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- gc7vy8
- The US and Global Economies
- What do we produce?
- We divide the vast array of goods and services produced into:
- -Consumption goods and services(61%) Cars, TVs
- -Capital goods(11%) Plants, equipment
- -Government goods and services(17%) military goods and capital goods, consumption goods
- -Export Goods and services(11%) planes, computer programs, etc.
- How do we produce?
- Factors of production
- -Factors of production are grouped into four categories:
- Land
- Labor
- Entrepreneurship
- Capital
- Labor Market(69%) and capitalist market(31%)
- Factors of production are paid incomes:
- Working(69%)
- 1. Wages- Income paid for the services of labor. (Worker)
- Capitalist(31%)
- 2. Rent- Income paid for the use of land. (Owners of land)
- 3. Interest Income paid for the use of capital. (Owners of capital)
- 4. Profit (or loss)- Income earned by an entrepreneur for running a business. (Owners of business)
- The circular Flows
- State and Local Government Revenue
- State and local government revenue in 2007-08
- Individual (48%)
- Individual income tax(13%)
- Property Tax(17%)
- Sales tax(18%)
- Transfer and other(50%)
- Transfer from federal government(20%)
- All other(30%)
- Corporate income taxes(2%)
- Functional distribution of income is the distribution of income among the factors of production.
- Personal distribution of income is the distribution of income among households.
- The poorest 20% earned only 3% of total income.
- The richest 20% earned 50% of total income.
- Are capitalist markets fair?
- Generally conflicting views of fairness are:
- -Fairness
- -Equal Opportunity
- -Equal access
- -Meritocracy vs. Nepotism
- -Rule of Law
- Circular flow model is a model of the economy that shows:
- The circular flow of expenditures and incomes that result from decision makers' choices and
- A model of the economy that shows:
- 1. Aggregate activities of all participants(C+I+G+Xn)
- 2. Integration and interdependence of each participant
- 3. The circular flow model shows the flow of incomes that arise from the households', firms', and governments' decisions of the entire economy
- 4. The circular flow model shows the flow of expenditures that arise from the households', firms', and governments' decisions of the entire economy.
- Real Flows and Money Flows
- Real Flows(Goods and services)= Money Flows
- Money Flows> real flows(goods and services) you have inflation
- Real Flows(fewer goods and services)< you have a recession(unemployment)
- In factor markets:
- -Households supply factors of production
- -Firms hire factors of production
- In goods markets:
- -Firms supply goods and services produced.
- -Households buy goods and services.
- The People
- U.S. Population: 312,774,632
- World Population: 7,021,659,000
- The Countries
- Advanced Economies
- The richest 29 countries(or areas)
- Almost 1 billion people(15 percent of the world's population) live in advanced economies. (USA, Japan, Italy, Germany, France, UK, Canada, Hong Kong, South Korea, Singapore, and Taiwan.)
- Emerging Market/Transitional
- Emerging market economies are the 28 countries of Central and Eastern Europe. (Russia, Czech Republic, Hungary, Poland, Ukraine, Mongolia)
- Almost 500 million people live in these countries.
- Developing Economies
- Developing economies are the 119 countries in Africa, Asia, the Middle East, Europe, and Central and South America that have not yet achieved high average incomes for their people.
- More than 5 billion people live in these countries.(China, India, Middle East, Africa, Asia)
- In 2012, US average income was $137 a day.
- It was $93 a day in the Euro area and $49 a day in Russia.
- It was $25 a day in China; $10 a day in India, and $7 in Africa.
- Political System, social and cultural factors and economic development
- -Democracy/political freedoms/Freedom from government
- -Free Market economy
- -Freedom from corruption
- -Property rights
- -individual freedoms
- -liberal societies/pluralistic society
- -cultural differences
- -values in society
- -Human capital
- -Technology/Infrastructure differences
- Human Capital Differences
- The quality of labor depends on human capital.
- The differences in human capital between the advanced economies and the developing economies is enourmous and it arises from:
- -Highly skilled and educated labor force
- -Education, on the job training, and experience
- Physical ability and state of health
- Cost of education
- -12x$8k= $96k
- 4x$25k=$100k
- Total $200k cost of BA/BS degree
- Physical Capital- Infrastructure differences
- The physical capital available for producing goods and services differentiates an advanced economy from a developing economy:
- Transportation system- advanced economies more developed
- Technologies used on farms and in factories- advanced economies use more capital-intensive technologies.
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