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September 28 - October 2 Class Notes

by: alstaten

September 28 - October 2 Class Notes EconS 102

Marketplace > Washington State University > Economcs > EconS 102 > September 28 October 2 Class Notes
GPA 3.3
Christopher Clarke

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Measuring Inflation, Long Run Economic Growth, Productivity and Growth, and International Trade
Christopher Clarke
Class Notes
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This 5 page Class Notes was uploaded by alstaten on Sunday October 4, 2015. The Class Notes belongs to EconS 102 at Washington State University taught by Christopher Clarke in Fall 2015. Since its upload, it has received 15 views. For similar materials see Macroeconomics in Economcs at Washington State University.


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Date Created: 10/04/15
Monday September 28 2015 MEASURING INFLATION Aggregate price level a measure of the overall level of prices in the economy to measure the aggregate price level economists calculate the cost of purchasing a market basket A market basket a hypothetical set of consumer purchases of goods and serVIces Price index the cost of purchasing a given market basket in a given year where that cost is normalized so that it is equal to 100 in the selected base year price index in cost of market basket in a given year cost of market basket in base year x 100 The in ation rate the yearly percentage change in a price index typically based upon consumer price index CPI the most common measure of the aggregate price level The consumer price index CPI measures the cost of the market basket of a typical urban American family the annual percentage increases in recent years have been much smaller than those of the 1970s and 19805 Producer price index PPI similar to the CPI but measures changes in the prices of goods purchased by producers Economists also use the GDP de ator which measures the price level by calculating the ratio of nominal to real GDP The GDP de ator for a given year is 100 times the ratio of nominal GDP to real GDP in that year LONG RUN ECONOMIC GROWTH Real GDP per capita real GDP divided by the population size is the key statistic The rule of 70 Doubling time for a variable 70 growth rate Labor productivity output per worker Physical capital humanmade resources such as buildings and machines Human capital the improvement in labor created by the education and knowledge embodied in the workforce Technological progress an advance in the technical means of the production of goods and services It takes time to gure out how to use new technology in powerful ways In the modern world natural resources are a much less important determinant of productivity than human or physical capital for the great majority of countries Sustainable long run economic growth long run growth that can continue in the face of the limited supply of natural resources and the impact of growth on the environment what is the impact of limited natural resources on longrun economic growth Three important questions 1 How large are the supplies of key natural resources 2 How effective will technology be at nding alternatives to natural resources 3 Can long run economic growth continue in the face of source scarcity Wednesday September 30 2015 PRODUCTIVITY AND GROWTH How much does output change when we change inputs aggregate production function a hypothetical function that shows how productivity real GDP per worker depends on the quantities of physical capital per worker and human capital per worker as well as the state of technology There are some well known patterns Diminishing returns to physical capital holding the amount of human capital per worker and the state of technology xed each successive increase in the amount of physical capital per worker leads to a smaller increase in productivity So additional amounts of physical capital are less productive when the amount of human capital per worker and the technology are held xed but this assumes all other things equal Diminishing returns may disappear if we increase the amount of human capital per worker or improve the technology or both as the amount of physical capital per worker is increased How do we tell what caused the growth and help develop future policy Growth accounting estimates of the contribution of each major factor in the aggregate production function to economic growth Total factor productivity the amount of output that can be produced per given amount of factor inputs When total factor productivity increases the economy can produce more output with the same quantity of physical capitalhuman capital and labor Increases in total factor productivity are crucial for growth increases in total factor productivity likely measure the economic effects of technological progress so technology change is crucial to economic growth Friday October 2 2015 INTERNATIONAL TRADE Use the demand and supply model to determine the effects of free trade on 1 domestic equilibrium price and quantity 2 imports the effects of trade barriers on 1 domestic equilibrium price and quantity 2 imports Pride df alum Edam dm ddtid aupply Auterlty prim f W39rlld price 3 a DidmdsriI demand Edmddtia quantity arrquot 5 ED gumMme qu ti r Quantity 5 E39JJ39FtF39IiEId With t39 d T 39 demanddd with lEi IEIE mm 5 llrzn Fadrt Broader effects of international trade income distribution Exporting industries produce goods and services that are sold abroad Importcompeting industries produce goods and services that are also imported Does a combination of growing imports of laborintensive products from newly industrialized economies the export of high technology goods cause a widening wage gap bw highly educated and less well educated US workers Many economists think so Policies that limit imports are known as trade protection A tariff is a tax levied on imports increases domestic production the good is now produced by the higher cost country decreases domestic consumption pushes up the price which reduces quantity demanded and increases domestic quantity supplied Import quota is the legal limit on the quantity of a good that can be imported its effect is the same as tariff except instead of government revenue quota rentsquot will go to quota license holders usually foreigners Erica at The tri quot pushes up the price which redueee quantity aura seats V V K V r 7 r 1 demanded an inereeeee demeetie quentit Supplied mestne eupplly lFl r iee with l r A tariff 9 c g H r I a g EMEirIiil Werld lpr39iee amend 5 ste eet fe Quantity erl39 limpem after i EEIJ39EIJ eeet tariff T Imparts eerlene tariff Globalization and inequality increasing trade with low wage countries may increase the wage gap between skilled and unskilled workers


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