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Drexel - ECON 202 - ECON 202 - Week 2 - Day 2 - Lecture Notes - Class

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Drexel - ECON 202 - ECON 202 - Week 2 - Day 2 - Lecture Notes - Class

School: Drexel University
Department: Economics
Course: Principles of Macroeconomics
Professor: Petar Dobrev
Term: Winter 2019
Tags: inflation unemployment GDP growth investment
Name: ECON 202 - Week 2 - Day 2 - Lecture Notes
Description: Macroeconomic Indicators: Goals and Policies 2
Uploaded: 01/17/2019
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background image ECON 202 – Week 2-2 Geometric versus Exponential Growth Geometric: aka as compounded annual growth or time weighted rate of return of a 
set of values calculated using the products of the terms
- Geometric economy 100 its growth is $5 per year. Continually, for the next 
year it will grow by $5 or some constant
Exponential: Growth rate depends on previous growth - Accumulates over time because it depends on the size of the thing that is 
growing from the previous period
- Economy 100 growing by 10% by next year it will be 110. growth for the 
following year will be the same 10% but this time we are growing 10% off of 
the 110 not the 100. 
Economies and Populations grow exponentially Before the mid-1900s the growth of the world population was rather minimal, 
small, level, etc because there were wars, epidemics, etc. Moving into the 
mid-1900s you start to see a steep rise in the growth of the world population 
because this is when the industrial revolution happens. Afterward we start to 
develop our technology and sciences.
Economic Growth What makes economies grow over time? Or produce more? 3 Factors  ­ Growth of labor force: in countries with a growing population which means
that there will be more people who can work who will be able to produce 
more
­ Growth of capital stock: physical growth in machines, factories, etc ­ productivity of labor: if you can produce more, say for example, in 2 hours 
than the previous 2 hours
­ Labor productivity matters the most ­ Why? Because you can get more leisure time. What does this
mean? You can get more vacation time or days off work. 
Because if you can produce the same amount of output in 30 
hours versus 40 hours than you don’t need to work 40 hours
Potential GDP and Production Function How much can we actually produce?
background image We assume that the labor force is totally utilized as well as our resources (all 
factories) then we can estimate potential GDP
Real GDP will be lower/smaller than potential GDP Why? o Because there may be an increase in unemployment 2007-2009 lost about 4-5 trillion worth of goods and services in terms of 
production
When Real GDP is greater than Potential GDP it means that either more 
resources were being put into use or more people started working than what 
was actually forecasted
Unemployment How do we count unemployment? o 3 ways 1. Employed 2. Unemployed 3. Out of the labor force ­ People (of legal working age (16-65)) who are not looking for 
work
­ Not considered as part of the labor force 1 st  Type of Unemployment is called Frictional Unemployment ­ Some may quit, be fired, in between jobs (finding new outlooks or 
changing positions)
­  Considered short term unemployment 2 nd  Type is called Structural Unemployment or long-term unemployment ­ Labor replaced by technology ­ Skills are no longer needed or in demand in the current market 3 rd  Type is called Cyclical Unemployment ­ This means unemployment is driven by the business cycle ­ People who are being laid off or fired because the economic business/cycle
is doing poorly
­ When the economy is doing well this type of unemployment is basically 
zero

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School: Drexel University
Department: Economics
Course: Principles of Macroeconomics
Professor: Petar Dobrev
Term: Winter 2019
Tags: inflation unemployment GDP growth investment
Name: ECON 202 - Week 2 - Day 2 - Lecture Notes
Description: Macroeconomic Indicators: Goals and Policies 2
Uploaded: 01/17/2019
5 Pages 29 Views 23 Unlocks
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