Macro 7

2. Macroeconomics
Lecture 7
Taxes and Unemployment

3. Questions?

4. Economics
The study of how
humans create value for
one another

5. 1. Name three ways a government can raise money.
2. Name five different kinds of taxes.
3. In Pooleynesia every citizens has to pay a $500 tax each year. What kind of
tax is this?
4. What are the two objectives in designing a tax system?
5. What are the two principles that are considered under fairness?
6. What are three kinds of income taxes?
7. What kind of tax is a flat tax?
8. What is the highest U.S. personal income tax rate?
9. Draw and explain the Laffer curve.
10. What does it mean when Dr. Pooley says, How you slice the pie
determines the size of the pie.
Tax, Sell, Borrow
Income, Sales, Property, Excise, Estate, Fuel, Hotel, Sin
Lump Sum
Efficient and Equitable, Low Cost and Fair
Benefits Principle and Ability-to-Pay Principle
Proportionate, Progressive, Regressive
Proportionate
39.6 percent

6. Laffer
Curve
Art
Laffer

7. Tax Rate %
$
Tax
Revenue
Laffer Curve
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Dropped Top Marginal
Income Tax Rate
from 70% to 28%

8. If you want more
revenue
Lower the rate

9. How you slice the pie
Determines the size of the pie

10. Change incentives
Change behavior

11. Marginal Tax Rates
Slice
Economic Output
Size

12. 1988
$352 billion
28%
$100 billion
Income above $200,000
Pie x 9.7
Taxes x 5.2
Smaller slice of a larger pie
1980
$36 billion
70%
$19 billion

13. Assume you earn $70,000 in the U.S.
What would your income taxes be?
Use the following bracket table:
Range Income Rate Tax
$70,000
$0 - $9,275 $9,275 10% $927.50
$9,276 - $37,650 $28,375 15% $4,256.25
$37,651 - $91,150 $32,350 25% $8,087.50
Summary $70,000 19% $13,271.25

14. Who pays the taxes?
0%
25%
50%
75%
100%
Top 1% Top 5% Top 10% Top 25% Top 50% Bottom 50%
3%
97%
87%
71%
60%
40%

15. $0 $0 $0 $0 $3 $71$10$7$5$4
$10 $10 $10 $10 $10 $10 $10 $10 $10 $10
$100

21. Unemployment

22. Key Terms
labor force
unemployment rate
labor-force participation rate
natural rate of unemployment
cyclical unemployment
discouraged workers
frictional unemployment
structural unemployment
job search
unemployment insurance
union
collective bargaining
strike
efficiency wages

23. Everybody
Adults 16+
Labor Force
Unemployed

24. Unemployment
Who measures it?
How is it measured?

25. Who Measures?
Department of Labor
Bureau of Labor Statistics

26. 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.

27. Adults 16+
Everybody 320 100%
16+ 254 80%
Under 16 66 20%

28. Adult Category
16+ 254 100%
Not in
Labor Force
94 37%
In
Labor Force
160 63%

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

30. Discouraged Worker

31. Discouraged Worker
People who would like
to work but have given
up looking for a job

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

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

35. 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Year
0N
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Year
0
20
40
60
Shareofthecivilianlaborforce(%)
Men
Women

36. Labor Force
Total 160 100%
Employed 152.3 95.2%
Unemployed 7.7 4.8%

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

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

39. Unemployment Rate
Unemployed
÷
Labor Force

40. millions
%
Population
%
Adults
% Labor
Force
Population 320 100%
Age under 16 66 20%
Age 16+ 254 80% 100%
Not in Labor Force 94 30% 37%
In Labor Force 160 50% 63% 100%
Employed 152.3 47.6% 60% 95.2%
Unemployed 7.7 2.4% 3% 4.8%

41. U1: the percentage of labor force unemployed for 15 weeks or longer.
U2: the percentage of labor force who lost jobs or completed temporary work.
U3: the official unemployment rate that occurs when people are without jobs and they
have actively looked for work within the past four weeks.
U4: the individuals described in U3 plus "discouraged workers," those who have stopped
looking for work because current economic conditions make them think that no work is
available for them.
U5: the individuals described in U4 plus other "marginally attached workers," "loosely
attached workers," or those who "would like" and are able to work, but have not looked
for work recently.
U6: the individuals described in U5 plus part-time workers who want to work full-time,
but cannot due to economic reasons, primarily underemployment.
Six Measures of Unemployment

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

43. Natural Rate of
Unemployment
The normal rate of
unemployment around
which the unemployment
rate fluctuates

44. Cyclical
Unemployment
The deviation of
unemployment from its
natural rate

45. Three Types of
Unemployment
Frictional
Seasonal
Structural

46. Frictional
Unemployment
Time to find a new
job

47. Seasonal
Unemployment
Demand changes
with the season

48. Structural
Unemployment
Too many workers
Change in Demand

51. What kind of
unemployment
is caused by
smartphones?