Lecture 8
Macroeconomics

Opening
Prayer

Quiz Master

Accounting Pro
fi
t
Explicit Costs
Explicit + Implicit Costs
Economic Pro
fi
t

Finance
Time
Risk

Finance
Time - t or n
Risk - r or i

Foundation Finance
Formula
(1 + r )
n
r = risk rate
n = time periods

number of periods
Value r = 5%
r = 10%
r = 15%
Value = (1 + r)n r = rate
n = number of periods

number of periods
Value
r = 15%
Value = (1 + r)n r = rate
n = number of periods
Future
Value
Present
Value

FutureValue?
Future Value = Amount Today x Factor
Factor is the Growth Formula
(1 + r )
n
r = rate
n = time periods

FutureValue?
(1 + r )
n
r = 10% or 0.10
n = 5 years
(1 + 0.10)5
(1.10)5
1.61

FutureValue?
Future Value = Amount Today x Factor
$161 = $100 x 1.61
Future Value is compounding
Future Value is multiplying

PresentValue?
Present Value = Future Amount ÷ Factor
Present Value = $500 ÷ 1.61
$310.56 = $500 ÷ 1.61
Present Value is discounting
Present Value is dividing

Finance
Unknown - Present Value or Future Value?
Must know rate and number of periods
Compute Factor with formula
(1+r)n
If FV multiply
If PV divide

Present Future
x Factor ?
÷ Factor ?
Factor Formula = (1 + r )
n

Chapter 11
Unemployment

Culture
Human Beings
Ideas
Physical Human Intellectual Financial
Inventions
Entrepreneurs Free Markets
Innovations
The Capitals of Innovation

trust
health
skills
knowledge
personality
relationships
Human Capital

Unemployment
Inactive Human
Capital

Three Types of
Unemployment
Frictional
Seasonal
Structural

Frictional
Unemployment
Time to find a new
job

Seasonal
Unemployment
Demand changes
with the season

Structural
Unemployment
Too many workers
Change in Demand

What kind of
unemployment
is caused by
smartphones?

99% Reduction in Energy
449 watts to 5 watts

Unemployment Rate
Labor Force
Participation Rate
Rate are Ratios

Labor Force
Adults 16+ who have jobs
or are looking for jobs.
Employed + Unemployed

Employed
paid employees
work in own business
unpaid workers in family business
full-time and part-time
jobs but temporary absence

Unemployed
not employed
available
tried to find a job in the last four weeks
waiting to be recalled from layoff

Not in Labor Force
not employed
full-time student
homemaker
military
retiree
discouraged workers

Discouraged Worker

Discouraged Worker
People who would like
to work but have given
up looking for a job in
the last four weeks

Who Measures?
Department of Labor
Bureau of Labor Statistics

Two Surveys
The Current Population Survey (CPS) "household
survey" Sample of 60,000 households.
The Current Employment Statistics Survey (CES):
"payroll survey" sample of 160,000 businesses and
government agencies that represent 400,000 individual
employees.

Labor Force
Participation Rate
The percent of the Adult
Population that is in the
Labor Force

Population 330
Adults 254
Labor Force 160
Employed 152
Under 16 76
Not in Labor Force 94
8 Unemployed
Employed 152 8
Unemployed
Not in Labor Force 94 Under 16 76
Labor Force
Participation Rate
=
Labor Force
÷
Adults
Unemployment Rate =
Unemployed
÷
Labor Force
Rates

3,000 people live in Pooleynesia. There are
250 people under 16. 450 people are not
in the labor force. 230 people are
unemployed.
1. What is the Labor Force Participation
Rate?
2. What is the Unemployment Rate?

Calculating Unemployment Rates
Employed
+ Unemployed
= Labor Force
# %
100%
The unemployment rate is 10% and there
are 4,500 people employed. What is the
number unemployed?
10%
90%
4,500
5,000
500
4,500 ÷ .90 = 5,000

Calculating Unemployment Rates
Employed
+ Unemployed
= Labor Force
# %
100%
The unemployment rate is 5% and there are
2,500 people unemployed. What is the
number employed?
5%
95%
47,500
50,000
2,500
2,500 ÷ .05 = 50,000

Calculating Unemployment Rates
Employed
+ Unemployed
= Labor Force
# %
100%
The unemployment rate is 3% and there are 19,400
people employed. There are 30,000 adults. What is
labor force participation rate?
3%
97%
19,400
20,000
600
19,400 ÷ .97 = 20,000
20,000 ÷ 30,000 = .67 or 67%

Unemployment
Who measures it?
How is it measured?

Men
Women

Problems
Overstate - Above actual
Cash workers
Understate - Below actual
Discouraged workers