Econ RLS

Keynesian Multiplier

"In a recent paper Christina Romer, Chair of the U.S. President's Council of Economic Advisers, and Jared Bernstein, Chief Economist of the Office of the Vice-President, provided numerical estimates of the impact of an increase in government spending on GDP and employment in the United States. They estimate that an increase in government purchases of 1 percent of GDP would induce an increase in real GDP of 1.6 percent compared to what it otherwise would be."

Readjusting to Yfe

2009, the unemployment rate in the us was 9.3, but by 2019, it was 3.7, close to the assumed natural rate of unemployment with not too much government intervention, as the government was critiqued for not intervening enough

Shifts of SRAS - changes in large, industry business taxes or subsidies

2011 in the UK, VAT rose from 17.5% to 20%

Demographic changes as a non-price determinant of demand

300,000 fewer babies will be born in the US this year than if not for the pandemic, 8% drop. Fewer babies → demand for baby related goods (diapers, children's clothing, toys) will fall. In the very long term, the trend of declining birth rates will decrease demand, as fewer people will be demanding.

Hidden unemployment

7.2 million Americans were involuntary part-time workers in 2020

Monopoly power

8 British supermarkets fined nearly £50 million after the Office of Fair Trading found they had illegally colluded to fix dairy product prices

Shifts of LRAS - institutional changes

After their genocide in 1994, Rwanda implemented a wide range of insitution changes to prevent another genocide, and to rebuild their society. These were effective, and growth averaged 7.2 % over the decade to 2019 (although there are some political challenges but this isn't glopo so it's fine)

Net exports as a component of AD

Asian Tigers (Hong Kong, Singapore, South Korea, Taiwan) → have achieved high levels of economic growth since the 1960s through increased exports to countries like China & US (component of AD) - electrical machinery, textiles...etc.

Future expectations as a non-price determinant of supply

Because christmas trees take years (10 or more) to grow, producers must make predictions about what the market will look like in future years or risk creating a shortage or surplus. They also assume that trees will be more in demand during Christmas, so suppply them then.

Investment as a component of AD - technology

Between 2011 and 2017, investment in IT by small businesses rose 4.8%

Contractionary monetary policy

Between 2016 and 2019 in the US, interest rates rose from 1.8 to 2.9, the economy was growing, wanted to prevent overheating

Cyclical/demand-deficient unemployment

Between December of 2007 to 2008 unemployment rate rose 2.3%. Unemployment rate also rose dramatically in the beginning of 2020, but there were even more factors at play

Expansionary fiscal policy

Biden's $1.9 trillion Infrastructure plan

Interventionist supply side policies

Biden's $1.9 trillion Infrastructure plan

Different gini coefficients

Brazil=0.57, US=0.38, Sweden = 0.23

Cap and Trade systems

California has a cap and trade system, each year the annual cap declines, aiming to reach reduction target of at least 30% below 1990 levels by 2030 and is on track to do so, near 100% compliance rate, but its only one state

Reallocation as a result of price change (role of the price mechanism)

Car manufacturers switched to the production of face masks and ventilators rather than cars because of price signalling and incentive, the resources are now used much more efficiently. But not only the price mechanism, also government requests and sense of responsibility.

Consumption as a component of AD - consumer confidence

Consumer confidence fell dramatically in the beginning of the pandemic due to uncertainty and economic fallout, consumption also fell. However, it has increased, reaching a pandemic high of 56.7 (Confidence Index) in March of 2021

Prices of complementary goods as a non-price determinant of demand

Couldn't find a statistic for this but as a model of iphone becomes older and the price for it drops, it also becomes cheaper to buy phone cases for that phone. With video games, as prices of consoles drop due to them getting older the price of the video games of that console drops as well as a result.

Inflation calculations - goods appear and disappear

Disposable cameras were removed from the UK price index in 2010, hand hygiene gel added in 20201

Asymmetric information

Due to the Covid-19 pandemic, there has been an increase in demand for masks, specifically N95s. To meet this new demand, the supply of N95s also increased. However, because of asymmetric information, these new manufacturers are not trusted by the hospitals demanding masks. There is both a shortage and a surplus → market failure.

Readjustment from surplus to a new equilibrium

Due to the pandemic, demand for flights fell drastically. This left prices at record lows, with domestic flight prices in the US 41% lower than in normal times. Quantity also contracted a lot, with 8x as many planes in storage compared to normal times.

Positive externality of consumption

Education has a positive externality of consumption, as children being educated has a positive effect on the economy and society as a whole

Time as a determinant of PED

Electricity usage is inelastic in the short run. For example, in February of 2020 as texas was preparing for a storm, the demand for power remained high, with people paying thousands of dollars in their power bill. Even when power companies warned their consumers of this, they did not change their actions, as they did not have time to switch to a different company.

Habit/degree of necessity as a determinant of PED

Even as insulin prices in the US have skyrocketed from $25 per vial in 1995 to $275 per vial in 2019, because it is essential and necessary for survival, people will continue to pay this, the PED is inelastic

Shifts of LRAS - technology

From 2006-2011, the internet accounted for more than 21% of GDP growth in mature economies, the introduction of internet and related technology has allowed for better, faster communication and more efficiency, hence shifting LRAS to the right

GDP vs GNI values for a country

Germany's GNI per capita in 2019 was $48,580, Germany's GDP per capita in 2019 was $46,445

Solution for NEP

Governments subsidizing and incentivizing the production of alternative energy sources such as solar energy, while oil is taxed (on average in opec countries, 49% of the price of oil goes to the government), there are education campaigns

Business cycle

Great recession in 2007/2008 → recovery and expansion (record low unemployment in the US, near natural rate?) → covid recessions (although this economic crisis was sparked by covid, there were indicators that the peak was coming to an end anyways, and it could have been sparked by a number of other factors

Examples of countries with deflationary gap

Greece posted annual deflation of 2.1% in November - the sharpest decrease in consumer prices among EU member states. Latvia experienced large decline during the 2008 crisis, and by 2012 had growth, but output was still 12% below the pre-crisis peak and unemployment remained at 12.4%, AD did not readjust, stuck in deflationary gap

Shifts of LRAS - efficiency

Greenhouse technology in the Netherlands has allowed the production of agricultural goods to become much more efficent, the small country is the world's second largest exporter of agricultural goods. The amount of research and development has led to the creation of new techniques in farming which can produce more using fewer FoPs.

Technology as a non-price determinant of supply

Greenhouse technology in the Netherlands has allowed the supply of agricultural goods in the country to increase, the small country is the world's second largest exporter of agricultural goods. Without this technology and improves efficiency, this would not be possible.

Consumption as a component of AD - Household indebtedness

Household indebtedness, in response to the pandemic the US govt granted loan forbearance and fiscal relief in the CARES act to prevent household indebtedness from increasing to prevent AD from falling

Consumption as a component of AD - household wealth

Household wealth in China has risen by a multiple of over 17 since the year 2000, and their AD has growth tremendously, economic growth

Solution for PEP

In 2014, the USDA provided $8 million to Michigan, Minnesota, North Dakota, South Dakota and Wisconsin farmers and ranchers who established new habitats for declining honey bee populations. The honey program (subsidies) was created in the 1950s, then eliminated in 1993, and then reinstates to provide loans (not subsidies) in 2002

Problems in measurement of GDP

In 2017-18, 16% of the U.S. population, or 40.4 million people, provide unpaid eldercare, this is not included in GDP mesurments Countries such as Papau New Guinea, where there is a high amount of subsistence farming, will have lower GDPs The U.S. Bureau of Economic Analysis will now provide alternative measures of propperity along with GDP (as of early 2020)

Contractionary fiscal policy

In 2019, Japan increased their consumption tax for the first time in 5 years in order to collect revenues to support the welfare system for their aging population

Frictional unemployment

In April of 2020 in the US, the unemployment rate was 14.6, but my March of 2021, it was at 6%. Maybe of the people who lost and then gained a job were frictionally unemployed (although cyclical unemployment may have contributed to them losing their job in the first place)

PED and indirect taxes

In Australia the indirect tax for cigarettes is continuously increasing, as the government hopes to reach the elastic portion of the demand curve eventually, which would make the tax more effective

Market based supply side policies

In February 2012, Greece implemented a 22%-cut in the minimum wage. This move lowered labour costs, helping to increase the Short-Run Aggregate Supply of the Greece economy.

Investment as a component of AD - business confidence

In May 2020, business confidence fell dramatically, at 96.3 (compared to a long term average of 100) in OECD countries, but it has now reached 101, even higher than pre-pandemic levels

Consequences of a price ceiling

In San Francisco, 172,000 units in San Francisco are rent controlled, one of the most expensive cities for real estate. Many studies done there have found that rent control makes people more likely to remain an an apartment for longer (specifically for older people), however Landlords have less incentive to provide amenities or be in nice areas, so quality worsens, and San Francisco does has a very large homeless population, and rent control may have actually contributed to gentrification

Consequences of an indirect tax on the stakeholders in a market, (consumers, producers and the government)

In Washington state, The cigarette tax rate for a carton of cigarettes is $30.25. Effects should be as predicted, however, cigarettes are very inelastic, hence the Qd may not fall as much as it otherwise would.

Income as a non-price determinant of demand

In late 2018, 4.4 billion passengers took flights, a record high. If each passenger was a different person (which they were not, people take multiple flights per year), this would equate to half the world's population. This follows a (pre-pandemic) trend of an increase in demand for flights and other travel-related expenses as world income increases. Demand is also higher in countries with higher incomes.

Consequences of a subsidy on the stakeholders in a market, (consumers, producers and the government)

In march of 2020, dutch government doubled their subsidy on renewable energy from expenditure of 2billion euros to 4 million euros in order to make it more affordable to reduce CO2 emissions by 25%

Structural unemployment

In the US, 4 million jobs in the manufacturing sector in the past 20 years

Number of firms as a non-price determinant of supply

In the beginning of the pandemic, car manufacturers (General Motors, Ford and Tesla in the US) began to produce ventilators and face masks, increasing the supply.

Time as a determinant of PES

In the beginning of the pandemic, flower prices plummeted, as demand fell drastically. However, the time it takes to produce/grow flowers means they continue to be supplied without being consumed, the PES is inelastic.

Preferences as a non-price determinant of demand

In the beginning of the pandemic, suddenly hand sanitizers became a lot more prefered, demand rose tremendously, leading to increases in prices and quantity demanded. Hand sanitizer sales in the UK saw a year-on-year increase of 255% in February

Consumption as a component of AD - interest rates

Interest rates have been lowered worldwide in order to increase consumption, monetary policy

Investment as a component of AD - interest rates

Interest rates have been lowered worldwide in order to increase investment, monetary policy

Lowflation

Many eurozone countries are experiencing lowflation

Different tax systems

Most countries have a progressive tax system, Latvia and Russia have a proportional tax system

Shifts of LRAS - Quantity/quality of FoPs

One factor: labour, size of the Labour Force. In the EU, in 2016 there was a 65.3% employment rate for women. The increase in women's participation in the labout force has led to an increase in LRAS, however, it is still 11.5% lower than the employment rate for men, LRAS needs to shift further. Additionally, much of this progress has been lost during the pandemic, as women have been forced to take on more childcare responsibilities.

Shifts of SRAS - supply shocks

Pandemic was a huge supply shock that interrupted supply chains, Evergiven being stuck in the Suez Canal, which 12% of global trade passes through

Solution PEC

Public schools are direct provision, in England you must stay in school until you are 16

Real wage unemployment

Seattle increased minimum wage to $15 an hour, the number of jobs grew "from 134,000 to 158,000 since 2015", did cause a decrease in some hours, but increase in wages more. According to a study done about the impact of minimum wage increases in McDonalds in the US, and increase in minimum wages did not lead to more layoffs, more technology or lower wages for other employees, it was made up in the changing prices of food. However, this is not a big enough increase for the worker's real wage to fall.

Stagflation

Stagflation: in the 1970s in the US, OPEC created an oil embargo targeted at nations supporting Israel, increasing the price of oil (rose to $300 per barrel in the US), creating stagflation

Government spending as a component of AD

States in the US paid a record $48 billion in unemployment benefits in April, this could have been even higher if more people could access them, also increased u benefits by $600, lots of government spending on u benefits. This may have softened the fall in AD.

Consequences of a price floor

Support price for milk in the United States until 2012 mandated a support price of $9.90/cwt. The government purchases excess, which it can use for programs such as school lunches. The government did not have to buy much, however, as this price was close to the equilibrium price. In 2012, however, when the bill was set to expire, there were fears that it would return to the previous price of $39.53 per 100 pounds, which would lead to shortages, the government buying unnecessary milk, etc

Investment as a component of AD - corporate indebtedness

The Federal Reserve Bank of New York predicted that debt overhang could cause "a 10 percent decrease in growth for firms in industries most affected by the economic repercussions of the battle against the outbreak".

Prices of substitute goods as a non-price determinant of demand

The price of new cars has increased due to difficulties with production because of the microchip shortage. This means the demand for new cars is lower, so the demand for the substitute good, new cars, has risen.

Price of competitive supply as a non-price determinant of supply

The prices of plastic lab supplies (such as petri dishes and pipettes) are soaring, as the production of materials for covid tests and vaccines is being prioritised.

Positive externality of production

The production of honey requires bees, which then pollinate other flower and crops, so there is a positive externality of production

Negative externality of production

The production of oil, as exploring and drilling for oil harms marine environments and life, and oil spills are common and also harmful

Substitutes as a determinant of PED

There are no substitutes for insulin, and very few different companies that produce it. Some people have allergies to other (cheaper) brands of insulin and so cannot switch. Each formula works differently for different people, and it takes years to figure out a dosage, which also creates a risk and prevents switching. This contributes to the inelastic PED of insulin.

Price and availability of FoPs as a non-price determinant of supply

There is currently a shortage of computer chips, which are used in cars, among other goods. This is a result of the pandemic closing factories and making demand more volatile, the American trade war with China, and a general increase in demand for these chips. This means that the supply of new cars is likely to fall, while the price increases. Car manufacturers expect a hit of $60.6 billion

Deflation

Throughout the 1990s, Japan experienced a long period of deflation, and despite many efforts by the government to and periods of (low) inflation, they must actively struggle to prevent deflation from resurfacing

Expansionary monetary policy

Used throughout the Covid recession, for example, the US federal bank is keeping interest rates between 0% and 0.25% until 2023

Hyperinflation

Zimbabwe - has been struggling with inflation for a long time (had hyperinflation before in 2009), causing them to change their currency, and then to switch to using the US dollar. Nevertheless, they have the highest rate of inflation in the world - estimated to be >300% by the IMF in August of 2020.