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The US and Global Economies
 
What do we produce?
 
We divide the vast array of goods and services produced into:
-Consumption goods and services(61%) Cars, TVs
-Capital goods(11%) Plants, equipment
-Government goods and services(17%) military goods and capital goods, consumption goods
-Export Goods and services(11%) planes, computer programs, etc.
 
How do we produce?
Factors of production
-Factors of production are grouped into four categories:
    Land
    Labor
    Entrepreneurship
    Capital
 
Labor Market(69%) and capitalist market(31%)
 
Factors of production are paid incomes:
Working(69%)
1. Wages- Income paid for the services of labor. (Worker)
    Capitalist(31%)
2. Rent- Income paid for the use of land. (Owners of land)
3. Interest Income paid for the use of capital. (Owners of capital)
4. Profit (or loss)- Income earned by an entrepreneur for running a business. (Owners of business)
 
The circular Flows
 
State and Local Government Revenue
 
State and local government revenue in 2007-08
 
Individual (48%)
Individual income tax(13%)
Property Tax(17%)
Sales tax(18%)
 
Transfer and other(50%)
Transfer from federal government(20%)
All other(30%)
 
Corporate income taxes(2%)
 
Functional distribution of income is the distribution of income among the factors of production.
 
Personal distribution of income is the distribution of income among households.
 
The poorest 20% earned only 3% of total income.
 
The richest 20% earned 50% of total income.
 
Are capitalist markets fair?
Generally conflicting views of fairness are:
-Fairness
-Equal Opportunity
-Equal access
-Meritocracy vs. Nepotism
-Rule of Law
 
Circular flow model is a model of the economy that shows:
The circular flow of expenditures and incomes that result from decision makers' choices and
 
A model of the economy that shows:
1. Aggregate activities of all participants(C+I+G+Xn)
2. Integration and interdependence of each participant
3. The circular flow model shows the flow of incomes that arise from the households', firms', and governments' decisions of the entire economy
4. The circular flow model shows the flow of expenditures that arise from the households', firms', and governments' decisions of the entire economy.
 
Real Flows and Money Flows
Real Flows(Goods and services)= Money Flows
Money Flows> real flows(goods and services) you have inflation
Real Flows(fewer goods and services)< you have a recession(unemployment)
 
In factor markets:
-Households supply factors of production
-Firms hire factors of production
In goods markets:
-Firms supply goods and services produced.
-Households buy goods and services.
 
The People
U.S. Population: 312,774,632
World Population: 7,021,659,000
 
The Countries
Advanced Economies
    The richest 29 countries(or areas)
Almost 1 billion people(15 percent of the world's population) live in advanced economies. (USA, Japan, Italy, Germany, France, UK, Canada, Hong Kong, South Korea, Singapore, and Taiwan.)
 
Emerging Market/Transitional
    Emerging market economies are the 28 countries of Central and Eastern Europe. (Russia, Czech Republic, Hungary, Poland, Ukraine, Mongolia)
Almost 500 million people live in these countries.
 
Developing Economies
    Developing economies are the 119 countries in Africa, Asia, the Middle East, Europe, and Central and South America that have not yet achieved high average incomes for their people.
    More than 5 billion people live in these countries.(China, India, Middle East, Africa, Asia)
 
In 2012, US average income was $137 a day.
It was $93 a day in the Euro area and $49 a day in Russia.
It was $25 a day in China; $10 a day in India, and $7 in Africa.
 
Political System, social and cultural factors and economic development
-Democracy/political freedoms/Freedom from government
-Free Market economy
-Freedom from corruption
-Property rights
-individual freedoms
-liberal societies/pluralistic society
-cultural differences
-values in society
-Human capital
-Technology/Infrastructure differences
 
Human Capital Differences
The quality of labor depends on human capital.
The differences in human capital between the advanced economies and the developing economies is enourmous and it arises from:
-Highly skilled and educated labor force
-Education, on the job training, and experience
Physical ability and state of health
Cost of education
-12x$8k= $96k
4x$25k=$100k
Total $200k cost of BA/BS degree
 
Physical Capital- Infrastructure differences
The physical capital available for producing goods and services differentiates an advanced economy from a developing economy:
Transportation system- advanced economies more developed
Technologies used on farms and in factories- advanced economies use more capital-intensive technologies.