Macro exam 1

working age population (employeed)

-16 or older -not in military -not institutionalized -Bureau of Labor Statistics

factors of technological progress

-new ideas -resources toward creating new ideas (patents protect new ideas) -new ideas= economic growth -freely shared -don't depreciate -ideas promote more ideas

structural unemployment

-wages fail the labor market into equilibrium -high wages= surplus of workers= structural employment-> alot of people want to work for a high wage(surplus) and firms don't want to hire as many ppl at a high wage (demand) -efficiency wage= higher wage paid to encourage worker productivity

source of comparative advantage

1. Abundant Inputs 2. specialized skills 3. mass production

Limitations of GDP

1.Prices are not values -market power distorts prices -Externalities -Public goods 2. Non market activities are not included 3. Shadow economy is missing- illegal markets not shown to the government 4. Environmental degradation is excluded 5. Leisure does not count 6. GDP ignore distribution

measuring GDP: total income

?

progressive tax

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

the market value of all final good and services produced within a country

Anything produced domestically -produced by foreign owned business Does not include production in other countries by domestically owned business

specialized skills

Better production techniques

or GDP =

C + I + G + (Exports - Imports) -Increase exports= increase GDP -Imports do not impact GDP

GDP=

C+I+G+NX (Consumption, Investments, Govt. purchases/ spending, and Net exports)

the market value of all

Comprehensive measurements- everything bought and sold in markets excludes non market goods and services

Which of the following groups is most likely to oppose international trade?

Domestic produces of imported goods

mass production

Economies of scale -Specialized production lines -Bargaining power

social insurance

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

arguments against trade

National Security Protections for infant industry - acting more as monopoly domestically, Unfair competition and Dumping - more established industry Enforcing minimum standards Restrict trade to save jobs 3

the market value of all final goods and services

Not intermediate good and services

the world market

Not maximizing surplus/ restricting exports = dead weight loss

effects of imports

Price Domestic: falls Quantity demanded domestically: rises Quantity supply: falls Total surplus= increase -winners= consumers -losers= producers

effects of exports

Price domestic: increase Quantity demanded domestically: decrease Quantity supply: increase Total surplus: increase -Winners: producers -losers= consumer

costs of redistribution

Reduced incentive to work Administrative cost Tax avoidance, evasion, and fraud

measuring GDP (what is produced in the country)

Total spending- add by every dollar of spending Total output Total income

Solow Model

Traditional growth theory with focus on capital. Because 1. increase output per worker and 2. Wealthy have more capital goods and investment and growth are correlated. -consider the production function and capital accumulation stock -capital accumulation can't sustain long-term economic growth

measuring GDP: total output

Value added = total sales - cost of intermediate inputs

the market value

assign value all goods and services

goal of allocating tasks

at the lowest cost producer

social safety net

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

what do markets do?

connect buyers and sellers to trade, Allows us to allocate goods and services based on price, Goods and services are scarce (not everyone can have them) - do that thru these markets, We use price to help determine how resources should be distributed and used -marketers reallocate resources, goods and services, better uses, generating gains from trade.

gov. stability

corruption/ political instability= decrease investment

limitations of unemployment

discouraged worker: someone who wants to work, but can't find a job and gives up-->

logic of comparative advantage

do more tasks where his opportunity cost is low and rely on others for tasks where u have a high opportunity cost -do more of what you are relatively good at, and less of the other stuff -the time and energy you save on tasks other people do is time you can allocate to tasks for which you do have a comp. adv.

cyclical unemployment

due to temporary downfall in economy

Labor Force participation rate=

employed + unemployed (labor force)/ working age population x 100

Labor Force=

employment + unemployment

trade costs

extra costs associated buying/ selling internationally rather than domestically

specialization

focus on specific tasks, spending more time on what they are relatively good at and less of their time doing other stuff

import goods (buy from a foreign seller)

foreign price + trade cost less than domestic price

export goods (sell to foreign buyers)

foreign price - trade costs greater than domestic price

abundant inputs

geography , climate, natural resource People, businesses, and strategic investments

property rights

gov needs to help protect these rights

policy to encourage innovation

help economic growth

hysteresis

high employment leads to higher unemployment equilibrium in long run

equality

how the pie is divided

globalization

imports and exports are a rising share of the US economy

measuring Inequality

income inequality and wealth

Underemplyed

job does not fully utilize skills or want more hours

opportunity cost principle

marginal cost should include all relevant opportunity costs and consider the full set of costs

GDP

market value multiplied by the quantity produced , it is a flow.

internal markets

markets that managers set up within their organization so that different divisions can buy and sell scarce resources

relative poverty

measure of adequacy of resources relative to the material living standards of your society -What is essential depends on what others have -Can change over time

absolute poverty

measure the adequacy of resources relative to an absolute standard -focus on basic needs being met -does not change over time

do imports lower GDP

no

not in labor force

not looking for a job

unemployment

not working, trying and looking to get a job

world price

price that is traded good sells at the world market -price that consumers pay to buy imported shirts, and the price that producers can get for exporting their shirts

efficient regulation

red tape, excessive oversight, hinder people to work-> no over regulate-> hurt our labor force

opportunity cost

reminds you that the true cost of something is what you must give up to get it. -focus on opp. cost because you want to minimize what you have to give up to get the task done -advantage bc lower opp. costs = give up less to get a task done and more efficient for you to do that task.

unemployment rate

share of labor force who are unemployed -unemployed/ labor force x 100

technological progress

shift upward, giving more output bc more efficiently using that capital

Price

signal: sending messages that are heard around the globe, an incentive: including people to make better choices--> high incentive= increase production= create new profit margins a bundle of information: prices guide every decision we make, helping organize and coordinate economic activity

efficiency

size of the economic pie

Government Redistribution

social safety net, social insurance, progressive tax

quintiles

sort families from low to high income, and then divide them into 5 equal sized groups

micro

study of individual decisions and their implications for for specific markets

macro

study of the economy as a whole

proportional tax

tax rate is the same for everyone

cost benefit principle

tells you to pay careful attention to the price.

absolute advantage

the ability to do a task using fewer inputs - tells you who is best at a task, but not who should do the task. -same person can hold for both

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer -produce more if you use this to assign tasks- assign to the person who can do it at the lowest opportunity cost. -delegate tasks whenever you can delegate them to someone w a lower op. costs- upside: free you up to spend more time on those tasks where you hold a comparative advantage. -cannot have same

gains from trade

the benefits that come from reallocating stuff to its better uses

regressive tax

the higher your income the lower your tax rate

marginal principle

this means that when you compare the price of an imported shirt with the price of the domestically produced shirt, you're effectively comparing their marginal costs

frictional unemployment

unemployment that occurs when people take time to find a job and workers to search for employees -job search resources reduce unemployment -skills mismatch increase unemployment -unemployment insurance or other gov. support for the unemployed= increase unemployment

Marginally attached

want a job, they have looked in past year, not looking now

involuntary part time

working part time but would rather be full time

four categories that make up GDP

y= C+I+G+NX

does investment increase GDP

yes