...Macroeconomics: Branch of economics that studies the economy as a whole, especially the overall levels of production, employment, consumption, investment and prices. Microeconomics: Branch of economics that studies the individual behavior of firms and consumers and how they interact on a particular market. Macroeconomics focuses on the following issues: - Where does economic growth come from? - Could economic growth continue indefinitely, or is there some limit to growth? - Is there anything that governments can do to alter economic growth? - What are the origins of business cycles? - Should governments act to smooth business cycles ? - What does cause high rates of inflation? - How does the central bank affect prices and interest rates? - What are the root causes of a high unemployment rate? - Should countries adopt fixed or flexible exchange rates against the U.S. dollar? To answer previous questions, Macroeconomists use theories and models. - In economics, as in other sciences, explanations and predictions are based on theories and models. - A theory is a set of rules and assumptions used to explain observed phenomena. - A model is a simplified representation of the reality based on theories. - In economics, a model usually consists of a system of equations. 1 14/01/2016 - The relationship between facts, theories, model, and predictions: Predictions Model Theories Data “If I couldn’t formulate a problem in economic theory mathematically...
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...Chapter 6 - The Source of Economic Growth - * An economy’s output of goods and services depends on the quantities of available inputs such as capital and labour and on the productivity of those inputs * Y = AF(K, N) * Either the quantity of input must grow or productivity must improve (or both) in order to have growth * Pg 182 – equation 6.2 * Growth accounting equation is the production function written in growth rate form Growth Accounting * Output growth can be divided into three parts: the resulting from productivity growth, increased capital inputs or increased labor inputs * Growth accounting measures empirically the relative importance of these three sources of output growth Growth Accounting and the Productivity Slowdown * One explanation for productivity slowdown is that there has not been a slowdown at all but rather is the result of a measurement error * Another explanation is that there was a slowdown due to the large increase in oil prices that occurred in 1970’s as a result of the actions of the OPEC oil cartel * Another explanation is that the productivity slowdown may have resulted from the onset of the revolution in information technology - Growth Dynamics: The Neoclassical Growth Model - * Growth accounting does not explain why capital and labor grow at the rates they do * The growth of capital stock is the result of the myriad saving and investment decisions of households and firms * This model is useful...
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...PRODUCTIVITY AND GROWTH CHAPTER SUMMARY IF THE POPULATION IS CONTINUALLY INCREASING, AN ECONOMY MUST PRODUCE MORE GOODS AND SERVICES SIMPLY TO MAINTAIN ITS STANDARD OF LIVING, AS MEASURED BY OUTPUT PER CAPITA. IF OUTPUT GROWS FASTER THAN THE POPULATION, THE STANDARD OF LIVING RISES. An economy’s standard of living grows over the long run because of (a) increases in the amount and quality of resources, especially labor and capital; (b) better technology; and (c) improvements in the rules of the game that facilitate production and exchange, such as tax laws, property rights, patent laws, the legal system, and customs of the market. The per-worker production function shows the relationship between the amount of capital per worker in the economy and the output per worker. As capital per worker increases, so does output per worker, but at a decreasing rate. Technological change and improvements in the rules of the game shift the per-worker production function upward, so more is produced for each ratio of capital per worker. Since 1870, U.S. labor productivity growth has averaged 2.1 percent per year. The quality of labor and capital is much more important than the quantity of these resources. Labor productivity growth slowed between 1974 and 1982, in part because of spikes in energy prices and implementation of costly but necessary environmental and workplace regulations. Since 1983 productivity growth has picked up, especially since 1996, due primarily to information...
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...10 Principles of Economics Supply and Demand * Supply and demand are inversely proportional: When supply rises, demand falls. For instance, when the housing market in a certain region is flooded with homes for sale, sellers drop the price to attract a buyer. However, single homes for sale in exclusive neighborhoods might have more potential buyers than sellers. In these instances, the price of the home rises. Inflation and Unemployment * Gregory Mankiw, Harvard Economics professor and author of "Principles of Economics" explains that society experiences a short-run trade-off with rising prices and unemployment: As the monetary supply expands and inflation occurs, unemployment rises. However, the Phillips curve indicates that in the long-run, inflation has no bearing on levels of unemployment. Effects of Price Controls * Price controls, like setting food prices in the former Soviet Union or rent control in New York, have negative effects for both buyers and sellers. Price ceilings create shortages and rationing of goods, and price floors create disincentives to improve on the quality of a good when it cannot be sold at the equilibrium price. Elasticity * Elasticity measures price responsiveness of a good or service. If the demand for a product changes significantly when the price changes, it is considered elastic. Examples of elastic goods include makeup and concert tickets. Inelastic goods show little or no change in demand when the price changes. Examples...
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...Income inequality is one of the big issues in 21st century. Unequal distribution of income in society is considered to be an obstacle to economic growth. The income allocation of a country’s population can be measured by a Gini coefficient. The value of Gini coefficient can be between 0 and 1 and used to define the income gap between the rich and the poor. The value 0 shows perfect equality and value 1 illustrates perfect inequality. The US can be an example of country with high income inequality. The US Gini coefficient has risen by 20% between 1979 and 2010 (Frizell, 2014). Factors like family structure (i.e. how many earners are there in family), technology (i.e. changes the way that we live), and immigration (i.e. changes the supply of...
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...Soc 100 Assignment 10 1. Explain the four stages of demographic transition theory. The first stage of demographic transition theory is the preindustrial, agrarian stage. In this society they have high birth rates because of the economic value of children as labor meanwhile they also have high death rates due to the low living standards and lack of medical technology. The second stage is the onset of industrialization in which death rates began to fall due to greater food supplies, yet birth rates remain high causing a rapid population growth. In the third stage, a mature industrial society, the higher standard of living makes raising children expensive and without the need for cheap child labor children become a liability so birth rates drop along with the continued drop in death rates. The postindustrial society stage is where demographic transition completes, dual income families with few children become the norm and death rates remain steady causing a slow population growth or a decline. In this theory it is easy to see how a society’s population is linked to its technological development. 2. Explain what you think the urban ecology theories and the urban political economy theory teach us about cities. Urban ecology theory explains that the first cities emerged in fertile farmlands where the agrarian society’s lived, then as the societies became more concerned with defense they found natural landscapes to protect their cities such as mountains or rivers....
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...macroeconomics, there is in fact a huge difference. Microeconomics is the study from a specific firm’s point of view, as macroeconomics is the study from the full economies point of view. So, what does this all mean? In this paper we will discuss the many factors that make up key elements of macroeconomics. What is economics all about? Is it the study of money? Is it about trade-offs and scarce resources? Is it about inflation, unemployment, and government budget deficits? Is it about eliminating poverty? All of the above are important topics in the study of economics. The main objective of economic research is its ability to explain how we can most optimally achieve the highest standard of living. Thus: Economics is the study of how we can best increase a nation's wealth with the resources that we have available to us. In our country and other relatively free-market economies, the decision as to what and how much to produce is made primarily by the buyers and sellers of the products. The government exerts relatively little control over prices of products. Some say that this is the nation’s wealth, but is it? Wealth by definition includes tangible products, such as cars and houses, as well as intangible products, such as more leisure time and cleaner air. The biggest question associated with wealth, is how to increase it. Some economists support government involvement, price controls, and government rules and regulations. Others believe that government involvement should be minimal and limited...
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...Understanding the Economics Standards for teachers in grades 9–12 Economics studies how people, acting as individuals or in groups, decide to use scarce resources to satisfy wants. This fundamental economic concept of scarcity is at the core of the discipline. There are never enough natural resources, human resources, or capital resources (man-made goods such as tools, equipment, machinery, factories) to produce everything society wants. Therefore, choices must be made on what to produce, how to produce, and for whom to produce. Choices must also be made at a personal level. There never seems to be enough money or time to have or to do everything one wants. Economics is a way of thinking, a science of making choices. Economists examine the decision-making processes of individuals, businesses, markets, governments, and economies as a whole. An understanding of economic principles helps people to: • Consider not only the short-term effects of a decision, but also its long-term effects and possible unintended consequences; • See the connections between personal self-interest and societal goals in order to understand how individual and social choices are made in the context of an economy; • Analyze how social goals, such as freedom, efficiency, and equity, impact public policies. Because of increasing interdependence and globalization, everyone in the United States needs to be aware of the issues in the global economy, their role in that system, and be able...
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...Economic growth Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Growth is usually calculated in real terms, i.e. Inflation-adjusted terms, in order to obviate the distorting effect of inflation on the price of the goods produced. ( Wikipedia, 10th december 2012) Executive summary- Economic growth is the growth what every economy and country are desperate to achieve for the sake of the country’s population. The aim is produce more and goods in order to increase the standard of living simply by increasing the wages of mass population. Increasing standard of living is to provide quality food, better and better service and education, latest technology in order to ease everyday’s life. The expectation in order to achieve faster growth are usually are on the rise in the hope of building better and prosperous country. Economic growth is considered to be a positive to be a positive side of an economy but at what extent? A countries economic growth is visible by its infrastructure, urban development, globalization, higher education rate; create employment and higher wages for poor worker and many other positive changes. When the demand of economic growth there are a few who thinks of the negative effect it might have. There are many negative concerns about faster economic growth and this is environmental issues, sometimes...
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...CIA4U – Analyzing Current Economic Issues Comparative Systems Worksheet Instructions: The following chart will have you fill in geographic, social, political, and economic information on various countries. As you can imagine, each country represents a different type of economic system. Work in groups of 4 to complete this chart and once completed work as a group to answer the accompanying questions. The information can be found at the CIA World Factbook (https://www.cia.gov/library/publications/the-world-factbook/index.html) |Indicators |Canada |United States |North Korea |Chad | |Geography | |Natural Resources – How many and what types of | |Coal, copper, lead, molybdenum, | | | |natural resources are available? | |phosphates, rare earth elements, | | | | | |uranium, bauxite, gold, iron, | | | | | |mercury, nickel, potash, silver, | ...
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...Economic Disparity Assignment Topic | Australia | Lesotho | Life expectancy at birth (years) | 81.9 | 45.9 | Internet users per 100 people | 70.8 | 3.6 | GDP per capita ($US) | $40,286 | $1,605 | Inequality-adjusted income index | 0.720 | 0.234 | Death of women per 100,000 live births | 4 | 960 | Protected areas (%) | 10.5 | 0.5 | Homicide Rate (per 100,000) | 1.2 | 36.7 | HDI value | 0.937 | 0.427 | By comparing Australia and Lesotho, it is easy to determine which of the two the developed country is and which is the developing. It is very noticeable that there is a significant difference in the two countries. You can see this in the GDP per capita, the life expectancy at birth, and as well the death of women while pregnant and as well the number of internet users per 100 people. Seeing the huge difference in GDP per capita ($US) indicates how rich the country is. Basically everything depends on the GDP per capita. For instance, health, technology and standard of living. Seeing that Australia has a relatively high GDP per capita, being $40,286, it shows that Australia has a high standard of living and can provide all the basic necessities to the population where as in Lesotho; the GDP per capita is $ 1,605. Lesotho has a weak GDP and therefore indicates that there is not enough money to provide the population with the basics to sustain life. The life expectancy at birth is significantly different between Australia and Lesotho. Being measured in years...
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...following: 1. How Reserve Requirements affect the economy 2. How your action will affect economic growth 3. Why it is important to increase economic growth 4. Your rationale for the use of Reserve Requirements At the end of the game, you will be provided with this information to give to your instructor. Answer: Reserve requirements help to maintain a stable banking system and ensure that banks are able to conduct day-to-day check-clearing and cash-withdrawal transactions. These requirements are also one of the three monetary policy tools that the Fed can use, in principle, to control the money supply. The other two are open market operations and the discount rate. By lowering the reserve requirement, the banks will have more to loan which will expand the money stock and in the short term lower interest rate which encourages consumers and investors to buy more. When people and investors are buying more this increases economic growth. Increasing economic growth is important because it keeps society moving in a positive direction. Economic growth also contributes to advancements and increases standards of living and lowers unemployment. I chose lowering the reserve requirements because this would stimulate lending, reduce unemployment, and increase overall income so that the economy could recover. Scenario 2 In 150 to 200 words, explain your reasoning for the way you are planning on using the Discount Rate. Be sure to address the following : 1. How the Discount Rate...
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... which according to Colander (2010) is “the study of the economy as a whole and considers the problems of inflation, unemployment, business cycles, and economic growth” (p. 15). Even with this basic definition as well as the amount of information available to households today from the Internet; comprehending the terms, how economic activity affects the economy, and the problems that macroeconomics considers is difficult. This first part of this article simplifies the most widely used terminology; whereas the second part explains the effects of economic activities on households, businesses, and the government while correlating the relationship between these different entities. When students begin learning about economics, students get exposure to terms that they previously may not have used or understood. One of the most confusing terms to understand is the Gross Domestic Product or otherwise known as the GDP, which shows how much a nation has grown by calculating the market value for goods and services made domestically in that nation over a one-year period. The government releases the GDP every three months, and usually has information revised monthly (Griffis, 2012). The “Real” GDP is an inflation-corrected GDP with a more accurate figure because the report accounts for changes in price levels and is a good indicator of how well the economy is doing (Investopedia, 2012). The Nominal GDP is the GDP calculated at...
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...How would leaving the European Union affect British Businesses? Context: Page 1 – Abstract Summary Page 2 – Introduction Literature Review. How would leaving the European Union affect British businesses? Abstract/Summary At the time of me writing and constructing this report, January 19th 2016, this question is becoming a very topical subject, which is highly up for debate, and is increasing in demand and popularity. The question issued can effect everything in our lives, from the price of a pint of milk, to the trends of the London Stock Exchange. The question millions of English citizens will need to ask themselves in the upcoming months, that is, ‘’should we leave the European Union’’. The question has stirred up a massive cause for debate, and for the correct reason. The decision the English citizen is going to comprehend is crucial for the welfare for the English economy, and is known to be the ‘’most important decision you’ll make in a generation’’ As quoted by George Osbourne, Chancellor of the Exchequer, in an article about foreign relations with Brussels. It is a very important decision to the English taxpayer, but is equally important for the British economy, but I think, is arguably most important for the small or large, private or public, English Business. The English economy is growing by 1.5% per annum, this is not enough. Compared to foreign relations such as China, with a G.D.P growth rate or economic growth rate of nearly 9% a year, China has a...
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...population is expected to decline, while the fraction of the population that is retired is expected to increase sharply. What are the implications of these population changes for total output and average living standards in Japan, assuming that average labour productivity continues to grow? What if average labour productivity stagnates? Solution 1: Slowing population growth and an increased share of retired people both imply slower growth in the number of people employed. If average labour productivity (output per employed worker) continues to grow at earlier rates, total output will still grow more slowly than before, because of slower growth in the number of workers. If average labour productivity stagnates, then total output will grow very slowly or even decline. Living standards depend not on total output but on output divided by the total population. Slowing population growth reduces total output but also the number of people who share that output. So slower population growth in itself should not affect living standards. However, a reduced share of the population that is working, all else equal, will reduce output per person, lowering living standards. Slower productivity growth will only worsen this problem. 2. Is it possible for average living standards to rise during a period in which average labour productivity is falling? Discuss, using a numerical example for illustration. Solution 2: It’s possible, if the decline in average labour productivity (output...
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