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Key Variables in the Economy - Coggle Diagram
Key Variables in the Economy
Economic Prosperity
GDP per person
Varies around the world
Standard of living
Economy's ability to produce quality goods and services
Physical Capital
Human Capital
Natural Resources
Technological knowledge made available to workers
Government Policies
Has the ability to influence the growth rate of the economy
Can encourage saving and investment
Can encourage investment abroad
Provide avenues to quality education for its citizens
Promote good health for their citizens
Maintaining political stability and property rights
Promote and allow free trade
Invest and promote research to develop new technologies
Savings
Return interest on savings and investments
Money today is more valuable than it will be in the future
Can use concept of present value to compare value of sums from different times
Present value of future sum
Money needed today
Given prevailing interest rates
Produce future sum
Diminishing marginal utility
Most people risk averse
Can reduce risk
Buy insurance
Diversify holdings
Choose a portfolio that has low risk and low return
Unemployment Rate
Percentage of workers who want work but cannot find a job
Takes time to search for jobs that suit an employee's skillset and preferences
Frictional unemployment
Imperfect measurement of joblessness
Some individuals do not want to work
Some individuals want to work but have been unsuccessful in finding a sutiable job
Minimum wage laws
Raises wage of unskilled and inexperienced workers
Raises the quantity of labor supplied and reduces the demand
Leads to unemployment
Market power of unions
They push and advocate for higher paying wages above the equilibrium level
This creates a surplus of labor
Financial systems
United States has many types
Bond market
Stock Market
Banks
Mutual Funds
Provide resources to families who want to save a portion of their income
This provides a way that companies and individuals are able to borrow
National income accounting
Reveal relationships with macroeconomic variables
Closed Economy
National savings must equal investment
Financial institutions match a person's savings with other people's investments