Macroeconomics 2

cause of economic growth

Demand side causes. In the short term, economic growth is caused by an increase in aggregate demand (AD). If there is spare capacity in the economy then an increase in AD will cause a higher level of real GDP.

why is growth important

Economic growth can be considered among the most crucial indicators that are released. The reason why it's so important is that it indicates the growth in economic output, whether measured by GDP (gross domestic product), GVA (gross value added), or any other measure.

Eonomic Growth vs Business Cycle

Economic growth is the increase in the value of goods and services produced by an economy over time Business Cycle is measured in GDP quarterly. It is the sequence of slum, recovery, boom, and recession

measuring the aggregate economy

Instead we measure the aggregate economy by adding the value of all the goods and services produced up.

How do we predict a recession

prices fall-bear market

inequality vs growth

some inequality is needed to propel growth, economists reckon. Without the carrot of large financial rewards, risky entrepreneurship and innovation would grind to a halt. In 1975 Arthur Okun, an American economist, argued that societies cannot have both perfect equality and perfect efficiency and must choose how much of one to sacrifice for the other.

gross domestic product

the total value of goods produced and services provided in a country during one year.

calculate unemployment

unemployment rate = number of unemployed persons / labor force

final output vs intermediate good

An intermediate good is a product utilized to produce a final good or finished product. These goods are sold between industries for resale or for the production of other goods. One example of an intermediate good is salt, a product that is directly consumed and is also used to manufacture food products.

Capitalism and free market

A capitalist system and a free market system are economic environments where supply and demand are the main factors of price and production of goods and services. Although the two economic systems are based on the law of supply and demand, these systems are different. Capitalism is an economic system based on ownership of the factors of production. Some key features of capitalism are competition between companies and owners, private ownership and motivation to generate a profit. The production and pricing of goods and services is determined by the free market, or the supply and demand. A free market system is an economic system based solely on demand and supply, and there is little or no government regulation. In a free market system, a buyer and a seller transact freely only when they voluntarily agree on the price of a good or a service. For example, suppose a seller wants to sell a toy for $5 and a buyer wants to buy that toy for $3. A transaction will occur when the buyer and the seller agree on a price.

measure inflation

A measure of price changes in consumer goods and services such as gasoline, food, clothing and automobiles. The CPI measures price change from the perspective of the purchaser.

aggregate income

Aggregate income is the total of all incomes in an economy without adjustments for inflation, taxation, or types of double counting. Aggregate income is a form of GDP that is equal to Consumption expenditure plus net profits.

gdp vs gnp

Both gross domestic product and gross national product try to measure the market value of all goods and services an economy produces. The difference between the terms is how they define the economy. GDP refers to the domestic levels of production, while GNP measures the production of any person or corporation of a country. For example, the American GNP includes the production level of any American or American-owned entity, regardless of where their production takes place. GNP can be higher or lower than GDP, depending on a country's ratio of domestic-to-foreign manufacturers. China's GDP is $300 billion greater than its GNP due to the large number of foreign companies operating within its borders. The United States' GNP is $250 billion greater than its GDP because of the amount of American production that occurs beyond the country's borders. GDP is referred to more, but GNP is the better measure of national output. Using both terms is important when describing a country's economic worth.

Phases of the business cycle

Business cycles are identified as having four distinct phases: expansion, peak, contraction, and trough. contraction A period of economic decline or negative growth. peak The highest value reached by some quantity in a time period. trough The lowest turning point of a business cycle expansion The act or process of expanding.

frictional

Frictional unemployment occurs because of the normal turnover in the labor market and the time it takes for workers to find new jobs. Throughout the course of the year in the labor market, some workers change jobs. When they do, it takes time to match up potential employees with new employers. Even if there are enough workers to satisfy every job opening, it takes time for workers to learn about these new job opportunities, and for them to be considered, interviewed and hired.

GDP = C + I + G + (Ex - Im)

GDP = C + I + G + (Ex - Im) EconoTalk Gross Domestic Product is the sum of all spending on goods and services in a nation's economy in a year. The formula for GDP is: GDP = C + I + G + (Ex - Im), where "C" equals spending by consumers, "I" equals investment by businesses, "G" equals government spending and "(Ex - Im)" equals net exports, that is, the value of exports minus imports. Net exports may be negative. Subsidies are transfer payments to assist industries that benefit the public, but might not survive or remain stable if operated for profit without subsidies. Farm products and rail transportation are subsidized in most modern economies. The parts of the formula are simple: C = total spending by consumers I = total investment (spending on goods and services) by businesses G = total spending by government (federal, state, and local) (Ex - Im) = net exports (exports - imports) C + I + G + (Ex - Im) currently equals over $10 trillion in the United States. That means the United States produces more than $10 trillion of goods and services within its borders every year.

Structural

Let's talk about structural unemployment occurs because of an absence of demand for a certain type of worker. This typically happens when there are mismatches between the skills employers want and the skills workers have. Major advances in technology, as well as finding lower costs of labor overseas, lead to this type of unemployment.

costs and benefits of unemployment

Loss of earnings to the unemployed. Unemployment is the biggest causes of poverty in the UK Potential homelessness. Loss of income can leave people without sufficient income to meet housing costs. Rises in unemployment often exacerbate the rates of homelessness. (BBC) Those who are unemployed will find it more difficult to get work in the future (this is known as the hysteresis effect) Stress and health problems of being unemployed. Amongst studies of unemployed men, signs of depression, mental anxiety and health problems are noticeably higher. (Effects of unemployment on health (US Library of Health) Increased government borrowing. Lower GDP. Increase in social problems Benefits nemployment benefits are intended to partially replace lost wages, so the precise amount you receive will depend on what you used to earn. States use different formulae to calculate benefit payments, but all states take prior earnings into account in some way. Some states consider the employee's prior annual earnings, others look at the employee's earnings during the highest paid quarter or two quarters of the base period.

problems with price index

Most market participants need to keep apprised of inflation because it's a key variable used as an input for calculating the value of nearly every asset. Inflation is defined as a rise in the general level of prices of goods and services in an economy over a given period. In the U.S., the most commonly used statistic for measuring inflation is the consumer price index ("CPI"). CPI is calculated by the U.S. Bureau of Labor Statistics (BLS) and is intended to measure "the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services" according to BLS' website.

real vs nominal

Nominal prices, sometimes called current dollar prices, measure the dollar value of a product at the time it was produced. Real prices are adjusted for general price level changes over time, i.e., inflation or deflation.

cyclical

Over time, the economy experiences many ups and downs. That's what we call cyclical unemployment because it goes in cycles. Cyclical unemployment occurs because of these cycles. When the economy enters a recession, many of the jobs lost are considered cyclical unemployment.

per capita gdp

Per capita GDP is a measure of the total output of a country that takes gross domestic product (GDP) and divides it by the number of people in the country. The per capita GDP is especially useful when comparing one country to another, because it shows the relative performance of the countries.

real gdp

Real gross domestic product (GDP) is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year, expressed in base-year prices, and is often referred to as "constant-price," "inflation-corrected" GDP or "constant dollar GDP." Unlike nominal GDP, real GDP can account for changes in price level and provide a more accurate figure of economic growth

the converge hypothesis

The idea of convergence in economics (also sometimes known as the catch-up effect) is the hypothesis that poorer economies' per capita incomes will tend to grow at faster rates than richer economies. As a result, all economies should eventually converge in terms of per capita income.

ppc application

To be eligible for admission into the PPC Program, you MUST reside in a rural, or medically underserved, or primary care, or health professional shortage area as defined by the U. S. Department of Health and Human Services Health Resources and Services Administration (HRSA). Please visit the HRSA website to verify your eligibility based on your residency.

gdp per capita

To calculate the real gross domestic product, or GDP, per capita, which reflects the total output of the country, the gross domestic product should be divided by the population of the country. GDP can be calculated for any size of population, but it is often used for populations of countries.

inflation

What is 'Inflation' Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.

price index

a normalized average (typically a weighted average) of price relatives for a given class of goods or services in a given region, during a given interval of time.

Long run vs. Short run

a. Long run growth focuses on incentives for supply i. Why it is also called supply side economics ii. Policies that affect production or supply are key 1. Promote work 2. Capital accumulation 3. Technological change b. Short run focuses on demand i. Why it is called demand side economics ii. Focuses on ways to increase or decrease components of aggregate expenditures 1. Try to get consumers and business to increase their spending

economic growth

an increase in the amount of goods and services produced per head of the population over a period of time.

3 types of unemployment

cyclical, frictional, and structural

real gdp

i. Nominal GDP*100 / GDP Deflator