Summary of parts of the book the economics. For example, for International Business students who study at Han University of Applied Science and who have a first-year economics exam. Includes all the stuff you need to know. || Summary of parts of the book the economics. For example, for Internationa...
Unit 1:
The capitalist revolution
1 .1 i n c o m e i n e q u a t y
90/10 ratio is a handy measure of inequality in a country -> the average
income of the richest 10% divided by the average income of the poorest
10% -> how bigger the number how more in-equal.
During the 80's the inequality increased in many countries
1 . 2. m e a s u r i n g i n c o m e a n d l i v i n g s t a n d a r d s
Gross domestic product (GDP) = measure of the market value of the
output of the economy in a given period
- GDP per capita: GDP / the countries population
= the average income of people in a country
- GDP measures the output of the economy in a given period (year)
- it adds up every service and products in the economy; yoga lessons,
toothbrushes, bandages, street cleaning etc. -> economics should first
decide what should be included and then give a value to these things
Another measure of well being which is more specific than the GDP per
capita is Disposable income = income available after paying taxes and
receiving transfers from the government -> is a good measure of living
standards because its the maximum amount of food, housing, clothes
etc, a person can buy without having to borrow (going into debt).
But disposable income is insufficient (onvoldoende) because many aspects
of our well-being aren't related to what we can buy -> it doesn't say
anything about (leaves out):
- the quality of social and physical environment
:
- amount of free time to relax with fam and friends
- goods and services that we don't buy like healthcare, education
- goods and services produced within the household like meals, childcare
But average disposable income isn't the perfect measure of how well a
group is doing -> this is because their could be very poor and very rich
persons in a group, and still the average could be high even though some
people can barely pay the bills (if you don’t understand read end of page 6 and
beginning of page 7 book)
,Valuing government goods and services is difficult -> the only
measure of their value to us is how much it costs to produce them
Einstein
Statisticians and economists must solve 3 problems:
• We need to separate the thing we want to measure—changes or differences in
amounts of goods and services—from things that are not relevant to the
comparison, especially changes or differences in the prices of the goods and
services.
• When comparing output in a country at 2 different times, you should take in
account differences in prices between the 2 points in time
• When comparing output between 2 counties, you should take the difference in
prices into account
Nominal GDP: given in current prices, without adjustment for inflation. ->
statisticians take the prices at which they are sold in the market.
how to calculate? -> take the quantity of a product * price of a product + quantity
of (another) product * price of the product + etc . . . . .
Formula nominal GDP =
Real GDP: an inflation-adjusted measure that reflects the value of all goods and
I
services produced by an economy in a given year. Real GDP is expressed in base-
year prices -> real GDP is needed for knowing if economy is growing or shrinking.
1. select a base year for example 2010
2. define real GDP using 2010 nominal GDP (so when nominal and real GDP are the
same in a graph or anywhere else, that is the base-year)
3. Multiply the 2011 quantities by the 2010 prices -> you have 2011 real GDP
Real GDP is also called GDP at constant prices = prices corrected for increases in
prices (inflation) or decrease in prices (deflation) so that a unit of currency
represents the same buying power in different periods of time
Expressing two products of different countries in 1 currency is not enough to
compare them,
When comparing living standards across countries, you use estimates of GDP
per capita in a common set of prices known as purchasing power parity
(PPP) prices -> idea is to achieve equality in the real purchasing power.
>>>>>>>>> For more information see page 10 international prices and purchasing power
, 1.3 Growth in Income
Ratio scale is used for comparing growth rates -> this could be growth
rate of income or any other quantity -> instead of growth rate you
can also say rate of change
change in income
Growth rate =
original level of income
A steeper (stijlere) line in the grow rate chart means a faster
growth rate
Unit 13
Economic fluctuations and unemployment
1 3 .1 G r o w t h a n d f l u c t u a t i o n s
Natural logarithm = a way of measuring a quantity based on the
logarithm function: f(x) = log(x) -> this function turns a ratio into an
difference -> useful for working with growth rates
When wanting to focus on the size of the economy from year to year,
you use total GDP rather than GDP per capita
Economic growth is not a smooth process and economies often go
through a recession = 2 definitions:
- a period when output is declining, its over when an economy begins to
grow again.
- it is a period when the level of output is below its normal level, even if
the economy is growing. Its not over until output has grown enough to
get back to normal -> 'normal' is subjective and difficult to define
Business cycle = periods of faster and slower growth rates -> from
normal to recession to normal again
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