English for Business & Economics - Appunti completi per esame

GDP DOESN'T CAPTURE:

• Everything that adds value to the economy

Es. caring for children done by parents VS done by a paid childcare worker

• Aspects of economic welfare of nation's population

Es. GDP increased by 2% but population grew by 4% = average GDP for person

decreased

• How evenly national income is split across the population

Es. Income increased for everyone VS concentrated in certain groups

• Situations that raise GDP but don't make the country better

Es. Spending to replace buildings and infrastructure after a natural disaster

Aggregate Demand (AD) = total level of spending in the economy

It is the same as GDP (E)

Includes:

• C -> households spending (consumption)

• I -> investments by businesses and households

• G -> spending by the government

• X - M -> net spending from overseas (exports - imports)

CONSUMPTION

= Spending by households on rent, food, utilities... 4

Largest share of aggregate demand.

Level of consumption depend on level of income -> Y (income) = C + S (saving: income

that is not spent)

Marginal propensity to consume (MPC) = extra consumption for an extra dollar of

income

Simple multiplier (k = 1 / 1-MPC) = how much addictional GDP results from change in

expenditure

For household spending are also important:

• higher income expected in the future

• increase of wealth (es. rising housing prices)

INVESTMENT

= Spending by businesses and households that increases economy's capacity to produce

goods and services

Es:

• building new houses and offices

• purchasing machinery and softwere

• constructing infrastructure

• research and development

+ level of investment determineted by:

• - interest rates

• + expected profits

• government policy

• changes in technology

GOVERNMENT SPENDING

• Structural spending (regardless of the state of the economy)

Es. spending on education, health services, defence...

• Cyclical spending

Es. in an economic downturn when unemployment rate has increased, more

government spending on programs to support

NET EXPORT

= Spending on exports minus spending on imports.

Imports are subtracted because GDP measures production within a country, while imports

are produced overseas.

• Exports = goods and services sold to businesses, households and governments

overseas.

Level higher when:

▪ growth in our major trading partners (our exports used in productions)

▪ dollar exchange rare low (cheaper for other economies to buy) 5

• Imports = goods and services that businesses, households and the government buy

from overseas.

Level depends on:

• other components of aggregate demand (some households consumption,

investments and government purchases are imported)

• dollar exchange rate (when dollar exchange rate is stronger, becomes cheaper

buy goods and services from overseas)

Aggregate Supply = total output of goods and services in the economy.

Determined by:

• level of inputs available

◦ labour (population and participation rate of them)

◦ capital

▪ tangible (buildings, machinery, equipment...)

▪ intangibe (research and development, knowladge e skills...)

• productivity = how much can be produced with a given set of inputs (how efficently

inputs are used)

Externalities

Prices do not capture all costs! -> differences between private returns or costs and returns

or costs to society.

People not directly involved in transactions are affected by consumption, production and

investment decisions.

Indirect effect of externalities have an impact on the consumption/production

opportunities of others, BUT the price of the product does not take those externalities into

account.

• Negative externality

Es. Pollution -> polluter makes decisions based only on direct cost and profit

opportunity from production. Doesn't consider indirect costs to those damaged

by the pollution

• Positive externality

Es. Research and development -> have positive positive effects beyond those

enjoyed by the producer that funded R&D (difference between private and social

gains)

Pubblic Goods

• non excludable = whoever produces or mantains the pubblic good cannot prevent

other people from enjoying its benefits

• non rival = consumption by one individual doesn't reduce the opportunity for others

to consume it

Usually taxes finance governments delivery of pubblic goods. 6

Indirect effects of production or consumption activity can affect this goods. Problem is

especially notable in environmental economics (clear air and water, biodiversity...Free

goods produced by nature, available to everybody) -> subject to no well defined property

rights = collective action problem.

Gaps between social and private costs or returns lead to inefficient market outcomes and

they may prevent markets from emerging. Government intervention is often required to

ensure that benefits and costs are fully internalized (take into account externalities, positive

and negative, in decisions of individuals, households and firms).

Solutions:

• Taxes (x negative externalities = incentive to reduce) and Incentives es. subsides (x

positive externalities to encourage to produce)

• Command and control rules

◦ technological standard

◦ performance standard

• Cap and trade sistem (permissions defind by government) 7

OECD BETTER LIFE INITIATIVE

To understand if life is getting better for people, we need to look beyond the funtioning of

economic system considering experiences and living conditions of people and households.

OECD (Organisation for Economic Cooperation and Development)

Focuses on developing statistics that capture asoects of people's life that help to define

quality of their lives.

Measuring:

• well-being of people

• progress of societies

to promote better policies for better lives

How's Life

Is a report that provides comparable statistics on whether life is getting better for people.

Current well-being -> includes 11 dimensions at indivudual, households or community

level:

• material conditions that determinate people's economic options

◦ income and wealth

◦ housing

◦ work and job quality

• quality of life factors (how well people are, what they know and can do, how healthy

and safe their places of living)

◦ health

◦ knowledge and skills

◦ environmental quality

◦ subjective well-being

◦ safety

• how connected and engaged people are, how and with who they spend their time

◦ work-life balance

◦ social connections

◦ civil engagement

How are measured this key dimensions?

• Averages -> BUT national averages often mask large inequalities in how different parts

of the population are doing

distribution of current well-being is taken into account looking at 3 types of inequality:

• Gaps between population groups

Es. men and women, old and young people 8

• Gaps between top and bottom in each dimension

Es. income of the richest 20% of individuals compared to that of the poorest 20%

• Deprivations

Es. share of the population falling under a given minimum level of skills/health...

Future well-being -> resources grouped into 4 types of capital:

• Economic capital

◦ man made

◦ financial assets

• Natural capital

◦ natural assets

◦ ecosystems and their services

• Humane capital

◦ skills

◦ future health

• Social capital

◦ social norms

◦ shared values

◦ institutional arrangements

This capitals are systems that sustain well-being over time.

Often related to pubblic goods rather than outcomes for individuals.

Sometimes their reach extends beyond national boundaries (Es. greenhouse gas emissions

influence wprld's overll climate).

To measure this dimensions are considered:

• Capital stocks and flows

• Key risk

Es. high level of threatened species = risks to biodiversity

• Resilience factors

Es. inclusiveness of decision-making in politics = factor that develop social capital

Between 2010 and 2018 life has generally improved for many people

• we are living longer (life expectancy +14 months)

• safer lives (homicide rate -27%) -> so people feel safer when walking alone

• employment rates and incomes are up (+4,8% and +6%)

• people are more satisfied with their lives (+2,8% of life satisfaction)

BUT:

• insecurity, disconnection and despair affect significant parts of the population

◦ more than 1 in 3 people would fall into poverty if they had to renounce 3 months

of their income

◦ average households wealth has decreased by 4% since 2010 9

◦ studies show people spend 30 minutes less x week, on average, interacting with

friends and family

◦ 1 in 11 people don't have relatives or friends they can count on for help

◦ 1 in 8 people experience more negative than positive feelings in a rypical day

◦ deaths from suicide, alcohol abuse and drugs overdose are 3 times higher than

road deaths

• inequalities in well-being persist

◦ people in the top 20% of the income distribution earn over 5 times more than

people in the bottom 20%

◦ every day women works 25 minutes longer than men, including house work

(unpaid work)

Different OECD countries show very different realities and also diverging trends over time.

In general, countries that do better have greater equality between population groups and

less people living in deprivation. 10

NEW ECONOMY

Is a buzzword to describe new high-grow industries on the cutting edge, believed to be

the driving force of economic growth and productivity.

A new economy was first declared in the late 1990s, when hi-tech tools, like internet and

increasingly powerful computers, made their way into the comsumer and business

marketplace.

Shift from manufacturing and commodity-based economy -> to one that use technology

to create new products and services at a rate that the traditional manufacturing economy

couldn't match.

Are we in the new economy?

The question is whether the new economy is here or still on the horizon.

Certainly the traditional manufacturing economy is being increasingly automated using

innovations of the tech sector.

We still buy and sell products, but the service economy is becoming an ever-growing part

of the global economy.

So we are living in an economy qualitatively different from the one in the 1980s. Less

people are employed in direct manufacturing and many of these are anxious of being

replaced by a machine.

Early 2000s:

New economy was announced as the knowledge economy, the data economy and the e-

commerce economy.

Since the tech boom of the 90s we