Economics Unit 4

Economics Unit 4

1. Economic growth

   • Invest new capital goods (physical)
     • Enlarge national capital stock and human capital
     • Technical process better?
       • Endogenous growth theory: Gov create supply conditions- favour investment and technical progress
         • Infrastructure and judicial system

2. Costs and benefits of economic growth

   • Aim of econ activity: Improve economic welfare & standards of living
     • Econ growth help achieve this, econ growth be compatible with econ development
       • Economic devolpment
         • Improve living standards- reduces poverty & human suffering
         • Access to resources
         • Access to human development- education
         • Environmental sustainability and regeneration
           • Sustainable economic growth
             • Finite resources
               • Use renewable
             • Resource degration
               • Technologies minimise polllution

3. Fluctuations in economic actviity

   • Speculative bubbles
     • Rapid growth in asset prices, far above real value. Bubble burst & confidence low, fall into recession
   • Demand shocks
     • Contract demand and in boom
       • Demand management policies
         • Monetary Policy
         • Fiscal policy
         • Need to be accurate timing
           • Bad timing destabilise economy and make it more volatile
             • Long-term risky investments abandoned for less risky short-term projects
             • Unexpected interest rate/tax changes may affect competitiveness and long term growth adversly
     • Reflate/ boost in recession
   • Political business cycle
     • Generate a pre election boom & deflate the economy after election until the next one
   • Seasonal fluctutaions
   • Long cycles
     • Investments in long run technology progress
       • Creating a "new economy"
   • Supply shocks

4. National Income

   • Indicator for living standards?
     • Underestimate economic welfare & living standards
       • Non-monetised economy underrespresented
         • DIY and housework
       • Economic activity (illegal) in hidden economy is ommited
       • Positive externalities not seen
       • Quality improvements are under- represented
     • Overestimate economic welfare & living standards
       • Negative externalities not seen
         • Welfare loss may be seen as increase in national output
           • Producing higher output = more strain on workers and get ill
             • Extra production & consumption in healthcare seen as welfare gain!
         • Installing regrettables raises national income
           • Burglar alarms- but prefer not to need them
         • Income distribution
     • Standard of living made up of
       • Economic welfare from goods and services
       • Economic welfare from quality of life factors
       • Economic welfare from public goods and merit goods
   • Comparing between countries
     • Statistical sophisitication of data collection