Summary Class notes - Principles Of Economics

- Principles Of Economics
- 2015 - 2016
- Universiteit Leiden (Universiteit Leiden, Leiden)
- Rechtsgeleerdheid
137 Flashcards & Notes
1 Students
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Summary - Class notes - Principles Of Economics

  • 1575327600 Principles of economics H4

  • National Income and growth

    - GDP
    - Economic growth
    - Unemployment
    - Inflation 
  • Gross domestic product
    - measure of aggregate output
    - monetary measure
    - avoid multiple counting:
    • market value of final good
    • ignore intermediate goods
    • count value added
  • Measuring GDP = input and productivity
    - Real GDP =hours of war x labor productivity
    - Real GDP
    • Labor inputs
    - size of employed labor force
    - average hours of work
    • Labor productivity 
    - Technological advances
    - Quantity of capital
    - Education & training
    - Allocative efficiency
  • Measuring GDP = expenditures
    - Count sum of money spent buy-ing the final goods
    GDP = C + I + G + X - M
    C = Consumption
    I = Investment
    G = government expenditures
    M = Imports
    X = exports
  • Other measure to determine GDP
    - Sales - Purchases
    - Added Value 
    - Final Sales - imports
  • Nominal versus Real GDP

    • GDP = monetary measure of production --> measurement issues ---> what if p or q increases of decreases
    • nominal GDP = based on the prevailing price level
    • real GDP = accounts changes in price levels relative to base year
    • Real gdp = output current year x price level 1st year/base year
  • Economic Growth
    - increase in real GDP or real GDP per capita
    - Growth as a goal = 
    1. raises standard of living
    2. Lessens the burden of scarcity
  • Economic Growth
    - is a government tool
    - two fundamental ways society can increase its real output and income 
    1. By increasing inputs of resources
    2. By increasing productivity of those inputs 
  • Economic growth = the expansion of real GDP over time (PPC outward)
  • Economic growth (sources)
    - labour 
    - capital
    - technological process
  • In defense of economic growth
    1. Technological development & employment
    2. Higher standard of living
    3. Human imagination can solve environmental and resource issues
  • The antigrowth view
    Environmental and resource issues
  • Business cycle of growth
    Peak --> recession ---> throuhj
  • Unemployment definition
    Numbers of unemployement( employed + unemployed) / labor force x 100
  • Frictional unemployment
    People searching for jobs or waiting to take a job in the near future
    1. Search unemployment
    2. Wait unemployment
  • Structural unemployment
    Unemployment that occurs due to a mismatch between available jobs and skills or locations of those unemployed
  • Cyclical
    Unemployment that is associated with the recessionary phase of the business cycle
  • Full employments and potential output
    Because of frictional and structural unemployment --> full emplpyment occurs at less than 100 procent employment of the labour force
  • Economy is fully employed when
    There is no cyclical unemployment
  • The level of GDP that occurs at full employment is called
    Potential output
  • Economic costs of unemployment
    Forgone output = basic economic cost of unemployment
  • If actual GDP IS above or below potential GDP this results in a
    GDP gap
  • Negative GDP gap
    Actual GDP < potential GDP

    accompanied by higher unemployment rate and forgone income
    Actual GDP - Potential GDP
  • Inflation
    Inflation is a rise in the general level of prices in an economy --> each unit of income buys fewer goods and services --> purchasing power of money declines
  • Measuring inflation
    CPI : consumer price index
  • CPI calculation
    Price of the most recent market basket in the particular year /
    price of the same basket in 1982-1984
    x 100
  • CPI
    Is an indez that compares the price of a market basket of goods and services in one period with the price of the same (or highly similair) market basket in a base period
  • Types of inflation
    Demand pull inflation and cost push inflation
  • Demand pull inflation
    Occurs due to an increase in the price level caused by excessive spending beyond economy's capacity to produce
  • Cost push inflation
    Occurs due to increase in the price level caused by shart rise of the costs of key resources --> supply shocks are the main source of cost push inflation
  • Who is hurt by inflation
    - fixed income receivers --> real income falls
    - savers --> value of accumulated savings deteriorates
    - creditors --> lenders get paid back in ''cheaper euros''
  • Who is not hurt by inflation
    - debtors
    - flexible income receivers --> social security 
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