1800’s from native Africans. 90% of this country is black and has no access to this farm land. The white farmers

pay low wages and often do not hire native blacks.Many people in Zimbabwe do not have much money to buy

food with. The Zimbabwe dollar is a strong currency which is difficult to get much of because the central bank doesn’t print

very much.

Zimbabwe

Fixed prices

Banned imports

Redistributed land

Printed up more money

CAUSE EFFECTPresident Robert Mugabe

shortages

More shortages

Still more shortages

inflation

Technically “hyperinflation”

What if I told you?

• Million dollars?

• 25 Billion dollars?

• 100 Billion dollars

• Fiat currency = value only because we think it does

Why can’t we just print more money?

• Quantity theory of inflation

Piles of currency in Zimbabwe

Hyperinflation in Zimbabwe

• Start of 2008– 100 % inflation

• End of 2008-2009– 10,000,000 %!!– 10 X 6th inflation

What else causes inflation?

• Cost push theory

• Demand pull theory

Brainstorm 5 things a typical family would buy in a month

Inflation• Rise in prices over

time

• “cost of living”

• Calculate using Consumer Price Index

• CPI =New Prices – Old Prices

Old PricesX 100

Always a percentage, But unlike unemployment rate,It can be more than 100, or a negative

1-3 % inflation = normal

Who likes inflation?• Retirees

• Consumers

• Lenders on fixed interest rates

• Borrowers on fixed interest rates

• Sales people

• Real estate agents

• College students

• Doctors

Sony PS3 Price change %

• Gas in 2009: $2.50

• 2011: $3.20

Inflation calculator

If I buy 20 Gallons of gas per week

• At $1/Gallon

• At $2/Gallon

• At $3/Gallon

Recently though

Calculate CPI

Housing 100Transportation 20Food 50Energy 15Medical Care 5Apparel 10

Total: 200

Housing 115Transportation 25Food 55Energy 45Medical Care 10Apparel 15

Total: 265

Slovenia 2006, in Euros Slovenia 2008, in Euros

CPI current year – CPI base year

CPI base year

INFLATION= RATE

265 - 200200 (2006)

SO 100 = 32.5%

You try one

4. Calculate the US inflation rate

5. Is this a good rate or should we be worried?

6. What is deflation and why is it good?

7. Do you think fiat currency is better for a country than representative currency? Explain.

Housing 700Transportation 300Food 100Energy 45Medical Care 45Apparel 100

Total: 1290

Housing 690Transportation 310Food 120Energy 90Medical Care 45Apparel 95

Total: 1350

United States 2006, in $$$$ United States 2008, in $$$$