econ

• Development


  A dynamic process involving changes towards a better condition of life
• Development


  • Must involve major changes in social structures, popular attitudes, and national institutions
• Traditional economics


  Allocating scarce productive resources efficiently
• Political economy


  Examines the role of power in economic decision making
• Main concerns of development economics

  • Economic
  • Cultural
  • Political requirements
• Traditional measures of development on economic terms

  • Sustained rates of growth of income per capita
  • Levels and rates of growth of "real" per capita gross national income (GNI)
  • Rapid industrialization, often at the expense of agriculture and rural development
• Amartya Sen's capability approach

  • Poverty should be measured by what a person is or can be and does or can do
  • Emphasizes control of one's own life as essential in understanding human well-being
• How is the overall economic well-being of a population traditionally measured?

  By levels and rates of growth of "real" per capita gross national income (GNI)
• Gross Domestic Product (GDP)


  • Measures the value of production in a given time period
  • Includes only goods and services that are produced within a country
  • Production is valued at its market value
• Components of GDP


  • Consumption (C)
  • Investment (I)
  • Government spending (G)
  • Net exports (X-M), wherein X = exports, M = imports
• Real GDP


  The value of final goods and services produced in a given year when valued at constant prices
• Nominal GDP


  The total peso/dollar value of all final goods and services produced within the country's border in a given year, including inflation
• Nominal GDP is not a good measure of economic output because it does not adjust for price changes over time
• Circular Flow of Income


  An economic theory that describes how money circulates between businesses, producers, and households
• Consumer Spending


  The total amount of money the public spends on goods and services for personal or non-business use, including durable goods, non-durable goods, and services
• Investment Spending


  Investment by businesses or households in capital, including construction of new mine, purchase of machinery or equipment for factory, purchase of software, expenditure on new houses, buying goods and services, but not investments on financial products
• Government Spending


  Spending by the government to purchase products and services to achieve certain objectives, such as the supply of public goods, including investment expenditure, purchase of weapons, and salaries of public servants, but not transfer payments
• Net exports of goods and services

  Represent the value of goods or services exported minus those imported by a country during a specific period, where a positive value represents a trade surplus and a negative value represents a trade deficit
• Phases of the Business Cycle

  • Expansion
  • Peak
  • Recession
  • Contraction
  • Trough
  • Recovery
• Expansion


  Increase in various economic factors such as employment, output, wages, profits, demand and supply of products, and sales, with debtors in good financial condition and increase in investment opportunities
• Peak


  Increase in growth rate of business cycle achieves its maximum limit, with economic factors such as profit, sales, employment higher but not increasing further and gradual decrease in demand
• Recession


  A decline in economic activity spread across the economy that lasts more than a few months, with rapid decline in the demand of products, economic factors such as profit, sales, employment, investments decreasing, and cost of production greater than profit
• Contraction


  The phase of business cycle in which real GDP is falling and unemployment is rising
• Trough


  Economic activities decline below normal level, with rapid decline in national income and expenditure, high unemployment, and organizations leaving the industry
• Recovery


  Beginning of positivism, with positive attitudes toward the various economic factors, consumers increasing rate of consumption, declining lending rates, and increasing investment
• Unemployment


  The condition and extent of joblessness within an economy, measured in terms of the unemployment rate, which is the number of unemployed workers divided by the total civilian labor force
• Criteria for being considered unemployed

  • Without work: no business or job during basic survey reference period
  • Currently available for work: were available to take up in paid employment or self-employment
  • Seeking to work: had taken specific steps to look for a job or establish business
  • Not seeking due to: tired,/believe no work available, awaiting results of previous job application, temporary illness/disability, bad weather, waiting for rehire
• Measuring unemployment


  Population = labor force + not in labor force

  Labor force = employed + unemployed

  Unemployment rate = unemployed/labor force

  Labor force participation = labor force/population
• Discouraged worker


  A person who does not have a job, is available and willing to work but has not looked for a job in 4 weeks, and is not counted as unemployed
• Natural Rate of Unemployment (NRU)

  The unemployment rate that exists when the economy produces full-employment real output, equal to the sum of frictional and structural unemployment
• Reasons why the NRU has changed

  • Portion of young workers have declined
  • Growing temporary agencies and internet workers
  • Work requirements tied to new welfare laws
  • Doubling of prison population since 1985, removed high unemployment individuals from the labor force
• Types of Unemployment


  • Frictional Unemployment
  • Structural Unemployment
  • Seasonal Unemployment
  • Cyclical Unemployment
• Frictional Unemployment


  When a person loses his current job and is out looking for a new one, the time period from shifting from one job to another
• Structural Unemployment


  Happens because of structural changes in the economy, where workers do not match with their jobs or they do not have the skill that is required in doing the work
• Seasonal Unemployment


  Happens because there are some jobs that concentrate only at a certain time of the year, such as in industries like fruit picking, tourism, hotels and caterings
• Cyclical Unemployment


  Happens when there is an economic recession, wherein there is less demand for goods and services, resulting in more unskilled workers being unemployed
• Not in the labor force


  People who are not currently employed, and are not looking for work, such as students, parents, caretakers, or retired people
• Inflation


  The rise in the real prices of all goods and services, which can be translated as the decline of purchasing power over time
• Measuring Inflation


  Economists use the Consumer Price Index (CPI) and the Producer Price Index (PPI) to measure the changes in the average price level of goods/services in a nation
• Consumer Price Index (CPI)

  A measure of the average change over time in the price of a fixed group of products, reported monthly against a fixed base period, using a market basket of representative consumer goods