Goals of a Typical Economy

Goals of a Typical Economy - Goals of a Typical Economy 1...

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Goals of a Typical Economy 1. Full Employment – provide a job opportunity for all individuals who want to work (unemployment rate, participation rate) 2. Price Stability – to achieve a relatively low, predictable, consistent rate of inflation (1-3% annually) (inflation rate, consumer price index CPI) 3. Economic Growth – to have a society produce/consume more goods/services (GDP, Real GDP, GDP per capita) 4. Trade – to acquire more variety of goods/services (Trade Balance, Current Account Balance) 5. Environmental Sustainability – using resources now in such a way that doesn’t harm future generations 6. Economics Efficiency – improving production performance (Worker productivity, output/ worker/time) 7. Economic Justice – providing relatively equal opportunities for all individuals 8. Reducing Economic Inequality – ensuring poorer people’s needs are met (Poverty Line) Economic Growth – when a society experiences an inc. in Real GDP per capita. GDP- the value at current market prices of all final goods/services produced in an economy in a given year GNP – the value at current market prices of all final goods/services produced by domestically owned factors of production in a given year Not in GDP/GNP – Intermediate goods, Financial Assets, Illegal goods, Underground transactions, Volunteer efforts, Resale items, Transfer payments Sources of Economic Growth 1. Quantity of Labour – the more available people of working age, the greater the potential to create goods/services 2. Quality of Labour – the greater the literacy rate, skills, training, and education of workers, the more efficient they will be 3. Availability of Natural Resources – a rich endowment of natural resources can help a nation create domestic industries based around these resources 4. Quantity of Capital – to fuel economic growth, nations must have appropriate technology and machinery to create goods/services 5. Technological Innovations – refers to advances in production methods and the development of new products. These can only occur if businesses are willing to invest $ in research and innovation. Gov’t can promote this by subsidizing business spending in these areas. 6. Economic Policies – Gov’t and central banks can encourage economic growth through expansionary fiscal (lower tax rates, higher gov’t spending) and monetary policies (cutting interest rates) that encourage more spending and hiring. Growth will be enhanced in a society that promotes competition, innovation, and entrepreneurship. High taxes can discourage consumption and business investments and thus inhibit economic growth.
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Limitations of GDP/GNP 1. GDP stats can be exaggerated by changes in price. To solve this, Real GDP (GDP after having been adjusted for inflation) is calculated. Quantity x Price=Nominal GDP/Price Index=Real GDP 2. GDP stats can be misleading due to changes in population. To solve this, Real GDP is divided by the population. 3.
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This note was uploaded on 02/12/2010 for the course ECON 201 taught by Professor Smith during the Spring '10 term at Whittier.

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Goals of a Typical Economy - Goals of a Typical Economy 1...

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