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