Macroeconomics with Professor Kaplan February 8th 2016
1. Median Household Incomes
a. MHIs have been going down over time.
b. 2000: $55,987
c. 2010: $51,893
d. 2014: $52,250
i. In order to succeed in life and be rich, you should invest some of your income in stocks.
1. Stock gains can only be taxed a maximum of 20%
2. When dividends are paid they can only be taxed 20%
ii. 90% of stock shares are owned by the wealthiest 10%
2. Long Run Economic Growth
a. Supply Side: Looking at the long run
i. The supply side deals with the potential output
ii. The supply side deals with the capacity to produce goods and services b. We use the PPF to show the production possibilities for an economy. There are two ways to expand the PPF
i. Increase the labor input.
ii. Increase worker productivity
1. Through better technology
2. Through more capital per worker (Capital Labor Ratio, K/L)
3. Model of Long Run Growth (Post WWII Examples)
a. Germany & Japan: WWII impoverished citizens, reduced the population, destroyed capital.
b. US: Economy grew thanks to WWII; came out as an economic powerhouse. c. Germany and Japan grew really quickly economically; caught up with the US and now they all grow at similar rates.
d. China started to show this after Mao was kicked out in the 80s; in recent years its growth has started to slow and now it is on par to be equal with the US.
e. Don't forget about the age old question of What is the meaning of the feedback loop in the cell?
a. Change in Labor / Labor = Labor Force Growth
b. Change in Capital / Capital = Capital Stock
c. Change in Technology / Technology = Technological Advancement i. These are used to understand how an economy might grow/wane ii. The sum of these three equations shows the change in a nation’s income over its income
5. The Production Function
a. Q = f(K,L)
i. Q is the output; it is a function of an economy’s capital and labor. b. The Aggregate Production Function
i. Worker Productivity depends on:
1. The amount of capital available per worker (K/L; capital labor ratio) 2. The human capital per worker (education, skills, etc)
3. The technology available
a. As the capital labor ratio increases, worker productivity increases, and ultimately the GDP per worker increases too.
b. There are diminishing returns to additional capital per worker (falling gains)
Don't forget about the age old question of What is the meaning of scarcity in economics?
February 10th 2016
1. Current Event Discussion (Test Related)
a. Asteroid Mining
i. Luxembourg will finance up to 45% of research regarding this
ii. Planetary Resources are strange because no one knows who can claim them, who they belong to, or who can harvest them
1. resources include water, and the platinum group metals
(extremely rare and expensive to harvest on earth)
2. Long Run Economic Growth
a. Potential Output
b. Capacity to Produce Goods & Resources
i. Supply side growth is dependant on two factors
1. Labor Force Growth
2. Worker Productivity
i. I is investment in capital
ii. S is savings, which has three components
1. Private. Individual savings, unspent paychecks
2. Public. Federal government
3. Net Foreign Savings. Capital account financial flow between
4. Nation’s Savings = Private Savings + Public Savings + Net
5. Savings are necessary to invest; if you don’t have money saved
you can’t invest in things like capital which is done to:
a. 1:Replace depreciated capital We also discuss several other topics like What is the power of the situation?
b. 2:Maintain K/L ratio; maintain productivity
c. 3:Upgrade of existing capital stock to better technology
d. 4:Equip new workers with their necessary capital (K/L
iii. High Savings LDCs
iv. Low Savings LDCs
3. Supply Side Growth
a. Steady State; constant slow growth
i. Wealthy, developed countries
ii. These countries use savings and investments to further 1+2+3
b. High Savings Less Developed Country
i. Like a steady state, but more savings
ii. Savings and investments will cover 1+2+3+4. Increase K/L Ratio c. Low Savings Less Developed Country
i. Nations converge to a similar GDP growth rate due to diminishing returns of capital
February 12th 2016
1. Recap: Supply Side Growth
i. Used to replace depreciated capital
ii. Upgrade capital to better technology
iii. Equip new workers with their share of equipment (Maintain K/L Ratio) iv. Increase the capital / labor ratio (K/L) If you want to learn more check out What does conditioned stimulus mean?
b. Additional growth factors
i. Labor force growth
ii. Gains in worker productivity
c. Steady state countries (well developed nations, US, Germany, Japan, etc) i. Do the first three under savings, but can’t increase the ratio
1. It is already too developed
ii. Usually still observe the additional growth factors Don't forget about the age old question of How is temporal isolation different from behavioral isolation?
d. High Savings Less Developed Countries (LDCs)
1. Do all four under savings, as well as the fourth. It is important for
them to increase their K/Ls
2. Definitely see the additional growth factors and as such quick K/L
e. Low Savings Less Developed Countries
i. Due to low savings, they are not able to invest in capital, equip new workers, or increase the capital / labor ratio
ii. Labor force tends to grow, but there are no gains in worker productivity iii. These factors result in a drop in the K/L ratio over time
1. Examples include Afghanistan, North Korea, Syria, Somalia
2. Savings Sources Afghanistan Example (Low Savings LDC)
a. Private + Public + Net Foreign = Savings
i. Private Savings
1. Low income citizens
2. No good banking system
3. No stable income for citizens
a. All these things result in private savings not being viable
ii. Public Savings
1. No real natural resources to take advantage of We also discuss several other topics like What did lamarck believe about how organisms change?
2. No citizen incomes to tax
iii. Net Foreign Investment
1. Very low outside savings
2. Outside help somewhat rejected (schools not always used, waste
3. Direct foreign investment isn’t viable (factories etc) a. Stable government needed
b. Strong legal system
c. Developed infrastructure
d. Communication systems
e. Labor force