XV. Population, Economic Growth, And Business Cycles
A. Population--> people--> labor-->needs and wants
1. The United States Population:
Census- an official count of all people, including their place of residence.
Decennial census- census occurs every 10 years.
a. Counting the Population
1. Urban population- urban residents are generally those living in incorporated villages or towns with 2,500 or more inhabitants.
2. Rural population- make up the remainder of the total population, including those persons who live in sparsely populated areas along the fringes of cities.
b. Historical Growth
c. Regional Change
1. Center of population- the point where the country would balance if it could be laid flat and all the people weighed the same.
2. Projected Population Trends- interests many groups of people. (Politicians, community leaders, etc.)
a. Factors Affecting Growth- three population growth scenarios: high, middle, and low
1. Demographers- people who study growth, density, and other characteristics of population. 3 most important factors:
a. Fertility rate- is the number of births that 1,000 women are expected to undergo in their lifetime-the rate at which the number of births in a population just offsets the number of deaths.
b. Life expectancy- is the average remaining life span of people who reach a given age.
c. Net immigration- considers the net change in population caused by people moving into and out of the country.
b. Projections by Age and Sex
1. Baby boom- the high birthrate years from 1946 to 1964, make up a sizable portion of the population.
2. Population pyramid- a type of bar graph that shows the breakdown of population by age and sex.
3. Dependency ratio- a ratio based on the number of children and elderly for every 100 persons in the working-age bracket of 18 through 64.
c. Projections by Race and Ethnic Origin- differences in fertility rates, life expectancy, and net immigration rates will change racial statistics dramatically in the future.
B. Economic Growth
1. Economic Growth in the United States
a. Measuring Growth- for a period of one to five years-real GDP is a fairly satisfactory gauge.
1. Real GDP per capita- the dollar amount of real GDP produced for every person in the economy.
b. The Historical Record
1. Growth triangle- a table that traces annual rates of growth for various periods of time.
2. Importance of Economic Growth- benefits country
a. Standard of Living- the quality of life based on the possession of necessities and luxuries that make life easier.
b. Government Spending- tax base-the incomes and properties that may be taxed. Enlarged tax bases increase government revenues, which can add to the number and quality of public services.
c. Domestic Problems- degrees of poverty, inadequate medical care, inequality of opportunity, and economic insecurity. Economic growth helps alleviate social ills at their source, and creates more jobs and income for more people.
d. Helping Other Nations- when the US purchases the goods of other countries; it helps create jobs and income in those countries.
e. Global Role Model- many people in the US believe that emerging nations will be best to help themselves if they adopt a free market system.
3. Factors Influencing Economic Growth
1. Renewable resources-ones that can be replenished. (Reseeding trees)
b. Capital-the key is saving; when people cut back on consumption in order to save and invest, they free up factors of production to generate new capital.
1. Capital-to-labor ratio-which they obtained by dividing total capital stock by the number of workers in the labor force.
c. Labor-size of labor force is related to size of population. Worker desire and motivation affect the quality of the labor force.
d. Entrepreneurs-require more than a business climate that allows them to succeed. Climates would probably include a minimum of government regulation and an economic system that allows them to keep much of their profits.
4. Productivity and Growth
a. Historical Record-productivity is still growing but rate is slow enough to threaten economic growth and the standard of living.
1. Labor productivity-the rate of growth of output per unit of labor input.
b. Effects-if productivity falters, the entire economy suffers. If workers have to take time to retrain or learn new skills, the economy suffers yet another decline in productivity.
c. Causes-state is down because workers are too lax in their work habits and do not care enough about the companies that employ them. Others say that employers are indifferent and do not care enough about their workers. Others charge the tax structure or criticize the educational system.
C. Business Cycles and Fluctuations
Business cycles-are the recurring ups and downs of real GDP.
Business fluctuations-implies that real GDP will go up and down from time to time, but not in a regular and predictable manner.
1. Phases of the Business Cycle
a. Recession-a period of decline in the economy as measured by changes in real GDP. It declines for 2 quarters, or 6 months, in a row.
b. Peak- the point where real GDP stops going up.
c. Trough- the turnaround points where real GDP stops going down.
d. (Second phase of cycle) expansion-a period of recovery from a recession.
e. Trend line-if no periods of recession and expansion occurred, the economy would follow an even growth path.
f. Depression-a state of the economy with large numbers of people out of work, acute shortages, and excess capacity in manufacturing plants.
2. Business Cycles in the United States
a. The Great Depression
1. Depression scrip-it amounted to several billion dollars and was used to pay teachers, firefighters, police officers, and other municipal employees.
b. Causes of the Great Depression
1. Disparity in the distribution of income
2. Easy and plentiful credit-many people borrowed heavily
3. Economic conditions in other parts of the world-foreign loans
4. High American tariffs on imports kept countries from selling goods to US.
c. Business Cycles Since WW2
1. Consumers went on buying binge that stimulated expansion again right after the war.
2. 2 striking exception:
a. Occurred in mid 1960s, during Vietnam War.
b. Second was in the mid 1980s.
3. Causes of Business Cycles
a. Capital Expenditures-businesses expect future sales to be high, so they invest heavy in capital goods.
b. Inventory Adjustments-changes in the levels of business inventories. Some people cut back their inventories at the first sign of an economic slowdown, and then build them back up again at the first sign of an upturn. Either action causes investment expenditures-and real GDP-to fluctuate.
c. Innovation and Imitation-may be a new product or a new way of performing a task. When business innovates, it often gains an edge on its competitors because its costs go down or its sales go up. Profits increase, and the businesses grow.
d. Monetary Factors-When "easy money" policies are in effect, Interest rates are low and loans are easy to get. Easy money encourages the private sector to borrow and invest, which stimulates the economy for a short time.
e. External Shocks-increases in oil, wars, and international conflict.
4. Predicting Business Cycles
a. Econometric model-is a macroeconomic model that uses algebraic equations to describe how the economy behaves.
GDP = C + I + G + F
b. Index of Leading Indicators-a second method used to predict turning points in business cycles.