Chapter 8 Lecture Notes - Introduction to Economic Growth and Instability

  1. Economic Growth
  2. Outward shift in the PPC Curve and results from
  3. Increase in resources/technology
  4. Increase in real output per capita
  5. Measuring tool for the potential and living standards
  6. Growth as a Goal
  7. Allows a nation to satisfy its populations wants/needs
  8. Lessens the burden of scarcity
  9. Arithmetic of Growth
  10. When dealing with billions and trillions of dollars, small percentages add up quickly
  11. Rule of 70
  1. Main Sources of growth
  2. 2 Fundamental ways society can increase real output/income
  3. increasing its inputs of resources
  4. increasing productivity of its resources
  5. found by dividing output by hours worked
  6. Growth in the U.S.
  7. Growth in things other than GDP
  8. Improved products and services
  9. Things that can be done at grocery stores – Publix
  10. Added leisure
  11. average work week has gone down from 50 hours to 35 hours
  12. Other Impacts
  13. Stress to physical and work environment
  14. Business Cycle
  15. Define – alternating rises and declines of the economy over time
  16. Peak
  17. Recession
  18. Trough
  19. Recovery
  1. Causation
  2. New technology
  3. Productivity levels
  4. Spending habits
  5. Cyclical Impact
  6. Capital and Durable goods affects the most
  1. Unemployment
  2. Labor force consists of
  3. 16 or older and not institutionalized
  4. Employed
  5. including part time workers
  6. Unemployed and seeking employed employment
  7. not discouraged workers
  8. Formula
  9. Types
  10. Frictional
  11. time it takes to find a new job from usually being laid or fresh out of school
  12. you have the skills but just need to find a job
  13. Structural
  14. lack the skills needed to perform jobs today
  15. vcr repairman – must get retrained
  16. Cyclical
  17. result of insufficient spending or a recession
  18. leads to loss of self respect, morale, social and political unrest, family trouble
  19. Full Employment
  20. “Natural Rate of Unemployment” = 4-6%
  21. Job seekers = vacancies
  22. GDP Gap and Okun’s Law
  23. Happens when the economy fails to provide jobs for everyone who is looking for them
  24. GDP Gap
  25. defined difference between actual and potential GDP
  26. when the unemployment rate is above the NRU a negative gdp gap is formed because the gdp is falling short of where it should be
  27. Arthur Okun’s Law
  28. for every 1% above the NRU, there will be a negative 2% gdp gap
  29. this helps economist discover what the loss in revenue/output will be
  1. Inflation
  2. Measurement
  3. CPI
  1. Types
  2. Demand-Pull Inflation
  3. Stems from excess spending
  4. Explain the Aggregate Supply Curve
  5. Illustration:
  1. Cost-Push Inflation
  2. Stems from rising per-unit production costs – meaning input/resource costs, thus decreasing supply
  3. Main source of this are “supply shocks”
  4. Redistribution Effects of Inflation
  5. Depends on anticipation – if anticipated than adjustments will be previously implemented to adjusts for the inflation
  6. Unanticipated:
  7. Who is hurt?
  8. Fixed income receivers
  9. Salaries
  10. Pensions
  11. Rent recipients
  12. Savers
  13. CD that gains 6% interest annually will hope that inflation is less than 6% or else they will be losing money
  14. Creditors
  15. Who is helped?
  16. Flexible income receivers
  17. Social Security
  18. Individuals with COLAs
  19. Debtors
  1. Anticipating Inflation in Rates
  2. Nominal Interest Rate
  3. NIR = real interest rate + inflation premium (expected rate of inflation
  4. Illustration:
  5. Hyperinflation
  6. Speculative measure are taken to counter inflation that leas to further inflation
  7. I perceive inflation is coming so I spend more to not feel the effects of inflation as much and this leads to further inflation not to mention potential devastating effects on the redistribution of finances
  8. Illustrate
  9. Stagflation
  10. Higher rates of inflation accompanied by lower output higher rates of unemployment – thus yielding higher prices and nobody able to pay for them and ultimately leading to a downward cycle that is difficult to recover from