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Summary EKN120 Chapter 15: Macroeconomic Objectives
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These notes cover all the concepts of chapter 15 in EKN120, namely: - economic growth - business cycle - unemployment - inflation - Income inequality
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Macroeconomic ObjectivesChapter 15
Economic Growth • Efficient financial institution.
(1) Outward shift in PPC that results Channel household savings 2 buss,
from increase in resource supplies entrepreneurs & inventors that do
/quality/improvement most of society's investing &
in technology; inventing. Banks, stock & bond
(2) Increase of real output (gross markets = crucial 2 modern eco
domestic product)/real output per growth.
capita. • Literacy & widespread education.
• Increase in Real GDP Need scientists & inventors 2
• Increase in Real GDP Per Capita develop new technology & need
(Inflation-adjusted output per highly educated workforce 2 put
person; real GDP/population) technologies in2 productive use.
Growth = common eco goal: • Free trade. Promotes growth by
• Expansion of total output relative 2 allowing countries 2 specialize
population results in rising real therefore various types of outputs
wages & incomes & higher standard = produced in countries w/h can be
of living. made @ lowest opp cost. Promotes
• Growth lessens burden of scarcity. rapid spread of new ideas so
Arithmetic of Growth – Rule of 70 innovations made in 1 country
• method 4 determining # of years quickly spread 2 other countries
take 4 some measure 2 double, • Competitive market system. Price
given its annual percentage & profit servers = signals that tell
increase. firms what & how much 2 make
• Example: determine # of years Main Sources of Growth
4 price level 2 double, divide 70 by Supply: Any increases or improvements
annual rate of inflation. in these supply factors will increase
the potential size of an economy GDP:
• Increase quantity & quality of
Institutional structures that promote natural resources.
economic growth: • Increase in quantity & quality of
• Strong property rights. Not human resources.
invested believe thieves & govts • Increase in supply of capital goods.
will steal investments/expected • Improvements technology.
returns. Demand Factor: 2 achieve higher
• Patents and copyrights. B4 production potential created w/e
copyrights investors ideas be supply factors increase/improve ,
stolen. By giving exclusive rights 2 households, buss & govts must also
market & sell creations provide expand purchase of g/s 2 provide
strong financial incentives 2 invent market 4 all the new output that can
& create. be potentially produced.
, W/e demand condition = met, no Modern Economic Growth
unplanned increases in inventories, &
Uneven Distribution of Growth
rescs remain fully employed. Demand Read p171
factor acknowledges eco growth reqs Catching up = possible
increases in total spending 2 realize • Can adopt technology quicker than
upward gains made possible by can invent it.
increased production capacity. • Poorer countries = grow faster
Efficiency factor: eco achieve because can adapt (rather than
economic efficiency in addition 2 full reinvent) existing technologies.
employment if is 2 maximize amount of Is growth desirable & sustainable
satisfaction/utility can be derived – Antigrowth view:
from scarce resources. • Causes pollution, climate change,
• 2 maximize well-being use rescs in extinction and other environmental
least costly way (productive problems.
efficiency) 2 produce specific mix • Inputs in production process re-
of g/s that maximize people's entre environ as waste.
utility (allocated efficiency). • Read p171
• Unemployment caused by – In defense of eco growth:
inefficient total spending (demand • Believe growth path 2 greater
factor) may lower rate of new material abundance & higher living
capital accumulation (supply factor) standards desired by vast majority
& delay expenditures on research of people.
(supply factor). • Improve infrastructure, enhance
• Conversely lower spending on care of sick & elderly, provide
investments (supply factor) may access 4 disabled & provide more
cause insufficient spending police & Fire Protection.
(demand factor) & unemployment. • Read p177
• Widespread inefficiency & use of
resources (efficiency factor) may =
The Business Cycle
higher cost of g/s & lower profits, Recurring increases & decreases in
may slow innovation & reduce level of eco activity over periods of
accumulation of capital (supply years; consists of peak, recession,
factors). trough & expansion phases.
Labor & productivity: increase real
output & income in 2 ways
1. Increasing inputs of resources.
2. Raising the productivity of inputs.
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