ECON10020 - Principles of Macroeconomics

What is the CORE project in economics?

A new way to learn economics that emphasizes real-world questions and practical applications, established post-2008.

How does CORE differ from traditional economics education?

It focuses on making material less abstract and more realistic, introducing important concepts early on.

What are some key concepts introduced early in CORE?

Data, game theory, history, and economic principles.

What version of CORE is used for Principles of Microeconomics?

CORE 2.0. Delete

What is one way to measure standards of living mentioned in the notes?

GDP per capita

What are the two types of inequalities discussed in relation to income?

Within-country inequality and between-country inequality

What is the rich/poor ratio used to measure within-country inequality?

The average income of the richest 10% divided by the average income of the poorest 10%.

What does 'Hockey-stick' growth refer to in the context of economic growth?

A significant increase in GDP growth that is no longer linear but increases in multiples.

What does a flat line on the growth graph indicate?

Zero growth.

What does a steeper slope on the growth graph indicate?

Faster growth.

What does the 'Rule of Seventy' help calculate?

It helps determine how long it will take for living standards to double based on the GDP growth rate.

When did Britain experience sustained economic growth?

Around 1650.

When did Japan begin its period of economic growth?

Around 1870.

What is a significant part of the story behind economic growth?

The Permanent Technological Revolution.

How is technology defined in the context of economic growth?

As a process that uses inputs to produce an output, including sustained innovation.

What major historical event is associated with a sustained cascade of innovation?

The Industrial Revolution.

What was the ratio of work to light produced 40,000 years ago?

1 hour of work produced 17 hours of light.

What is the current ratio of work to light produced today?

1 hour of work produces 10 million hours of light.

What environmental concern has arisen due to population and economic growth?

The environment has become a scarce resource.

What question does the 'Magic Washing Machine' concept raise?

Can the Permanent Technological Revolution save us from environmental degradation?

What is a potential trade-off discussed in relation to economic growth?

The trade-off between economic growth and preserving the environment.

What defines an economic system?

Its institutions, which are the 'rules of the game'.

What are the key institutions of a capitalist system?

Private property, markets, and firms.

What does private property refer to in a capitalist system?

Ownership rights, especially of capital goods used in production.

Who can hold private property in a capitalist system?

An individual, a family, or a firm.

What does William Pitt's quote about private property emphasize?

The inviolability of personal property against state forces.

What are capital goods?

Non-labor inputs used in production.

What is a limitation of property rights in a capitalist system?

Not all inputs are covered by property rights.

What is a significant question regarding the future of capitalism?

What will happen with the emergence of different economic systems, such as in China?

What is the definition of markets in the context of capitalism?

Markets are a way that the things we produce are exchanged, involving reciprocated transfers and voluntary transactions, usually with competition.

What are firms in the capitalist system?

Firms are individuals or groups that come together to produce goods by purchasing or renting inputs, owning the output, and aiming to make a profit.

What is the primary aim of firms in a capitalist economy?

The primary aim of firms is to make a profit while covering the costs of inputs.

What are the essential elements required for the existence of firms?

Firms require markets and private property to operate.

How does capitalism create incentives for innovation?

Capitalism rewards individuals and firms for finding more efficient ways to produce goods, while also penalizing those who fail to remain efficient.

What is specialization in the context of labor?

Specialization refers to the process where individuals focus on a limited range of activities, increasing productivity and efficiency.

What is the significance of Adam Smith's Pin Factory in understanding specialization?

Adam Smith's Pin Factory illustrates how specialization increases productivity as workers become more skilled at specific tasks.

What is comparative advantage?

Comparative advantage is the ability of an individual or firm to produce a good at a lower opportunity cost than another, leading to beneficial trade.

What role does government play in the context of capitalism and economic growth?

Governments play a key role in development and are complements to markets, although they can also make mistakes.

What has been the impact of capitalism on living standards over the last few hundred years?

Living standards have been transformed, but this transformation has been uneven, leading to increased inequality within and between countries.

What are the three key components of capitalism?

Capitalism consists of private property, markets, and firms.

What are the drivers of economic growth mentioned in the notes?

Technological progress and specialization are identified as key drivers of economic growth.

What is the relationship between capitalism and environmental consequences?

Capitalism has had and will have consequences for the environment, as economic growth often impacts natural resources.

What does macroeconomics study?

Macroeconomics studies how people interact with each other and their natural surroundings in producing livelihoods and how these interactions change over time.

What is the significance of the term 'hockey-stick growth' in the context of capitalism?

'Hockey-stick growth' refers to the dramatic increase in economic growth and living standards that has occurred in recent history, often attributed to capitalism.

What is the importance of technological growth in economics?

Technological growth is crucial as it drives productivity, efficiency, and overall economic development.

What does the term 'inequality' refer to in the context of the notes?

Inequality refers to the uneven distribution of wealth and resources, which has increased within and between countries as a result of capitalist development.

What does the term 'Malthusian economics' refer to?

Malthusian economics studies the interaction between population growth, technology, and economic growth.

What has transformed living standards over the last few hundred years?

Technological progress and specialization.

What has been a key factor in the transformation of living standards?

Capitalism, defined as private property, markets, and firms.

What is the Malthusian Model used to explain?

The 'Hockey Stick' growth pattern in economics.

What does Allen's Model explain in economics?

The 'Hockey Stick' growth pattern.

Why are models important in economics?

They help us understand complex interactions, predict outcomes, improve communication, and find ways to improve the economy.

What is the analogy used to describe economic models?

A map, as they simplify reality.

What is the equilibrium of a model?

A place of rest with little tendency to change.

What does 'ceteris paribus' mean in economic models?

It is a simplification that holds other things constant.

What are incentives in economics?

Economic rewards or punishments that influence the benefits and costs of alternative actions.

What do relative prices help us with?

They help us compare alternatives.

What is economic rent?

The benefit received from a choice, considering the next best alternative.

What is the rational decision-making process illustrated by the phone charger example?

Weighing the costs and benefits of purchasing options.

What should you consider when making a rational decision about purchasing?

The costs and benefits associated with each option.

What is the significance of studying economic models?

They capture important elements of the economy and describe agent interactions.

What happens when conditions change in an economic model?

The model helps study the outcomes of these changes.

What is the purpose of simplifying reality in economic models?

To make complex economic interactions easier to understand.

What is the main takeaway from the costs and benefits discussion?

There is no right or wrong answer; rationality is key in decision-making.

How do economic models assist in decision-making?

They provide decision rules based on relative prices and economic rent.

What is the Malthusian Model's main assertion about population and living standards?

Population expands if living standards increase, but diminishing returns on labor will eventually force living standards down to subsistence level.

What happens to living standards and population in the Malthusian Model when they are above subsistence level?

If living standards are above subsistence, population increases, leading to a decrease in income back to subsistence levels.

What is the effect of technological improvement according to the Malthusian Model?

Technological improvement increases population but does not raise income levels.

How does the Malthusian Model explain the relationship between labor and land?

With fixed land, increasing labor leads to diminishing average product of labor, causing income to fall.

What is the equilibrium state in the Malthusian Model?

Equilibrium is characterized by stagnant living standards and constant population.

What key change is necessary to escape the Malthusian Trap?

Technological improvements must outpace population growth.

What did Malthus believe about population growth in relation to income?

Malthus believed that as income increases, people tend to have more children, leading to population growth.

What are some factors that contributed to the escape from the Malthusian Trap according to various economists?

Factors include Europe's scientific revolution, political systems encouraging innovation, a culture of frugality, access to resources like coal, and the impacts of colonialism.

What does the term 'economic rent' refer to in the context of the notes?

Economic rent refers to the benefit derived from a resource, which remains the same regardless of context.

How can models in economics be presented?

Models can be presented verbally, mathematically, graphically, or mechanically.

What is the significance of the MONIAC Model in economics?

The MONIAC Model is an example of a mechanical model used to represent economic processes.

What does the production function illustrate in the context of the Malthusian Model?

The production function shows the maximum output achievable with a given set of inputs, highlighting diminishing returns when labor is increased with fixed land.

What does the term 'diminishing average product of labor' imply?

It implies that as more labor is added to a fixed amount of land, the output per worker decreases.

What is the relationship between living standards and population according to the Malthusian Model?

In equilibrium, living standards and population remain constant, with living standards forced down to subsistence levels.

What historical document did Malthus publish in 1798?

An Essay on the Principle of Population.

What is one of the criticisms of the Malthusian Model?

The model may no longer be appropriate if technological improvements significantly outpace population growth.

What was Malthus's view on how populations respond to increases in living standards?

He believed populations respond like animals, potentially increasing exponentially when living standards rise.

What are the two camps regarding the reasons for wealth disparities between nations?

One camp attributes wealth to the virtues of wealthy nations, while the other attributes it to the failings of poorer nations.

Who emphasized the importance of Britain's access to coal and sugar in economic development?

Kenneth Pomeranz.

What did Robert Allen identify as two key features of the British economy?

High wages and cheap coal.

What does the phrase 'Explaining the Hockey Stick' refer to in the context of the notes?

It refers to models explaining the significant changes in population and living standards over time, particularly in relation to the Malthusian and Allen's models.

What does David Landes suggest about the perception of wealth between northern Europeans and others?

He suggests that northern Europeans view themselves as rich and others as poor due to their perceived bad qualities (greed, ruthlessness) versus the good qualities of others (innocence, virtue).

What are the two main inputs in the Allen Model of Technological Change?

Labour and coal.

What is the output produced in the Allen Model of Technological Change?

Cloth.

What determines which technology a firm will choose according to the Allen Model?

The firm will choose the technology that minimizes costs based on the relative prices of inputs.

What does the isocost line represent in the context of the Allen Model?

The isocost line represents different combinations of inputs that yield the same cost.

How does the slope of the isocost line change with the relative price of coal?

The slope is - (w/p); if coal becomes more expensive, the slope is flatter, indicating less coal will be used.

What happens to the choice of technology if coal prices decrease?

If coal prices decrease, firms will want to use more coal, potentially switching to a different technology that is now lower cost.

What are 'Schumpeterian Rents'?

They refer to the innovation rents that firms earn due to profit incentives to innovate, leading to lower costs and higher profits.

Who is Joseph Schumpeter and what is his contribution to economic thought?

Joseph Schumpeter was an Austrian economist who introduced the concept of innovation driven by profit incentives, leading to creative destruction.

What does the term 'Creative Destruction' refer to?

It refers to the dynamic process where competition drives innovation and productivity, causing old technologies to be replaced.

What is the significance of high wages in Allen's model?

High wages relative to capital motivate technological innovation.

What does the recap mention about Malthus' model?

Malthus' model can explain the stagnation of living standards for extended periods.

What does the labour market model explain regarding unemployment?

It explains why unemployment exists even in equilibrium and how government policies can affect wages and unemployment.

What does the phrase 'less is more' imply in the context of economic models?

It suggests using simplifying assumptions, such as ceteris paribus, to clarify complex economic concepts.