Asian Eco Flashcards
What is GDP(Gross Domestic Product) and what counts towards GDP?
the market value - of all final goods and services(not financial transactions) - produced within a country - during a given period of time.
What are the two approaches to measure GDP?
1) Income approach: GNP = National Income (wages, corporate profits, rent income…) + Indirect Business Taxes (property tax, sales tax) + Depreciation
GDP = GNP - Factor Payments from abroad (Americans earn outside the U.S) + Factor Payments to abroad (foreigners earn inside the U.S.)
2) Expenditure approach: GDP = C + I + G + NX
C = Consumption Expenditure (Durable, nondurable, and services) I = Gross Private Investment (inc. unsold goods) G = Government Purchases (Federal, state, and local) NX = Net Exports(Exports – Imports)
What are some limitations of GDP?
1) Nonmarket productive activities are left out
2) Underground economy is left out
3) Leisure and human costs are left out
4) Environmental quality is ignored
Real GDP vs Nominal GDP
Nominal GDP is measured in “the current dollar value”
Real GDP is measured in “the constant dollar value(adjusted for inflation)
How to convert Nominal GDP to Real GDP using Price Index?
Real GDPa = (Nominal GDPa/P.I.a) x P.Ib
Definition of GDP deflator: a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100.
How do you calculate the real value of something using CPI?
Real Valuea = (Nominal GDPa/CPIa) x CPIb
Definition of consumer price index (CPI): a measure of the overall cost of the goods and services bought by a typical consumer.
GDP per capita
GDP divided by population (to measure the average level of income/general standard of living).
What does the PPP adjusted mean?
A nation’s GDP adjusted for purchasing power parity is the sum value of all goods and services produced in the country valued at prices prevailing in the United States.
How is the Consumer Price Index Is Calculated?
- Fix the basket - The Bureau of Labor Statistics uses surveys to determine a representative bundle of goods and services purchased by a typical consumer.
- Find the prices - Prices for each of the goods and services in the basket must be determined for each time period.
- Compute the basket’s cost - By keeping the basket the same, only prices are being allowed change. This allows us to isolate the effects of price changes over time.
- Choose a base year and compute the index -
a. The base year is the benchmark against which other years are compared.
b. The formula for calculating the price index is:
CPI = (cost of basket in current year/cost of basket in base year) x 100
How do you compute the inflation rate?
inflation rate = (CPIyear2 - CPIyear1/CPIyear1 ) x 100
Definition of inflation rate: the percentage change in the price index from the preceding period.
How Is Unemployment Measured?
- The Bureau of Labor Statistics (BLS) surveys 60,000 households every month.
- The BLS places each adult (aged 16 or older) of the Civilian Population into several categories that break down:
Not In Labor Force - In Labor Force
disabled - employed or unemployed
Give the definition and equation for Labor Force.
the total number of workers, including both the employed and the unemployed.
Labor force = Number of employed + Number of unemployed
Give the definition and equation for Unemployment rate.
the percentage of the labor force that is unemployed.
Unemployment rate =(Number of unemployed/Labor force) x 100
Give the definition and equation for Labor-Force Participation rate.
the percentage of the adult population that is in the labor force.
LFPR = (Labor Force/Adult Population) x 100
Problems of Measuring the Unemployment Rate
(1) Discouraged workers - people who have been out of work and given up looking for a job.
(2) people that claim that they are unemployed but have no intention to find a job.
Saving vs. Investment
Saving is the leftover of income after paying taxes and consumption. It does not matter how you store your saving(saving account, in stocks, or in bonds)
Investment, in economics, refers to investment in real physical capital, such as leasing new airplanes, building new factory, or buying more equipment.
Derive from GDP equation the Closed economy Saving-Investment Identity
GDP(Y) = C + I + G + NX
in a closed economy, no exports so:
Y = C + I + G
so, Y - C - G = I
when we derive G
(Y – C –T) + (T – G) = I
Private Saving (Y – T – C): Income-after-tax subtracts consumption
Public Saving (T – G): Tax revenues minus government spending → saving by public sector
Private saving + Public saving = Investment(National S)
S = I
What is the Open economy Saving-Investment Identity
S – I = NX
Consider If S – I 0
How do we compute a country’s openness?
Openness = (X + M)/GDP
the degree of free trade or trade liberalization
Uses GDP per capita to divide countries by income groups.
World Bank Income category
Low income countries:
How do we measure Gini Coefficient?
degree of income inequality among households
Step 1: Ordering data on inequality(Quintiles)
Step 2: compute the cumulative share of income for each quintile (example, the cumulative share for 3rd quintile would be bottom q + second q + 3rd quint)
Step 3: Draw the Lorenz curve- plots the cumulative share of income(Y axis) versus the percent of households(quintiles) (X axis)
Step 4: Computing the Gini coefficient - The Gini coefficient is a measure of inequality based on the distance between the Lorenz curve and the 45° degree line.
Gini coefficient = (Area A)/(Area A + Area B) [see 2 pg 7]
-The Gini coefficient is a number between 0 and 1. The higher the number is, the bigger the income inequality
The Rate of Natural Increase and Population Growth
Birth rate (b) − death rate (d) = rate of natural increase (r).
Population growth = r/1000 x 100
ch 2, pg 8
Life Expectancy at Birth
also a measure of overall quality of life in a country and summarizes the mortality at all ages.
-It can also be thought of as indicating the potential return on investment in human capital
High-Performing Asian Economies (HPAEs)
a group of eight Asian countries that experienced spectacular economic growth at different points in time during the second half of the twentieth century
consist of 3 different groups of countries based on yr:
1950’s: Japan
1960’s: 4 Asian Tigers – Hong Kong, Taiwan, South
Korea, and Singapore.
Late 1970’s: ASEAN 3 – Malaysia, Thailand, and
Indonesia
World Bank called these eight Asian countries the HPAEs in their report “the East Asian Miracle”
Economic Freedom Index
This statistic assigns score to a country for its degree of economic freedom
The index of economic freedom is based on business freedom, trade freedom, government size, money and investment freedom, financial freedom, labor freedom, property rights, and freedom from corruption.
-The most free country in the word is Hong Kong.
8 Common Characteristics among HPAEs
-(2 entire lecture notes)
- Rapid and sustained economic growth
- Declining income inequality and reduced poverty
- Declining in agriculture’s share, but rising
agriculture productivity - Rapid growth of exports
- Rapid demographic transitions
- High investment and saving rates
- Rapid human capital formation
- Rapid productivity growth
What is the rule of 70
a variable that grows at a constant rate of “x% per period”, will double in value in approximately “70/x periods”
example:the U.S. real income per person grew at
the average annual rate of 2%. According to the “Rule
of 70,” it will take 35 years(70/2) for the real income to double in the U.S.
How did the World Bank measure the income inequality in their East Asian Miracle report?
Income inequality = Income of richest 20%/Income of poorest 20%
(How many times the rich earn more than the poor.)
What is the Kuznets curve and why is it important?
“inverted U-shaped” curve that shows how inequality might first increase as a nation makes transition from agricultural economy to an industrial economy. As the economy continues to develop, the income inequality declines.
What is Land Reform?
Definition: the redistribution of property or rights in land for benefit of landless, tenant farmers.
Political view: shifts in the domestic balance of power
between feudal estates to landless peasants.
Economic view: land distribution from diseconomies of large-scale enterprise to increase returns to a land.
-However, decision for land reform is usually purely political!
What is Dependency ratio?
Dependency ratio = (youth population +elderly population)/working population
Definition: Dependency ratio is the
economic burden that the productive
portion of population must support
What is Total Factor Productivity (TFP)?
amount of output that can be achieved with a given amount of factor input. It measures how efficient resources are being used typically through technology.
TFP growth is the technological progress that improves
production efficiency or productivity.
-TFP growth is one key force of economic growth.
World Bank has grouped the HPAEs into 2 groups:
- Investment-driven economies: Indonesia, Malaysia,
Singapore - Productivity-driven economies: Taiwan, HK, S. Korea, and Thailand
According to the Solow Model, economic growth depends on:
1) Factor Accumulation-increase in capital stock (K) and increase in the labor force (L).
2) Productivity Growth: an increase in the amount of output produced by improved efficiency.
Factors that affect the capital stock(k)
Investment and depreciation so ∆𝑘 = 𝑖 − 𝑑𝑘
Changes in the capital stock
Say y=100, k=100, s=0.2, and d=0.1
-Suppose that we start the year with 100 (k =100) existing units of capital
-We buy s.y= 0.2x100=20 new units
-Depreciation dk= 0.1*100=10 unit of capital wears out
-At the end of the year, we have additional sy-dk = 20-10= +10 units of capital.
-You will have 110 units of capital at the end of the year (k become 110). Since k increases, y will also increase.
