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Income per capita
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Income per person in a population. Per capita income is often used to measure a country's standard of living.
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Recessions
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an economic downturn lasting at least 2 quarters.
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unemployed
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people not working who have looked for work during previous 4 weeks
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employment rate
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the fraction of the labor force that is employed
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National Income Accounts
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measure the level of aggregate economic activity in a country
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Production
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The process of creating goods and services
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GDP
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Gross Domestic Product- the total market value of all final goods and services produced annually in an economy.
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Production = Expenditure = Income
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all expenditures in an economy should equal the total income produced by all goods and services.
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circular flow diagram
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Represents the transactions in an economy by two kinds of flows around a circle: flows of physical things such as goods or labor in one direction and flows of money to pay for these physical things in the opposite direction.
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factors of production
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-Human capitol
-Physical capital
-Technology
-Physical capital
-Technology
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Y = C + I + G + X - M
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This is the GDP Formula
~Y= GDP
~C= consumption of goods and services bought by domestic households
~I = Investments (new physical capital bought by domestic households and domestic firms)
~G = government expenditures on goods and servcies
~X = exports of goods and services sold abroad
~M= Imports of goods and services produced abroad and sold domestically
~Y= GDP
~C= consumption of goods and services bought by domestic households
~I = Investments (new physical capital bought by domestic households and domestic firms)
~G = government expenditures on goods and servcies
~X = exports of goods and services sold abroad
~M= Imports of goods and services produced abroad and sold domestically
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What isn't included in GDP?
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-depreciation
-home production (cooking, cleaning, childcare)
-black market/undeground economy
-negative externalities such as polution, noise, and crime
-value toward leisure activities (GDP increases with life satisfaction, happiness)
-home production (cooking, cleaning, childcare)
-black market/undeground economy
-negative externalities such as polution, noise, and crime
-value toward leisure activities (GDP increases with life satisfaction, happiness)
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GNP vs GDP
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GNP: total values of goods and services that a country produces in a year
GDP: any goods and services created within the country, regarless of nationality
GDP: any goods and services created within the country, regarless of nationality
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Real GDP vs. Nominal GDP
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Real: constant prices, doesn't include inflation, adjusts for price changes (more accurate)
Nominal: current years prices, includes inflation, doesn't adjust for price changes
real>nominal
Nominal: current years prices, includes inflation, doesn't adjust for price changes
real>nominal
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CPI (Consumer Price Index)
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measures the change in consumer price over a period of time
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Inflation
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a general increase in prices and fall in the purchasing value of money.
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GDP per capita
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GDP divided by population, Same as income per capita. can be used to measure living standards.
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Income per worker
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GDP/number of people employed
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PPP (Purchasing Power Parity)
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such as the big mac index. compares the price of one basket of commodities in one country to another.
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problems with income per capita
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-exchange rates not factored in
-includes kids who make no money
-includes the unemployed
-includes kids who make no money
-includes the unemployed
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relationship between productivity, incomes, and standard of living
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higher, more advanced productivity increases income per worker. The more income the people of a nation make, typically the higher the standards of living will be
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Big Mac Index
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Tool for calculating purchasing power parity that compares prices of a Big Mac throughout the world.
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Starbucks Latte Index
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compares the price of a starbucks latte throughout the world
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human capital
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the skills and knowledge gained by a worker through education and experience
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physical capital
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all human-made goods that are used to produce other goods and services; tools and buildings
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physical capital stock
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the value of equipment, structures and other non-labor inputs used in production
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Technology
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Innovations that are created by man and used to increase production.
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aggregate production function
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- A x F (K,H)
A= index of technology
F= signifies there is a relationship between physical captital, labor, and GDP
K= physical capital stock
H= total efficiency units of labor
-mathematical model that economists use to illustrate the change in productivity because of the changes in factors of production. It helps an economy to produce its potential level of output.
A= index of technology
F= signifies there is a relationship between physical captital, labor, and GDP
K= physical capital stock
H= total efficiency units of labor
-mathematical model that economists use to illustrate the change in productivity because of the changes in factors of production. It helps an economy to produce its potential level of output.
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law of diminishing marginal product
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the marginal contribution of a factor of production to GDP diminishes when we increase the quantity used of that factor of production
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Economic Growth Rate
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The rate of change of real GDP from one year to the next
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eponential growth
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GDP increases at a constant and steady rate. Ex. USA
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saving rate
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designates the fraction of income that is saved
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growth rate formula
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...
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catch-up growth
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poor countries tend to grow faster, or "catch up" to rich countries as they adopt the production and technologies of the richest countries
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sustained growth
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some countries experience positive and relatively steady growth rates over 50,100-, and 200-year periods.
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Growth in premodern times, industrial revolution, and post- industrial revolution
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growth was relatively slow in most countries until the industrial revolution which created innovating technologies. After this a lot of countries experienced exponential growth.
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how can we reduce poverty?
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develop and implement rapid and sustained economic growth programs for poor countries.
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what is the source of poverty?
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low human capital, low physical capitol, and insufficient technology.
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