economic growth
defined as the percentage of the change in the annual real GDP
growth rate of real gdp
this is found when you divide (real gdp in the current year - real gdp in the previous year) by real gdp in the previous year multiplied by 100
growth rate per capita gdp
this is found by dividing percentage of the change of real gdp by the percentage of the change in population
basis for economic growth
rate of savings, investment in human capital, growth of technology, and the need for free trade and open markets all are this
rate of savings
this is a basis for economic growth and has averaged 3-4% per year in the us over the past 10 yrs. it is too low and is necessary for capital formation
investment in human capital
this is a basis for economic growth and has been far lower in the us than in europe and asia - education reform, better training, evalutation of teachers, and efficient utilization of education facilities are needed
growth of technology
this is a basis for economic growth and is needed for grants and tax concessions at all levels to encourage research and development and will result in greater technical efficiency and higher levels of productivity
the need for free trade and open markets
this is a basis for economic growth and it encourages more rapid spread of technology and provides domestic industry with expanded markets which leads to greater profits and more research and development
immigration and population
the impact of this creates additions to the labor pool - use of mexican immigrants
immigration and population
the impact of this creates larger markets which encourages immigration of skilled people like doctors and scientists
immigration and population
the impact of this creates employment opportunities through increased purchases
immigration and population
the negative effect of this is displacement of american workers and it places a strain on existing resources like housing, medical needs, education, and more
1990's to 2000's
this was when the us productivity slowdown occured
1.2-1.3%
productivity increases averaged this amount in the US
increase of productivity
this happened because of slow improvement in quality of labor, reduced rate of investment, significant increases in the cost of energy, reduced spending on research and development, and slow growth rate of service productivity
labor force
this is made up of all non-institutionalized people 16 yrs or older who are working at least 15 hrs per week or are actively seeking employment
unemployment rate
this can be found by dividing the number of unemployed (officially) by the total labor force
unemployment rate
this can raise in two ways: increase in layoffs and/or firings and a return to work by many people after recession
voluntary unemployment
where you lose a job and you don't really wanna go back, not in any rush to get a job
involuntary unemployment
where you want to go back to work and need it but you can't find a new job
increase of unemployment
the reasons for this is because of changing composition of labor force, increased importation of foreign goods, outsourcing, increased educational requirements for employment, and refusal of bargaining agents to accept wage and benefit changes
seasonal
this type of unemployment is impossible to change. in some parts of the year, people like construction workers do not work bc of the weather
frictional
this type of unemployment is associated with the job search ex: students look for jobs for the first time after college, people between jobs or lack of information. aka informational
structural
this type of unemployment is caused by a mismatch between the skills of workers and the demand for labor - people don't have sufficient transportation, skills, experience, or are discriminated against
cyclical
this type of unemployment results from falling aggregate demand where recession becomes cumulative.
5%
the unemployment percentage of today
the costs of unemployment
lost production, deterioration of skills, social and psychological problems, increases in the federal deficit, and reduced aggregate demand becoming cumulative all make up this
okun's law
this states that for every 1% that the unemployment rate exceeds the natural rate (5%), 2% of the GDP is lost which produces the GDP gap
inflation
a positive GDP gap results in this
GDP
this is defined as the total value of all final new goods and services produced in the us in a given year
GNP
this counts everything made by americans but stopped in 1992 bc companies were leaving for less labor costs and no OSHA in other countries.
GDP
we use this to measure economic growth or lack thereof, to measure the effectiveness of monetary and fiscal policies, and for international purposes
monetary policy
this is the use of the country's money supply which we use to influence economic activity
fiscal policy
the use of the federal budget - spending and tax programs - to influence economic activity
IMF
this is a pool of currencies from which countries can borrow with 180 members that all make contributions
IMF
the problems with this include the fact that BEA has 19 full time people, we have 27 billion businesses and only have a sample of 25k, and companies lie about inventories to save taxes
GDP
there are two methods to measure this, including the income approach or the expenditure approach
income approach
this is a way to measure GDP. measures all forms of earned income (wage, salary, profits, interests and more), gov't income from taxes and foreign investments, and capital consumption allowance (CCA) to measure GDP
expenditure approach
this is a way to measure GDP by counting consumer spending, gross private domestic investment, government spending, and the net difference between imports and exports
gross private domestic investment
apart of the expenditure approach, makes up 18% of your gdp
net change in business inventories
when inventories rise, you have to add the increase to gdp. and when inventory levels go down you have to subtract the difference from the GDP because it was already counted/
consumer spending
C stands for
investment spending
I stands for
government spending
G stands for
net difference between imports and exports
X stands for
GDP
there are 8 problems with this: double counting, quantitative not qualitative, doesn't consider changes in work week, doesn't include non-market transactions, underground economy, doesn't tell you about distribution of income, includes capital consumption
double counting
A problem of gdp, things are counted twice or not counted at all. ex: used car. car is not counted b/c it's not new, but service like new tires are
real GDP
to get this, you have to take current/nominal GDP , divide it by the deflator, and multiply it by 100
deflator/index
to find this, divide the current GDP by GDP base year and multiply it by 100
business cycle
this is defined as a period of time during which an economy experiences periods of expansion and contraction in its gdp
expansion/growth, peak, recession, trough
the four phases of the business cycle
recession
inevitable, defined as any period where the economy is at rest, slows down, downsizes, and reevaluates where it's going
agrarian theories
In these theories of the business cycle, economic prosperity depends on the prosperity of the farmer bc farm prices stabilize or fall and farm incomes end up in banks. farmer has a bad year, food price increases. banks don't get $ and then interest happen
innovation theory
theory of the business cycle, states that economic prosperity can be linked to the development of new or the recycling of old industries.
monetary theory
theory of the business cycle, says that the changes in the levels of lendable bank reserves can cause periods of expansion and recession (snowball effect)
consumption theory
theory of the business cycle, says that businesses are optimistic, they overproduce and consumers can't buy everything, inventory goes up and then orders are cut.
marginal propensity to consume
MPC - the percentage of new income that people will spend
marginal propensity to save
MPS - the percentage of new income that people will save
consumption theory
according to this theory of the business cycle, businesses aren't giving the consumers enough money to buy back the new production that is made.
investment theory
business cycle theory, says that businesses periodically find that they're overstocked with capital goods which makes them reduce their productive capacities. downsizes - doesn't replace a machine that wears out
psychological theories
business cycle theories, people are optimistic, feel good, so they spend money. pessimistic and feel bad, don't spend much.
global impact theory
business cycle theory, says that sometimes int'l events can have significant economic consequences, like 9/11
supply-side shock theory
business cycle theory, says that periodic shortages of critical resources can trigger global recession like oil and wheat in the 70's.
multiplier
this is a change in investment spending and/or gov't spending
john maynard kaynes
he wrote The General Theory in 1936, said that someone's dollar goes through retailer and then to companies and so on. it's the multiplier that initiates spending.
25,000
for every 1 billion dollars in new spending, this many jobs are created.
multiplier
if you flip the MPS, you get this
accelerator
a change in consumer spending that will produce a manifold change in investment spending. equals change in I over change in C.
3 (over 1)
The average accelerator in the US
lower, higher
in service industries, the tendency is to add people and not capital which makes the accelerator this. in heavy industry, the acc. is this.
excess capacity and time
two things that reduce the accelerator are these
full employment
the only time you get full acceleration is when you have this
inflation
this is defined as an increase in the general level of prices as measured by the CPI
consumer price index
this is put together by the bureau of labor statistics, known as the CPI
CPI
this isn't accurate because it surveys 21k retailers in 30 urban areas every month regarding the prices changes of only 384 items because it doesn't count gas and food. it's also a constant weight index which is a big problem.
core index
this is another way to look for inflation and is more accurate because it does include gas and food.
100
the index for the base year is always this number
inflation
Types of this include demand pull, cost push, structural and social.
demand pull inflation
type of inflation, aka classical inflation, caused by aggregate demand increasing faster than aggregate supply. happens by reducing savings, credit cards, gov't prints more money, and liquidation of assets
total spending
what does aggregate mean?
cost-push inflation
type of inflation, two types: profit push (businesses raise prices to make more money) or factor push (results when an increase in the cost of the factors of production are passed onto customers in the form of higher prices).
structural inflation
type of inflation, hybrid of demand pull and cost push
social inflation
type of inflation, named by Reagan. all of the following contribute: social programs, labor unions, environmentalists, and all the bureaucracy crated to administer all of these programs
positively
the following people are affected by inflation in this way: debtors, speculators, businesses that build inventories, unskilled workers, and people living just above the poverty line
negatively
the following people are affected by inflation in this way: creditors, savers, people living on fixed incomes, small businesses, low income families, and middle class tax payers
costs of inflation
the loss of both foreign and domestic markets, inflationary psychology, redistribution effect on people's incomes, lost economic growth, speculation, and the impact of inflation on relationships are all these.