Economics Notes: Small and Open Economies, Growth, Aggregate Supply and Demand
Production and growth :
In the long run, the higher saving rate leads to a higher level of productivty and income, but not to higher growth in these variables.
Catch-up effect : Countries that start off poor tend to grow more rapidly than countries that start off rich
Y=C+I+G S=I S=(Y-T-C) + (T-G) = private saving – public saving.
Because a high interest rate makes borrowing more expensive, the quantity of loanable funds demanded falls as the interest rate rises.
The supply and demand for loanable funds depend on the real interest rate and not nominal.
Increase in saving = shift the supply of loanable funds to the right = reduces the interest rate. (graphique page 181)
Increase in investment = demand for loanable funds increase = interest rise. Incentive to increase investment = increase in quantity of loanable funds demanded
When the government has a budget deficit, the national saving decreases, so the supply of loanable funds decreases and the equilibrium interest rate rises.
Unemployment and its natural rate : Page 193
Labour force = Employed + Unemployed
Unemployment rate = (unemployed/labour force) x 100
Labour-force participation rate (labour force/adult population) x 100
Cyclical unemployment : short-run economic fluctuations. Fluctuates around its natural rate
Frictional : process of matching workers and jobs
Structural : Quantity of labour supplied exceeds the quantity demanded.
(trop de monde pour les jobs)
Employment insurance = increases the amount of unemployment
Why wage is kept above equilibrium : Minimum Wage, Unions and efficiency wage = raises quantity of labour supplied
Money growth and inflation : Page 251
Increase in money supply : supply shifts to right. There are more dollars, price level increases, making each dollar less valuable.
Monetary neutrality : irrelevance of monetary changes for real variables in the long run. Changes in money supply do not affect real variables.
Money velocity
In the long run, the higher saving rate leads to a higher level of productivty and income, but not to higher growth in these variables.
Catch-up effect : Countries that start off poor tend to grow more rapidly than countries that start off rich
Y=C+I+G S=I S=(Y-T-C) + (T-G) = private saving – public saving.
Because a high interest rate makes borrowing more expensive, the quantity of loanable funds demanded falls as the interest rate rises.
The supply and demand for loanable funds depend on the real interest rate and not nominal.
Increase in saving = shift the supply of loanable funds to the right = reduces the interest rate. (graphique page 181)
Increase in investment = demand for loanable funds increase = interest rise. Incentive to increase investment = increase in quantity of loanable funds demanded
When the government has a budget deficit, the national saving decreases, so the supply of loanable funds decreases and the equilibrium interest rate rises.
Unemployment and its natural rate : Page 193
Labour force = Employed + Unemployed
Unemployment rate = (unemployed/labour force) x 100
Labour-force participation rate (labour force/adult population) x 100
Cyclical unemployment : short-run economic fluctuations. Fluctuates around its natural rate
Frictional : process of matching workers and jobs
Structural : Quantity of labour supplied exceeds the quantity demanded.
(trop de monde pour les jobs)
Employment insurance = increases the amount of unemployment
Why wage is kept above equilibrium : Minimum Wage, Unions and efficiency wage = raises quantity of labour supplied
Money growth and inflation : Page 251
Increase in money supply : supply shifts to right. There are more dollars, price level increases, making each dollar less valuable.
Monetary neutrality : irrelevance of monetary changes for real variables in the long run. Changes in money supply do not affect real variables.
Money velocity