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 1800-medium 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)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

18201870

1913

1950

1973

1985

2001

US$

year

GDP/CAPITA(in US$, PPPi 1990)

world NorthAmerica

WesternEvrope

EasternEvrope

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

0

4,000

8,000

12,000

16,000

20,000

24,000

28,000

World

USA

W. Europe

Asia

Africa

E. Europe

1820 1870 1913 1950 1973 1985 2001

US $/capita

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

POPULATIONDEMOGRAPHIC NOTIONS

R.T. Malthus: An Essey in the Principle of Population 1798Aassumptions, development

Natural movements: natality, mortality and growthMigrations: immigrations, emigrations, migration saldoStructures: gender and age, active and non-active, working, employed,

selfemployedLabor supply: demographic and social movementsLabor demand:

employment function rL=a + b rQ + c DUM, a – avtonomous, b – elasticity, c - assimetry

POPULATION GROWTH Malthus error

1800: 7 mil

1825: 14 mil

1850: 28 mil

1900: 112 mil

2000: 1892 mil

10-

20-

30-

natalitymortality

1800 2000

ACTIVE POPULATION EU272009

EU27 Slovenia

Working population (mill) 214.3 1.0

(1) share 0-14 years 15.7 14.0

(2) share >65 years 17.1 16.4

Old age dependency

100*((1)+(2))/(100-(1)-(2)) 48.7 43.7

Activity rate M 59.4 61.8

Activity rate F 46.1 50.5

Unemployment rate 8.8 5.6

POPULATION FORECASTS EU

Year 2010 2020 2030 20402050

millions(1)< 15years 78 79 75 73 73(2) 15-64 years 334 331 321 307 294(3) > 65 years 87 103 123 140 148

(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 0.690.75

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 + 0 0 no labor market, high hiddensocialism unemploymentselfmanaged 0 0.3 - growing hidden unemploymentsocialism low open unemploymentclassical (US) - 1 0 flexible labor marketcapitalism open unemploymenttraditional European - 0.5 - low hidden unemploymentcapitalism high social protectionneo-evropean - 0.7 + growth of open unemploymentcapitalism hysteresis

rZ- growth of employment, rQ – growth of GDP, D- dummy,a-autonomous growth, b-elasticity, c- assymetry

Unemployment %

EU25 EU15 EU10 9.0 8.0 14.3

Employment type %

part-time 17.7 19.4 8.0for definite time 13.7 13.6 14.3self-employed 15.9 14.9 22.0

∑ 47.3 47.9 44.3

PRECARIAN EMPLOYMENT

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 1 1 1January 1923 16 75 189March 1923 45 132 -12May 1923 70 221 157July 1923 354 2021 386August 1923 5394 25515 1262September 227777 645946 2532October 20201256 191891890 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 PUSHINFLATION

D D1

SS1DS

P1

P

Y Y1

P1

P

Y1 Y

Demand Pull Supply Push

DEMAND PULL AND SUPPLY PUSH INFLATION

THE EFFECTS OF THE INCREASE IN DEMAND IN DIFFERENT THEORIES

D S D S DC C C

S

Q

Q Q neokeynesian classical keynesian

DEMAND PULL INFLATION

INFLATION IN EU27, EU16 AND SLOVENIA

EU-27

EA-16

Slovenija

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.01997M01

1998M01

1999M01

2000M01

2001M01

2002M01

2003M01

2004M01

2005M01

2006M01

2007M01

2008M01

2009M01

2010M01