Macroeconomics, solow model, pension model, business cycles, economic growth, GNP Gross National Product, investment, exchange rate, inflation, labour market, unemployment rate, financial account, technological progress
A confusion is often made between the level of GDP and the growth of GDP. The growth of GDP is the slope of the blue line while the level of GDP is the relative position of the GDP curve to the trend curve. It's entirely possible for a country to experience strong GDP growth while still having a relatively weak GDP level. This situation may occur when the economy is rebounding from a recession or when there's significant investment and expansion in certain sectors. For instance, if a country experiences a period of negative GDP growth (a recession) followed by a rapid recovery with high growth rates, the GDP level might still be lower than it was before the recession. However, the growth rate during the recovery period would be strong. Conversely, a country with a high GDP level might experience slower growth rates if its economy has reached a mature stage or if it's facing structural challenges that limit further expansion.
[...] Why are prices lower in poor countries? The Balassa-Samuelson theory: Labor forces of poor countries are less productive than those of rich countries in the tradable sectors. If prices of internationally tradable goods are roughly similar in also countries, this lower productivity will translate into lower wages in poor countries that will affect all sectors. Due to these lower wages, production costs will be lower in poor countries in the non-tradable sectors (mostly services, where the difference in productivity between rich and poor countries is not as high as in the tradable sectors). [...]
[...] For instance, changes in consumption patterns or the introduction of new goods and services are automatically reflected in the deflator, but not in the CPI. This means that the GDP price deflator captures any changes in an economy's consumption or investment patterns. That said, the trends of the GDP price deflator are usually similar to the trends illustrated in the CPI. Trends of growth in advanced economies: A decline in nominal growth, partly explained by lower inflation. A decrease in real growth, partly explained by slower labour force growth. A decrease in GDP per capita and productivity. [...]
[...] To simplify the process, we can start from a basic assumption: the more people consume, the happier they are. Maximising total welfare becomes thus the maximization of the total amount of consumption in the economy. Total consumption at a given point in time is the sum of the consumption of the old generation t-1 and the current overlapping working generation Ct=Ntct+Nt-1dt Where: Ntct is the number of workers multiplied by their individual consumption. Nt-1dt is the number of retired people multiplied by their individual consumption. [...]
[...] This phenomenon is called the twin deficits. The market of loanable funds (in a closed economy): The market for loanable funds is the market in which some people (savers) supply funds to be lent out to other people (borrowers). Those two types of market participants do not often directly interact with each other: savers put their money in the bank on the graph), hoping to get a return and the bank lends the money to the borrowers who need financing to invest on the graph). [...]
[...] This is the configuration we expect on the long run of the economy. It is operating at its maximum sustainable level of output per person given the available capital and technology. Intuition: Let's imagine now that we have a level of capital k that is below k*. At this level of capital, investments will be above depreciation. This means that capital will be accumulated since more value will be added by investment than destroyed by depreciation. Capital accumulation k will increase until it reaches k*. [...]
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