ECONOMICS, LESSON 6

REAL WAGE

nominal wage divided by the price level

REAL INCOME

nominal income divided by the price level

RATE OF CHANGE IN PRICE

When the rate of change of prices is low, then everyone can adjust accordingly, and there is minimal pain
But, if the price level is changing rapidly, then this can cause major difficulties, for reasons we will explore.

inflation rate

the rate of change of prices calculated on a monthly or annual basis. price index in year 2-price index in year 1 divided by price index in year 1 per 100

shoe-leather costs

this is the idea that at high rates of inflation people will have to find ways to hold money that will keep their value, e.g. real estate, gold, foreign currency, etc., so people have to turn their money wages and earnings into something else, and this takes a lot of time and energy and people take commissions

menu costs

Physically changing prices in a supermarket., etc., actually costs money, and this can be big for big corporations who have to print labels etc. With online commerce this is easier, but it still requires effort and vigilance and thus time and this adds up

interest rate

the percentage of a sum of money charged for its use when borrowing/lending money

nominal interest rate

interest rate expressed in dollar terms

real interest rate

nominal interest rate minus the rate of inflation

disinflation

a reduction of prices intended to improve the balance of payments

real gdp per capita

nominal gdp transformed in real gdp that divided by the number of people

what does an increase in population cause?

an increase in the population decreases the standard of living for the average person.

mean

avarage

mode

most common number

median

1,2,2,3,12 = avg. of 4, but Median is number at 50% mark

perfect inequality

1

perfect equality

0. Perfect equality would be if each person added the same amount to the total wealth of society.

How do I get a Gini?

A-B, The more A is closer to B, the better. If B is tiny society is unequal.

AREA A

It is the area of equality.

AREA B

Observed wealth distribution

RULE OF 70

to understand how much time it will take to a value to double . Formula: 70/annual growth rate of variable

Why productivity is important?

It is the main factor for economic growth, it is influencesd by: human capital, physical calpital and thecnology

growth accounting

used to understand how much all these capitals influence in the economic growth.

aggregate production function

GDP per worker= Tx(PC per worker)0,4x(PH per worker)0,6

PHYSICAL CAPITAL

i.e machines. There is diminishing returns to physical capital. A major way to add to physical capital is through S=I savings and investment spending.

Why countries have different growth rates over the years?

Economies which grow quickly tend to be those which add physical capital, increase human capital, and/or experience rapid technological progress.

What is the role of Education?

Education is the major way to increase human capital. This includes having a good university system, it is often measured in how many patents are awarded and finally, believe it or not, government policy has a very large effect on all of this.