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Lecture 2 Parisa Shakur
India. ie: development problem in Nairobi. • But ﬁrst we need to familiarize with the tools and problems etc.Now let’s get started • Broad ambi5on of economics is to understand people be:er. It is interested in the overall behavior of the economy • The whole is greater than the sum of all parts. • Macroeconomics is a branch of economics that deals with the en5re economy. • Tools do not necessarily always mean models and numbers. Example: Reduced spending by one family leads to economic slump created by Parisa Shakur 2 . • Economists are like engineers • Noble Prize since 1990s for making human lives be:er • Ul5mate mo:o to bring economic and social jus5ce.
For all goods and services.Price level and indexes • Price level – is a weighted average of the prices of all goods and service measured using an index. entertainment. fuel and ligh5ng 4. Transport and communica5ons 7. How much has the price of citrus fruit increased ? Solu%on: Instead of ﬁnding out for each we can do Average. 0.00 & Tk. citrus harvest was destroyed and prices of oranges. grapefruit & lemons increased from Tk. Clothing and footwear 3. Due to drought. Food. educa5on and cultural services 8.25 to Tk.4. furnishings . The year chosen as a point of reference of benchmark is called the base year. beverage and tobacco 2.household equipment & opera5on 5. Miscellaneous goods and services • Worked Example: Q.2 to Tk. We need weighted average for be:er measures. 0. 0. oQen the CPI • Price level ≠ Price • The indices covered eight commodity groups which are: 1. 1.6 to Tk. created by Parisa Shakur 3 .45 respec5vely. Medical care and health expenses 6. Gross rent. Furniture. 0. 0. Recrea5on. Tk. economists track changes for a typical basket of goods – the market basket.
25 (200x0.00 0.00) + (100x0.CPI contd.2 95 4 .2)+(50x0.6)+( 100x0.45) = Tk. • Suppose the market basket has 200 oranges.45 (200x0. 175 created by Parisa Shakur 0.4)+(50x1. 95 Post Drought 1.6 0.25)= Tk. then Pre Drought Price of Orange Price of Grapefruit Price of Lemon Cost of market basket 0. 50 grapefruit and 100 lemons for One year.2 0.4 • Price index in a given year = Cost of market basket in a given year Cost of market basket in base year x 100 = 175 X 100 = 184.
• Now.CPI contd.2% for drought from base year. • Thus from the price index value above. • The CPI for the base year is 100 which makes it easier to compare. it is clear that prices have increased by 84. • CPI is the most common price index. created by Parisa Shakur 5 . try ﬁnding out price index value for the base year.
• Inﬂa5on rate = Price index in year 2‐ Price index in year 1 x 100 • Price indices help us track price changes over the years for a par5cular market basket.In?lation • It is the increase in price level • Price indexes are very useful to calculate inﬂa5on. • Are our incomes actually increasing ? • Nominal income: the currency‐value of a persons income • Real income: nominal income adjusted for price changes created by Parisa Shakur Price index in year 1 • Real Income = Nominal income x 100 • CPI 6 .
CPI CPI trend for Bangladesh shows. created by Parisa Shakur 7 . driven mainly by food price inﬂa5on. headline inﬂa5on is rising.
Calculating Real Income • If your nominal income is $50.500. what is the CPI? created by Parisa Shakur • Disadvantages of using CPI: It overvalues the true cost of living because: 1 Subs5tu5on bias 2 Innova5on may lead to fall in consumer prices 8 .000 and your real income in base year prices is $62.
are counted as unemployed • Labour force= Employed + unemployed • 1. having the ability (both physical and mental) and willingness (ac5vely looking for work) to work but currently out of work.Unemployment • Easier to deﬁne employment but not so easy to deﬁne unemployment • People over 16. Employment rate (E)=(No. Labour force par8cipa8on rate(LFPR)=(Labour force/people not in ins5tu5ons)*100 created by Parisa Shakur 9 . Unemployment rate(U)=(No. of unemployed/labour force)*100 • 2. of employed/people not in ins5tu5ons)*100 • 3. not in ins5tu5ons.
Eg. However. they are also counted as unemployed • U may be understated because 1.Problems with unemployment rates • U can be overstated because a lot people may be unemployed due to 5me lag between losing and geqng a job but are conﬁdent that they will get one.women created by Parisa Shakur 10 . There are the underemployed who are working part‐5me due to lack of decent full‐5me jobs. A lot of people may give up looking for work given the prevailing job market but they will not be counted as unemployed. They are called discouraged workers 2.
Re‐training might be a solu5on. Cyclical Unemployment is the diﬀerence between U and UN 11 created by Parisa Shakur . harmless and even healthy.Types of unemployment 1. In a dynamic society this type of unemployment is inevitable. 2. Natural rate of Unemployment (UN)‐ UF+US 4. Full employment is when U=UN 5. Fric8onal unemployment (UF)‐ involuntarily unemployed and taking 5me for job searching. 3. Structural Unemployment (US)‐ Unemployed because there are less jobs available than the the number of unemployed or there is a lack of matching skills.
source CIA fact book created by Parisa Shakur 12 .Bangladesh at a glance.
3) % = 0. Unemployment rates are high among the youth. are compara5vely low due to pervasive under‐employment and the large number of people considered to be out of the labour force. es5mated at 5.More on Bangladesh • In case of Bangladesh: • Natural rate of Unemployment = 4. 2009) = 5.1% • Cyclical unemployment = (5.3% • Actual unemployment rate (MES. created by Parisa Shakur 13 .1 percent. especially among young men under the age of 30.8 % point • Unemployment rates in Bangladesh.1‐ 4.