theme3 Flashcards
link between GDP and living standard
Increase in GDP doesn’t mean an increase in living standards and well-being, but great indicator
All high living standard economies have high productivity
Proportion of the world’s population in extreme poverty has decrease because:
- International and domestic cooperation (acts like income redistribution)
- Institutions and government programs
- Industrialisation
- Structure of economies
- Free trade and Free market
Less deaths by famine because:
- Economies of scale
- Technology
- Structure (markets)
Why income inequalities between countries
- Different growth rates
- Education, health care system, etc.
- National resources (infrastructures)
- Cultural characteristics (weather)
Free trade: Produce more made in Qc goods (benefits and costs)
Benefits:
- Employment
- Increase GDP by decreasing Imports
- Independence
- Quality control/Regulation
Costs:
- Consumers pay more
- higher Cost of production
- Decrease Quality (in some industries)
- Decrease Productivity (force workers to work in another sector)
- Decrease International relations
Compound effect of growth
higher annual growth increases the “growth base” exponentially. Small differences in growth can result in huge differences in living standards 50 or 100 years later
Y = Y/H * H/E *E/pop * pop
Y = total production
H = total number of hours worked in the whole economy
E = number of jobs (number of people employed)
pop = total population
Y/H : Output per hour worked (hourly productivity)
H/E: Number of hours worked per job
E/pop: proportion of total population that is employed
Pop: total population
Labour input
total hours worked of all persons engaged in production
Labour productivity
Partially reflects the productivity of labour in terms of the personal capacities of workers or the intensity of their effort.
variables in the GDP decomposition
- Output per hour worked (hourly productivity) Y/H
- hours worked per job H/E
- proportion of the total population that works E/pop
- total population POP
Growth in living standards
is what determines the LT material conditions of life in an economy.
Y/pop = Y/H H/E E/pop
3 fundamental ratios that explain the evolution of living standards in the LR:
- Productivity
- Hours worked per job
- Proportion of total population employed
Only productivity is unbounded which makes it the only possibility for growth in living standards in LR
Effect of productivity
increase profit; increase purchasing power of shareholders; increase employees’ salaries; decrease working hours; decrease price paid by consumers; increased living standard
Process of economic development
Increased in purchasing power;
This becomes savings and returns & demand for other goods;
Generates income for firms and workers in other sectors;
Incites to produce, innovate, etc.
Production possibilities curve:
Opportunity cost increase as more of either good is produced
Diminishing marginal return:
If at a low level of production of X, will have to sacrifice little Y to produce 1 more X.
If at a high production of X, will have to sacrifice a lot of Y.
