CH 1 Flashcards
Conversion of GDP using Purchasing Power Parity
PPP= gdp price index currency one/gdp price index currency two
market exchange rate
money in after exchange/ money in before exchange
difference between market exchange rate and rate obtained using ppp
ppp is a more accurate than
market exchange rate b/c it also
includes the impact of non-tradeables, and
is immune to currency manipulation.
how to find Lorenz Curve
The 45-degree line shows absolute
equality of income distribution. The Lorenz
curve shows the actual distribution of
income.
how to find GINI coefficient
area above Lorenz curve/(area above+below curve) x 100
income distribution in advanced vs less advanced countries
less advanced countries have a dramatically skewed income distribution, lack of economic development and unstable government
Emerging economies and factors that have helped them achieve faster economic growth
post Soviet Union, 4 tigers less government, more private sectors opening economies to trade
The top 3 contributors to IMF
US, Japan, and China
International Monetary Fund year of establishment
July 1944
The World Bank year of establishment
1944
six economic systems
Primitive communism, slavery, feudalism, capitalism, socialism, and communism
index of economic freedom
Business, Trade, Monetary, Freedom from Government, Fiscal, Property Rights, Investment, Financial, from Corruption, Labor (This the employer’s freedom to fire and hire labor, pay wages etc.)
The Great Leap Forward
1958-1961 Mao introduced encompassing
Soviet style centralized planning, collectivized
farming and government control of the factors of
production
why the socialist model did not work in China
technology at the time could not keep track of 1 billion people
farmers pay was based off days not effort
difficult quota given to industry managers
Cultural Revolution in China
Maos attempt to change mindset of Chinese people away from “bourgeoisie” and towards “proletariat”
India and its balance of payment problem
had high tariffs and restrictions on product licensing
Price floor in US
prevent price from going below a certain level
ex) minimum wage
Price ceiling in US
to prevent price from going above a certain level. It has been used to make vital goods available to low income
people. It has also been used to control inflation
Minimum wage history
First came to Australia in 19th century
Agricultural Adjustment Act of 1933
Gave gov authority to intervene in markets for variety of farm goods
IMF Mission
stabilize exchange rates, assist in reconstructing international payment system, facilitate international trade, increase employment, and reduce poverty
impact of min wage
Some people may lose their job, otherwise modest increases are not harmful. Not effective for poverty, businesses may evade through noncompliance.
Derivation of demand
Marginal Product of Labor x Marginal Revenue
income effects
income rises, a workers demand for leisure will also rise
substitution effects
wages go up, leisure is more expensive so demand for leisure will go down, hours worked will go up
