unit 1 macroeconomics

% change in real GDP

% change nominal GDP - % change in prices

Working age population is split between..

people not in the labor force, and people in the labor force

unemployed

people without jobs who are trying to get one

social insurance

Government-provided insurance against bad outcomes such as unemployment, illness, disability, or outliving your savings.

prediction markets

markets whose payoffs are linked to whether an uncertain event occurs (prediction markets aggregate information)

internal markets

markets within a company to buy and sell scarce resources (uses internal markets to allocate scarce resources)

Not in the labor force

neither employed nor unemployed

technological progress

new methods for using existing resources to produce more valuable output

Working age population

non-institutionalized individuals 16 years or older

taxes

pay for the safety net and social insurance

production function

the methods for transforming labor input, human capital, and physical capital into goods and services (outputs)

poverty rate

the percentage of people who live in households with income below the official poverty line

Utilitarianism

the political philosophy that government should try to maximize total utility in society

world price

the price that a product sells for in the global market

domestic demand curve demonstrates...

the quantity of a product that all domestic consumers added together plan to buy, at each price

domestic supply curve demonstrates...

the quantity of a product that all domestic suppliers added together plan to sell, at each price

labor productivity

the quantity of goods and services that each person produces per hour of work

catch-up growth

the rapid growth that occurs when a relatively poor country (with low capital stock) invests in its physical capital

unemployment rate

the share of the labor force that's unemployed = unemployed /labor force x 100

labor force participation rate

the share of the working-age population that is in the labor force (either employed or unemployed) =labor force/working age pop. x 100

physical capital

the total amount of tools, machinery, and structures that can be used in the production of goods and services

capital stock

the total quantity of capital at a point in time

equilibrium unemployment rate

the unemployment rate to which the economy tends to return to in the long run

ways government redistributes...

1)social safety net 2)social insurance 3)taxes/progressive tax

Arguments for limiting trade...

1. National security 2. Infant industry 3. Preventing unfair competition 4. Enforcing minimum standards 5. Saving jobs

trade policy tools...

1. Tariffs: A tax on imported products 2. Import quotas 3. Red tape 4. Exchange rate manipulation 5. Free trade agreements (and the WTO)

3 central roles prices play

1. a price is a message 2. a price is an incentive 3. a price aggregates information

Ideas can generate unlimited growth because they...

1. can be freely shared 2. dont depreciate with use 3.may promote other ideas

4 strategies for scaling big numbers

1. evaluate what it means to a person 2.compare big numbers to the size of the economy 3.compare big numbers to their own history 4. Use the rule of 70 to evaluate long-run growth rates

Limitations of GDP

1.Prices are not values. 2.Nonmarket activities are excluded. 3.The shadow economy is missing. 4.Environmental degradation isn't counted. 5.Leisure doesn't count. 6.GDP ignores distribution.

What 3 things does GDP measure

1.total spending 2.total output 3.total income

Tariff

A tax on imported goods

Y (GDP), total spending=...

C-consumption I-investment G-government purchases NX-net exports

intermediate goods and services

Goods or services used as inputs in the production of other products.

in production function, output = what 3 things?

Labor, human capital, and physical capital

labor input

Number of workers to transform raw materials into products and services that people want to buy

transfer payments

Payments that transfer income from one person to another.

long-term unemployment

People who have been unemployed for six consecutive months or longer.

investment

Purchases of new capital, which increase the economy's productive capacity.

involuntarily part time

Someone who wants full-time work and is working part time because they haven't found a full-time job.

net exports

Spending on exports minus spending on imports; also referred to as the trade balance.

"Value added" Total output

Sum of value added=total sales-cost of intermediate goods

value added

The amount by which the value of an item is increased at each stage of production; =Total sales − Cost of intermediate inputs.

social safety net

The cash assistance, goods, and services provided by the government to better the lives of those at the bottom of the income distribution.

GDP

The market value of all final goods and services produced within a country in a year

GDP per person

Total GDP divided by the population; also referred to as GDP per capita.

hysteresis

When a period of high unemployment leads to a higher equilibrium unemployment rate

Efficiency wage

a higher wage to encourage greater worker productivity

import quota

a limit on the number of goods that can be imported

utility

a measure of well being

regressive tax

a tax where those with less income tend to pay. higher share of their income on the tax

progressive tax

a tax where those with more income tend to pay a higher share of their income in taxes

Sources of Comparative Advantage...

abundant inputs, specialized skills, mass production

Nominal GDP

adds up the market value of total production in a year using the current prices prevailing in that year

wealth

all of your assets - savings, car a home- that you currently have

poverty line

an income level, below which a family is defined to be in poverty

import

buy goods or services from foreign sellers

What drives international trade?

comparative advantage

Depreciation

decline in capital due to wear and tear, obsolescence, accidental damage, and aging

constant returns to scale

doubling all inputs (labor input, human capital, physical capital) leads to doubling all of the outputs

labor force is split between

employed and unemployed

spells vs people

even though a large share of people will experience a short spell of poverty, most of those currently in poverty are in a long-term spell of poverty

Real GDP

excludes the effects if price changes, so it isolates economic growth that's due to changes in the quantity of output produced

consumption

household spending on final goods and services

circular flow diagram

illustrates how households and businesses are linked....shows the market value of output=spending on output=income received=wages+profits

technological change

increases GDP per person for any level of capital per person

relative poverty

judges poverty relative to the material living standards of your contemporary society

absolute poverty

judges the adequacy of resources relative to an absolute standard of living

inequality of opportunity

lack of intergenerational mobility

means-tested programs

program for which eligibility is based on income and sometimes wealth

Underemployment

someone who has some work but wants more hours or who's job isn't adequately using their skills

marginally attached workers

someone who wants a job and has looked for a job in the past year but who sent counted as unemployed because they aren't currently searching for work

income taxes

taxes collected on all income, regardless of its source

comparative advantage

the ability to do a task a lower opportunity cost

absolute advantage

the ability to do a task using fewer inputs

human capital

the accumulated knowledge and skills that make a worker more productive

marginal utility

the additional utility you get from one more dollar

effective marginal tax rate

the amount of each extra dollar you earn that you lose to higher taxes and lower government benefits

gains from trade

the benefits that come from reallocating resources, goods, and services to better uses

income inequality

the differences in annual income between people

intergenerational mobility

the extent to which the economic status of children is independent of the economic status of their parents

trade costs

the extra costs incurred as a result of buying or selling internationally, rather than domestically

Globalization

the increasing economic, political, and cultural integration of different countries

export

to sell goods or services to forge in buyers

"Gross Domestic Income" total income

total wages +total profits

frictional unemployment

unemployment due to the time it takes for employers to wear for workers and for workers search for jobs

structural unemployment

unemployment resulting from industrial reorganization, labor doesn't being supply and demand into equilibrium

cyclical unemployment

unemployment that is due to a temporary downturn in the economy

diminishing returns

when one input(labor input, human capital, physical capital) is held constant, increases in the other inputs will at some point begin to yield smaller and smaller increases in output

knowledge problem

when the knowledge needed to make a good decision is not available to an individual decision maker (markers solve the knowledge problem)

property rights

without property rights and trusted enforcement system, no one creates wealth

Labor force

working age population that either has a job or would like a job

The rule of 70

years it takes for something to double (70/annual growth rate)

permanent income

your average lifetime income

diminishing marginal utility

your marginal utility may be large when you have a low income but gets smaller as you get richer