The Evolution of Economic Systems
Varieties of Capitalism in the Global Economy
Understanding Economic Systems
What Is an Economic System?
The framework of economic, political, social, and cultural institutions
organizing and coor
Growth of Economy with technology and other policies
Technological progress in the Solow model
A new variable: E = labor efficiency.
Technological progress is labor-augmenting: it increases labor
efficiency at the exogenous rate g =
Unemployment and its effects on the economy
Natural rate of unemployment
In a recession, the actual unemployment rate rises above the natural rate.
The average rate of unemployment around which the economy fluctuates.
In a boom, the actual unemploymen
The Effects of Capital and Economic Growth on Population
Why does growth matter?
Data on infant mortality rates:
20% in the poorest 1/5 of all countries.
0.4% in the richest 1/5.
In Pakistan, 85% of people live on less than $2/day.
Poverty is associated
Facts about the business cycle
GDP growth averages 3 3.5% per year over the long run with large fluctuations
in the short run.
Consumption and investment fluctuate with GDP, but consumption tends to be
less volatile and investment mo
The Impact of Inflation
The quantity theory of money
QTM states that there is a direct relationship between the quantity of money in an
economy and the level of prices and goods and services sold.
If the amount of money in an economy doubles, price le
Basics of Macroeconomics
Important issues in macroeconomics:
How can problems in the housing market spread to the rest of the economy?
What is the government budget deficit? How does it affect workers,
consumers, businesses, and taxpayers?
Collection of Data and the Fundamentals of Macroeconomics
Gross Domestic Product (GDP): Expenditure and Income
Total expenditure on domestically-produced final goods and services.
Total income earned by domestically-located factors of
Factors of Production
Capital, K = tools, machines, and structures used in production.
Labor, L = the physical and mental efforts of workers.
The Production Function
Y = F (K, L)
Reflects the economys level of technology.
Shows how m
Basics of the Monetary System
Definition: the stock of assets that can be readily used to make transactions.
Store of value transfers purchasing power from the present to the future.
Medium of exchange we use it to buy stuff.
Unit of ac