Interest Rates, Inflation, and Unemployment

Interest Rates, Inflation, and Unemployment

2-2-16

Interest Rate

Real Interest Rate vs Nominal Interest Rate

Real Interest Rate- It is the percentage increase in purchasing  power  the borrower must pay the lender for a loan. Adjusted for inflation.

Nominal Interest Rate(Unanticipated Inflation{Not Expected})-Inflation= Real Interest Rate

Nominal Interest Rate- the percentage increase in money the borrower must pay the lender for a loan. Not adjusted for inflation.

Anticipated  Inflation-Fisher Effect

Nominal Interest Rate= Expected Interest Rate+Your  Inflation Premium

Inflation

Hurt By Inflation or Helped  By Inflation

Hurt By Inflation- 1. Savers- bank only increases by what your plan is

   2. Lenders/Creditors- if it is paid off before the due date they gain same money back losing it due to inflation

  3. Fixed Income- Elderly and Welfare they only get the set money even if the price for goods increase

Helped By Inflation- 1. Debtors- they can charge extra or set price/rate

Cost Of Living Adjustments(C.O.L.A.)- Automatic wage increase when inflation occurs. Mostly in New York and California due to standard of living.

Unemployment

2-4-16

Unemployment: The failure to use available resources ,particularly labor, to produce desired goods and services.

Underemployment: When people do not work to their fullest, in work place work less than 12 hours.

People who are Considered in the Labor Force

• Above 16 years of age
• Able and Willing to work
• People who are employed and unemployed

Not in the Labor Force:

• Military(normally not stationed in the Country)
• Students
• Retired
• Disabled
• Homemakers
• Mental Institutions
• Jail/Prison
• Those who are not looking for a job

Unemployment Rate: Ideal rate is 4-5% also known as Full Employment or the Natural Rate of Unemployment(NRU)

How to calculate the Unemployment Rate:

(Number of Unemployed)/(Number of Employed +Number of Unemployed) *100

4 Types of Unemployment

Frictional- Those who are searching for a job, temporarily unemployed or they’re in between jobs. They have Transferable Skills

Structural- Changes in the structure of the labor force that make some skills obsolete, these workers do not have transferable skills. Basicly they have to learn new skills in order to get a new job. Spacecraft lose their job and they need new skills because no one else has the job.

Seasonal- Due to the time of year and the nature of the job.

Cyclical- Results from economic downturn such as a recession. As demand for goods and services fall demand for labor falls and workers are laid off.

Fictional	Structural	Seasonal	Cyclical
College	NASA	School Bus Drivers	Walmarts
High School Graduate		Life Guards	Macys
Laid Off		Impersonators
Leave Your Job		Construction Workers

Frictional and Structural Unemployment= Natural Rate of Unemployment(NRU)

Full Employment= No Cyclical Unemployment