Module 2 Extra Credit Posts for Fall 2025

October 8

There is no news about inflation, but it's worthwhile to start showing you some numbers early in the semester.

First, there are two things to differentiate: a price index and an inflation rate.

There are lots of price indexes. An inflation rate is the rate of change of a particular price index.

We can get information on a price index like the CPI by using the keywords "FRED CPI". We can get information on the inflation rate (according to the CPI) with the keywords "FRED CPI inflation".

October 6

The discussion on the 3rd got cut off by a student announcement. We're going to navigate to the same page, but continue down the drop-down list a bit.

We continued with the page entitled "Civilian Unemployment Rate" that we got from Google using the keywords below. This time we played around with graphs showing you what the characteristics of the unemployed actually are. So, you use the drop down menu to select "Reasons for Unemployment", and then you (must) click "Go". From that we saw that:

• The biggest component of the unemployment rate right now is people re-entering the labor force.
• When the unemployment rate gets really high, it's usually due to increases in "Job losers not on temporary layoffs". In other words, people whose employer has let them go.

Back up to the menu, and click "Duration of Unemployment" and click "Go". Then we saw that:

• Most of the unemployed are out of work for at least 15 weeks, and many for more than 27.
• But also that the number of those longer term unemployed is fairly cyclical, and right now we don't have as many of them as after recessions.

October 3 

I introduced you to the website for the Bureau of Labor Statistics (bls.gov). They gather unemployment and inflation data.

In response to a student question from a few weeks ago, I showed some variations on the standard unemployment rate. 

Using keywords "BLS unemployment rate" you can get a link to a page called Civilian Unemployment Rate.

The graph there is interactive. You should play with it a bit on your own. It breaks down the unemployment rate by age, gender, and race. For example, 

• Men generally have a higher unemployment rate than women.
• Teenagers have a higher unemployment rate than people over 20. 
• In order, Asians have the lowest unemployment rates, followed by whites, Hispanics, and "blacks or African Americans". (For that last one, I think respondents can choose either label. 

October 1

As expected, the U.S. federal government shut down at midnight. Here's the top page you get when you search Google for "federal shutdown" and click the button for News.

What should a macroeconomics student make of this?

First, there's going to be a lot of hyperbolic coverage of this in the legacy media and online. Most of this is overwrought, and can safely be downplayed. Don't ignore it, but don't sweat it. A lot of it will specifically blame President Trump, and that blame is misplaced: he's a player in this, but not a major one.

Second, no one knows how long this will last, but a couple of weeks seems likely. Surveys are common on the news, but economists prefer the information from prediction markets. In surveys, anyone can answer the phone, and they can give any answer without penalty. In prediction markets, people have to risk their actual money to be heard (and we presume this makes them more serious). Outside of economics, many people don't trust prediction markets because they are viewed as gambling. Economists are OK with that. Anyway, they're summarized here.

Third, what exactly is getting shut down? The truth is ... not as much as you'd think. About 2/3 of what the government in D.C. does is sending out checks. Those are called entitlements and can't be touched. The other third is called discretionary. But some of that gets classified as essential, and it doesn't get touched either. The rest is what is being shut off.

Fourth, what are they doing to shut that part down? People forget, but in everything, labor is the biggest cost component. Even more so with governments, since they're not usually buying a lot of physical inputs to do what they do. So lots of government workers have been furloughed. A furlough is not like a layoff (where your job is eliminated, and they won't need you back) or getting fired (when they don't want you back). A furlough means your job is still there, but the money to pay you is not. Furloughed federal workers will actually get backpay for the period in which they did not work once everyone returns to work; they are eligible for unemployment right now, but will have to repay that when they get that backpay. 

Fifth, this is not the first government shutdown. There's been quite a lot of them, and there's a Wikipedia page detailing all of them. There were big ones in 2018-19 (when Trump was President, and Republicans controlled Congress), and in 2013 (when Obama was President, when control of Congress was split), in 1995 when Clinton was President (and Congress was split), and in 1990 when Bush was President (and Congress was controlled by the Democrats). This is always about political conflict that hasn't been settled yet, and the shutdown is typically driven by the minority party in the Senate.

Sixth, why the Senate? The two parts of Congress have different rules. Naively, people think that whoever gets the most votes can get what they want. But that's not always the case. In the Senate, you first have to vote to end debate on a bill. Only then can you vote on it. And for a spending bill you have to win 60-40 to end debate. Currently, there's 53 Republicans, so they need some Democrats to agree that it's good enough to move on. And they don't have them yet.

Seventh, what do the Democrats want? They want a continuation of subsidies for Obamacare that they passed when they were in control. The Republicans want to continue to negotiate those downward. Do not fall for the common story that this about cutting off healthcare for sensitive groups. Most of this money passes straight through to the health insurance companies. Don't blame either. Health insurance is such an umprofitable business that they'd all go bankrupt without the subsidies. It really is about getting all of us to rein in our healthcare wants: everyone is trying to get healthcare without paying the full price for it.

Eighth, who's the sensitive target going to be? The party in control in D.C. can make the furloughs fall more heavily on services that the constituents of the other party are most worried about. When the Democrats are in charge, they make it hurt for things like the military, veterans, retirees, national parks, and so on. But this time it's the Republicans in control, and the story will be different than the last few times. This is where Trump comes in. Washington, and nearby parts of Maryland and Virginia, are loaded with federal government employees. This is also a Democratic stronghold. Trump and the Republicans want to start eliminating the jobs of some of these people, because they feel that the government is bloated and needs to be cut. This is their big opportunity.

September 29th

This one was more of a warning about what to pay attention to prior to the next class.

The U.S. federal government is looking at a shutdown at the midnight before class. This is not the first time this has happened over the last 10 years. It typically happens around October 1st because that's when the government's fiscal year ends and the next one begins.

There isn't anyone specifically doing this.

Having said that, the government runs on funding bills that are passed into law by Congress.  If they can't pass one, there is no funding.

The process of passing funding bills is dysfunctional. This goes back to laws passed by Congress in 1974 (that shifted power from the executive to the legislative branch) that have not worked out as intended.

The bottom line is that this is a political move, where the parties are trying to cause enough "pain" for the other party to make concessions in negotiations. 

I did not show you any news articles in class for this. It's easy to find them by googling "government shutdown".  

Past shutdowns have not been associated with serious problems for the economy (most of this is just bluster). Estimates of losses show that they are in the low tenths of percentage points of real GDP Growth (well below the threshold I gave you in class about what we can all feel).

But ... Republicans and the Trump administration do seem to be serious about using this shutdown to get bigger concessions from Democrats that might make a difference (I doubt it, the scale of these things is not as big as one might naively think). 

September 26th

Real GDP in the U.S. is announced quarterly. It's on a schedule. 

Since it's a flow, it is measured over a period of time, and you can't start counting until that period is done. So the quarter ends, and they release their first GDP number on the last Thursday of the following month.

It's done sort'of like how you're supposed to do a paper for an English class: a draft, a revision, and a final version. They come out a month apart.

The third quarter of 2025 is coming to an end next week. So we'll find out about how the economy has been doing this past summer just before Halloween.

But, yesterday, we go the final version of the GDP growth rate for the second quarter (usually noted as 2025 II or 2025q2). It was a fairly large upward revision, indicating that the economy was stronger than we thought it was. The new real growth rate was 3.8%/year, which was revised upward from 3.3%, which in turn had been revised upward from 3.0%. 

Revisions of this size are big, but not terribly unusual. 

Both revisions  going in the same direction is also fairly common.

All of these numbers are well above the 1.5%/year or so rate that we need to feel good about the economy.

Digression: I mentioned with the unemployment rate that the limit of what you can feel is changes of about 0.5%. So the government data often shows changes that are sharper than what you can actually feel (until a few months have passed going in the same direction). Real GDP growth rates are similar: most people can feel changes of about 1%. So you could think of 1.5% an neutral, 2.5% as fair, 3.5% as good, and 4.5% as excellent.

P.S. We don't focus on nominal GDP much, but sometimes students are interested. It is estimated from the second quarter that it is $30,485,729,000,000 /year. That seems like a ridiculously big number, but remember that there's like 330,000,000 people in the U.S., most of whom are contributing tens of thousands of dollars to that (or more).