ECON10020- Principles of Macroeconomics

People

Cognitively limited and have motives other than self-interest such as social norms of fairness and reciprocity

Interactions

Include price-makers and interest rate and wage setters, strategic interactions and non-market interactions

Information

Usually incomplete, asymmetric, and non-verifiable

Contracts

Incomplete for effort and diligence in labour and credit markets, and for other external effects such as traffic congestion or knowledge

Institutions

Include markets, private property and gov and also formal rules (norms), firms, unions, and banks

History

Provides data about alternative rules of the game and the process of change

Differences among people

Include preference and budget constrains differences among buyers and sellers but also asymmetric positions ex. as employers or employees/ as lenders or borrowers

Power

Market power, political power and also a principal’s power over an agent in labour, credit and other markets

Economic rents

Create inefficiencies through ‘rent seeking’ and are also endemic in a well functioning private economy, creating incentive to innovate, or to work hard

Stability and instability

Both are characteristics of the economy

Evaluation

Unexploited mutual gains (Pareto inefficiency) present but also includes fairness

How to measure standards of living

GDP per capita

Two inequalities

Within country and between countries

Assumption when measuring inequality

One only cares about own consumption

Defining poor and rich when measuring inequality

Someone who is in bottom or top decile (10%) of a country

Definition of poor and rich country when measuring inequality

Analogously defined as country in bottom or top decile of distribution of per-capita incomes across countries

Measuring within-country inequality

Rich/poor ratio, average income of richest 10% divided by average income of poorest 10%