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 ( ) and Europe ( ) Modern economic growth 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)

GDP/CAPITA (in US$, PPPi 1990) worldNorth America Western Evrope Eastern Evrope AsiaAfrica

ECONOMIC DEVELOPMENT

METHODS FOR CALCULATING TOTAL FACTORS PRODUCTIVITY Cobb-Douglas production function Q = A K a L b e rt lnQ = lnA + a*lnK + b*lnL + r*t Q = A K a L (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

POPULATION DEMOGRAPHIC NOTIONS R.T. Malthus: An Essey in the Principle of Population 1798 Aassumptions, development Natural movements: natality, mortality and growth Migrations: immigrations, emigrations, migration saldo Structures: gender and age, active and non-active, working, employed, selfemployed Labor supply: demographic and social movements Labor 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 natality mortality

ACTIVE POPULATION EU EU27Slovenia Working population (mill) (1) share 0-14 years (2) share >65 years Old age dependency 100*((1)+(2))/(100-(1)-(2)) Activity rate M Activity rate F Unemployment rate

POPULATION FORECASTS EU Year millions (1)< 15years (2) years (3) > 65 years (4) Total population (2)/(4) activity rate ((1)+(3))/(2) dependence rate

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+00no labor market, high hidden socialismunemployment selfmanaged00.3-growing hidden unemployment socialismlow open unemployment classical (US)-10flexible labor market capitalismopen unemployment traditional European -0.5-low hidden unemployment capitalismhigh social protection neo-evropean-0.7+growth of open unemployment capitalismhysteresis rZ- growth of employment, rQ – growth of GDP, D- dummy, a-autonomous growth, b-elasticity, c- assymetry

Unemployment % EU25EU15EU Employment type % part-time for definite time self-employed ∑ 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 January March May July August September October

AGGREGATE DEMAND AND SUPPLY Supply:  =  e + *(Y-Y r )  =  -1 + *(Y-Y r )  e – expected inflation, Y r – equilibrium product Demand: Y=Y -1 +  *(m -  )  = m –1/  *(Y-Y r )  = m –1/  *(Y-Y -1 ) m - money

DEMAND PULL AND SUPPLY PUSHINFLATION D D1 S S1 D S P1 P YY1 P1 P Y1 Y Demand Pull Supply Push DEMAND PULL AND SUPPLY PUSH INFLATION

THE EFFECTS OF THE INCREASE IN DEMAND IN DIFFERENT THEORIES DS D SD C C C S Q Q Q neokeynesian classical keynesian DEMAND PULL INFLATION

INFLATION IN EU27, EU16 AND SLOVENIA