POTENTIAL PRODUCT
ECONOMIC GROWTH,
SUPPLY SIDE
Q = f ( L, K, TN)
Labor - population
Capital – National wealth
Technological change
ECONOMIC GROWTH
Economic growth – diferences in the levels of development
History – Malthusian views, the growth of population to limits of resources - land;
constant incomes in old civilizations; exceptions China (950-1250) and Europe
(1500-1800)
Modern economic growth 1800medium term: the changes in the K/L ratio;
long run: unlimited by the amount of land and natural resources Is economic
growth unlimited? technological change, total factor productivity
Simon Kuznetz, Robert Sollow, RES (1957), Edward Prescott, IER (1998)
The indicators of economic development
GDP/CAPITA
(PPP, 1990)
7,000
US$
2001
6,000
5,000
1985
4,000
1973
3,000
1950
2,000
1913
1,000
1870
1820
0
year
GDP/CAPITA
(in US$, PPPi 1990)
world
North
America
Western
Evrope
Eastern
Evrope
Asia
Africa
1820
667
1230
1254
683
577
420
1870
875
2380
1960
937
550
500
1913
1525
5237
3458
1695
658
637
1950
2111
9484
4579
2111
634
894
1973
4091
16417
11416
4988
1226
1410
1985
4762
20410
14113
5892
2359
1468
2001
6049
27384
19256
6027
3256
1489
ECONOMIC DEVELOPMENT
28,000
USA
US $/capita
24,000
20,000
16,000
W. Europe
12,000
8,000
E. Europe
World
4,000
Asia
0
1820
1870
1913
1950
1973
1985
Africa
2001
METHODS FOR CALCULATING TOTAL
FACTORS PRODUCTIVITY
Cobb-Douglas production function
Q = A Ka Lb ert
lnQ = lnA + a*lnK + b*lnL + r*t
Q = A KaL(1-a)
constant returns to scale
dQ/dt = dA/dt + a*dK/dt +(1-a)*dL/dt
rQ = rA + a*rK + (1-a) * rL
rA = rQ – a*rK – (1-a) * rL
POPULATION
DEMOGRAPHIC NOTIONS
R.T. Malthus: An Essey in the Principle of Population 1798
Aassumptions, development
Natural movements: natality, mortality and growth
Migrations: immigrations, emigrations, migration saldo
Structures: gender and age, active and non-active, working, employed,
selfemployed
Labor supply: demographic and social movements
Labor demand:
employment function rL=a + b rQ + c DUM,
a – avtonomous, b – elasticity, c - assimetry
POPULATION GROWTH
Malthus error
30-
20-
1800:
1825:
1850:
1900:
2000:
mortality
7 mil
14 mil
28 mil
112 mil
1892 mil
natality
10-
1800
2000
ACTIVE POPULATION EU27
2009
EU27
Slovenia
Working population (mill)
(1) share 0-14 years
(2) share >65 years
214.3
15.7
17.1
1.0
14.0
16.4
Old age dependency
100*((1)+(2))/(100-(1)-(2))
Activity rate M
Activity rate F
Unemployment rate
48.7
59.4
46.1
8.8
43.7
61.8
50.5
5.6
POPULATION FORECASTS EU
Year
2010
2020
(1)< 15years
(2) 15-64 years
(3) > 65 years
2030
2040
2050
78
334
87
millions
79
75
331
321
103
123
73
307
140
73
294
148
(4) Total population
499
513
519
520
515
(2)/(4) activity rate
0.67
0.64
0.61
0.59
0.57
((1)+(3))/(2) dependence rate
0.49
0.55
0.62
0.69
0.75
SUPPLY AND DEMAND OF LABOR
Supply of Labor: demographic movements, age structures, migration,
skills, price elasticity of supply: income effects substitution effects,
wealth effects;
Demand for labor: employment function
Unemployment: open, hidden, classical, cyclical, structural
DEMAND FOR LABOR
Labor market “a”
“b”
“c”
consequences
traditonal
+
socialism
selfmanaged
0
socialism
classical (US)
capitalism
traditional European capitalism
neo-evropean capitalism
0
0
0.3
-
1
0
0.5
-
0.7
+
no labor market, high hidden
unemployment
growing hidden unemployment
low open unemployment
flexible labor market
open unemployment
low hidden unemployment
high social protection
growth of open unemployment
hysteresis
rZ- growth of employment, rQ – growth of GDP, D- dummy,
a-autonomous growth, b-elasticity, c- assymetry
PRECARIAN EMPLOYMENT
Unemployment %
EU25
9.0
EU15
8.0
EU10
14.3
Employment type %
part-time
for definite time
self-employed
17.7
13.7
15.9
19.4
13.6
14.9
8.0
14.3
22.0
∑
47.3
47.9
44.3
INFLATION
The diminishing purchasing power of money, growth of prices;
Mesurement: retail sale prices index, cost of living index
Types of inflation: crawling, slow, fast, hyper inflation;
The costs of inflation: redistribution, expected inflation, adaptation to
inflation, indexation
Inflationary tax: the diminishing value of money
Seignorage: revenues due to monopoly of printing money,
GERMAN HYPERINFLATION
January 1922
January 1923
March 1923
May 1923
July 1923
August 1923
September
October
1
16
45
70
354
5394
227777
20201256
1
75
132
221
2021
25515
645946
191891890
1
189
-12
157
386
1262
2532
29270
AGGREGATE DEMAND AND SUPPLY
Supply:
 = e + *(Y-Yr)
 = -1 + *(Y-Yr)
e – expected inflation, Yr – equilibrium product
Demand:
Y=Y-1+ *(m - )
 = m –1/ *(Y-Yr)
 = m –1/ *(Y-Y-1)
m - money
DEMAND PULL AND SUPPLY
DEMAND PULL AND SUPPLY PUSH
PUSHINFLATION
INFLATION
Demand Pull
D
Supply Push
D1
S
D
P1
P1
P
P
Y
Y1
S1
Y1
Y
S
THE EFFECTS OF THE INCREASE IN
DEMANDPULL
IN DIFFERENT
THEORIES
DEMAND
INFLATION
D
C
S
C
D
S
D
C
S
Q
Q
neokeynesian
classical
keynesian
Q
2010M01
2009M01
2008M01
2007M01
2006M01
2005M01
2004M01
8.0
2003M01
2002M01
2001M01
2000M01
1999M01
2.0
1998M01
1997M01
INFLATION IN EU27, EU16 AND
SLOVENIA
12.0
10.0
Slovenija
6.0
4.0
EU-27
EA-16
0.0
-2.0