Definitions of economic growth and economic development

and

Differences in the definitions of the two concepts

This video excellent by Flame India includes points on limitations of using GDP to compare welfare (below) and alternative measures (HDI). Take note of the definitions by Michael Todaro and also the contributions of Amrtya Sen and Mahbub ul Haq. Note how Economic Growth contributes towards Progress in Human Development.

Gross Domestic Product (GDP) versus Gross National Product (GNP) as measure of growth

To recap the meaning of GDP, you might use this opengecko post:

Output– Definitions of GDP

To see some examples of actual GDP figures, you could use this post:

Comparing GDP and Other Indicators Across Countries

PAJ Holden gives a detailed explanation of the difference which lasts 8 minutes:

gdp and gnp

This video summarises the differences much more quickly:

Limitations of using GDP as a measure to compare welfare between countries

Notice – Joseph Stiglitz also points out the difference between GDP and GNP (above) as well.

Allowance for differences in purchasing power when comparing welfare between countries

Alternative measurements of development

Composite Indices – HDI and beyond by hdr.undp.org

See the original (via EU Infrastructure) here.

Problems of measuring development

For this section, you may conduct your own online research and/or consult your text book.

The Marshall-Lerner Condition, the J-curve, and the US trade deficit

2) A useful video via the same author’s http://www.econclassroom.com:

3) A chance for you to play around with the Marshall Lerner condition yourself:

http://www.eco.rug.nl/~gigengack/ge/ML_Interactive/ML_Interactive.htm

15: PURCHASING POWER PARITY by InformedTrades:

2 Useful web sites:

http://economics.about.com/cs/money/a/purchasingpower.htm

http://www.wisegeek.com/what-is-purchasing-power-parity-theory.htm

Questions:

1) What is PPP and explain how it works using a hypothetical example?

2) Evaluate the usefulness of PPP theory when applied to the real world.

Image: Some rights reserved by Images_of_Money

Here are some online resources to explore the so called Eurozone crisis that is occurring in late 2011:

Is the Euro Crumbling? Excellent, simplified infographic video on background behind current Eurozone crisis by BBC.

How can countries go bust? Useful one minute summary by the BBC’s Robert Preston.

In graphics: The Eurozone’s crisis – BBC provides useful graphs for comparing deficit, GDP, Unemployment and Debt in Eurozone countries and UK.

Timeline: The unfolding eurozone crisis by the BBC

Eurozone debt web: Who owes what to whom? infographic by BBC

EU Debt Crisis in Charts Infographic – via forexnewsnow.com

It’s All Connected: An Overview of the Euro Crisis – NYT Sunday Review (Interactive Graphic)

Paradigm Lost – Mapping The Crisis – carnegieendowment.org

Image: via infographicsinsights.com

Q&A: Greek debt crisis – BBC News round up of the Late 2011 economic crisis in Greece, and how it impacts on the Eurozone

Beware of falling masonry – article by the Economist (26th November 2011):

The crisis in the euro area is turning into a panic and dragging the zone into recession. The risk that the currency disintegrates within weeks is alarmingly high

Is this really the end? – article by the Economist (26th November 2011):

EVEN as the euro zone hurtles towards a crash, most people are assuming that, in the end, European leaders will do whatever it takes to save the single currency. That is because the consequences of the euro’s destruction are so catastrophic that no sensible policymaker could stand by and let it happen.

Eurozone crisis: Terms explained – The Telegraph defines some of the buzz words which frequently appear in current media analysis of the Eurozone crisis.

Are you struggling to understand your credit default swaps and your buybacks? Here are some of the terms used to discuss the eurozone debt crisis

An interpretation of possible outcomes of Greek debt (as at 26th October 2011):

Source: http://www.el-baghdadi.com

Further reading:

More useful updates can be found at these sites:

http://www.bbc.co.uk/news/special_reports/global_economy/

http://www.scoop.it/t/eurozone

http://www.guardian.co.uk/business/debt-crisis

http://www.economist.com/node/21524378

4.4 World Trade Organization (WTO)
• Aims
• Success and failure viewed from different perspectives

Accordingly, your goal from learning about this part of the syllabus should be to be able to answer the following questions:

1) What are the aims of the World Trade Organisation?

2) What are some of the positive contributions of the World Trade Organisation to the world trading system? Evaluate these advantages and, in particular, identify the stakeholders who would agree that these are advantages with reasons for their agreement.

3) What are some of the criticisms made against the World Trade Organisation? Evaluate these advantages and, in particular, identify the stakeholders who would agree that these are disadvantages with reasons for their disagreement.

Image: Some rights reserved by World Trade Organization

A flash-based slideshow courtesy of the guardian gives an historical introduction:

WTO – A Brief History

This infographic by http://www.themoscownews.com sums up the main aims of the WTO:

History and functions of the World Trade Organization (WTO)

The ever reliable mjmfoodie gives us a introduction to GATT, which later became WTO. It gives us the history, moving on to the reasons for the WTO (aims). It is quite pro-WTO in its approach:

Episode 37: GATT/WTO by mjmfoodie (4’ 38”)

This is an impressive student project on the same topic which gets very detailed about membership requirements, but then moves on to the main aims of the WTO, which is useful for our syllabus requirements:

World Trade Organization by sdhettige (9’28”)

The World Trade Organisation is a documentary excerpt posted online by It is good for the historic set-up of the WTO (originally GATT – what was this?), and the various Rounds which shaped its development. It is also good for an overview of some global economic developments (such as the 1970s World Oil Crises) that are useful to know about in general for IB Economics.

Click here to view the video.

This next video is an engaging infographic on some of the difficulties faced by Kenya. Kenya’s WTO membership required in trade liberalisation (reduction of protectionism). This video is biased, but puts forwards some pretty clear arguments against the imposed trade regulations placed by rich Western/Northern economies, which some argue the WTO simply supports at the expense of poorer economies such as Kenya. Remember, the syllabus expects us to see the issue from different perspectives.

Animation: Trade Justice – why world trade rules need to change by tradeaid (2’ 28′”)

Michael Moore is a renowned political commentator/critic famous for a number of documentary films. In this clip he is clearly very critical of the WTO, giving a more extreme view of its possible ‘failure’:

Michael Moore by ProtestGlobalisation

Next we have short interview clips with various stakeholders in the Philippines, giving strong criticism of the potential effects of trade liberalisation, as actively encouraged by the WTO, on such a LDC.

Why WTO is Bad for Developing Countries by ymataglenn (3’ 46”)

Finally, ‘CuteChadz’, a student, sets out her own revision-focused overview of the World Trade Organisation:

A2 Economics: World Trade Organisation (WTO) in 8 mins by CuteChadz

Trading blocs
• Free trade areas (FTAs)
• Customs unions
• Common markets
Higher level extension topics
• Trade creation and trade diversion

Obstacles to achieving integration
• reluctance to surrender political sovereignty
• reluctance to surrender economic sovereignty

Introduction to Trading Blocs

Episode 38: Trade Blocs by mjmfoodie

Perhaps a simpler introduction is here:

Trading Blocs by LanternaEducation

A more discursive explanation by student CuteChadz …

A2 Economics: Trade Blocs by CuteChadz

Trade Creation and Trade Diversion

Towards the end of the previous video, there was reference to trade creation and trade diversion, although the explanation was quite simple. You can get more depth out of these two effects of economic integration (the formation of trade blocs). The following two websites are recommended for reading up on these two topics:

http://tutor2u.net/economics/revision-notes/a2-macro-trade-agreements.html

http://www.revisionguru.co.uk/economics/creatdiver.htm

Obstacles to Achieving Integration

Finally, for brief but useful discussion of the obstacles to achieving integration, and summary of some of the above, visit this site:

http://centralecon.wikia.com/wiki/Economic_Integration

Due to a combination of reduced supply (as many farms, factories, and transport links in the country were flooded) and an increase in demand (as people stocked up on essentials in case they would not be able to get any later on as the floods worsened), prices of many goods increased considerably.

Some news items and social media

On October 30th, this report from The Nation newspaper online emerged (click on the image to see the original article):

The day before, on the 29th October, the following tweet appeared reporting that the Commerce Minister apparently said consumers should not accept higher (“inflated”) prices for eggs:

Typically eggs, before the floods, would sell at 3 or 4 baht each, so the new price represented an approximate doubling.

On 31st October, the Commerce Ministry announced Price Controls on 9 Essential Goods – although eggs weren’t specifically included in the 9 Essentials, a representative from the ministry said “about 3.2 million eggs from Malaysia will reach Thailand on November 3. It would be sold at no more than Bt4 each”.

On the same day, 31st October, this  report emerged (click on the image to see the original article). [Note, to “sell like hot cakes” means to sell very quickly and in large numbers].

In the scenario above, why did they sell like hot cakes? Why did huge queues form? Why did the government have to ration eggs after maintaining a ‘ceiling’ (maximum) price of 3 Thai baht?

On 1st November, this tweet appeared on the topic:

Now we are introduced to the word ‘shortage’ – in Economics that has a specific meaning – what does a shortage mean?

Some graphs

Let’s for simplicity argue that the price of eggs had risen because of a severe reduction in supply (although it is possible that the demand for eggs increased as well, it seems likely that supply would have reduced by more than any increase in demand). Follow the steps on the graphs below:

So the question you should try and answer, as a student of Economics, is in the title …

Should Eggs Have Been Sold At Their Pre-Flood Prices?

• Use diagram(s), fully labelled and explained.
• Refer to the developments in the news and items social media references given above.
• To conclude, try to explain the possible advantages of sticking with pre-flood prices and the possible disadvantages (you might have to think from a mixture of social, political and economic perspectives).

Here are some suggested resources to help you for the economics- side of things:

mjmfoodie on Market Equilibrium

Reffonomics gives interactive diagrams on Shortages and Surpluses.

mjmfoodie on Price Floors and Price Ceilings

A bit more advanced, Biz/Ed on Putting Demand and Supply Together: The Market Mechanism. The interactive diagrams could be used to explore the changes.

http://www.bized.co.uk/reference/glossary/Supply-side-policy

http://www.bized.co.uk/virtual/bank/business/external/policy/expl.htm

2) Why have supply-side policies been so appealing to governments? How could this be shown on a graph?

3) How does the supply-side economists’ approach differ in general from the Keynesian economists’ approach?

4) What policies exist and how can we categories them?

Summary of some supply side policy concentrating on increasing the productivity of firms. NOTE: UK bias!

http://www.tutor2u.net/economics/content/topics/supplyside/product_markets.htm

Summary of supply side policy concentrating on increasing the quantity and quality of labour. NOTE: UK bias!

http://www.tutor2u.net/economics/content/topics/supplyside/labour_policies.htm

Your text book(s) should be a key resource here.

5) What are the advantages and disadvantages of supply side policies?

India Case-Study – Skim-read this article and briefly summarise how the author perceives India has been successful with supply-side policy. What has the policy concentrated on? Give one fact to show its success. Be sure to skim read to the bottom.

http://www.blonnet.com/2005/08/23/stories/2005082300271000.htm

What is meant by Reagonomics? You can read about it here:

http://en.wikipedia.org/wiki/Supply-side_economics

See also the further resources listed below.

6) Why are supply-side policies difficult to evaluate?

Additional Resources

pajholden on Supply Side Policies:

http://www.youtube.com/watch?v=v9HEm8w5nL8

BrynJonesOnline gives us this useful analysis, with points of evaluation:

This next video is a documentary excerpt uploaded by socialontology gives an idea of what is meant by government intervention in an economy and the associated administrative barriers (red tape), etc. – these barriers to productivity are what ought to be removed through deregulation and market-oriented policies:

A good written summary of the main issues:

http://economicsonline.co.uk/Global_economics/Supply-side_policies.html

Here is a printable worksheet to check your overall understanding of supply-side policy. http://www.bized.co.uk/virtual/bank/business/external/policy/worksheet3.htm

· To recap the Paper 1 Mark Scheme

· To revise learning on the macroeconomic equilibrium, Keynesian and neoclassical perspectives and demand side policies.

· To apply the above learning to examples, both theoretical and real-life.

· To develop critical analysis and evaluation skills.

Step 1 – Recap Exam Technique

· Remember the Paper 1 Mark Scheme

· Remember the tips on evaluation

Step 2 – Analyse a Theoretical Scenario.

Image: Some rights reserved by APMus

You should ideally work in a pair or three and, as a team, will analyse the likely macroeconomic impacts of one of the following scenarios.

1) Government announces a large increase in spending on health and education.

2) Chancellor announces tax exemption scheme on new investments for small to medium sized firms.

3) Average wage rises way above inflation for the third month running.

4) Exchange rate appreciation knocks export hopes for manufacturing.

5) Institute of Directors (IOD) latest survey shows clear signs of optimism for the future of the economy

6) Central Bank signals rise in interest rates of ½%

• You should include at least one diagram.
• You should evaluate the likely effects – how strong will the impact be?
• There may not be one single answer – you simply need to be able to justify your predicted outcomes. Evaluation often needs to look at the assumptions we start with – you should be clear about what you are assuming.

Prepare a presentation (using for example Google Docs Presentation on MS Powerpoint) and prepare between two and four slides to show and explain the effects.

Step 3 – Analyse a Real Life Scenario.

Image: Some rights reserved by RambergMediaImages

You ideally need to form different pairs / threes in which you will be able to offer feedback to each other.

Each pair focuses on a region of the world, and each person selects a separate and current headline and article related to a demand side policy that has been introduced by the government there.

· North America

· South America

· Europe

· Africa

· Asia (not Thailand)

· Thailand

You need to summarise:

· Why there was a need for the demand-side policy

· The likely impact and successes / shortcomings of the policy.

· Include reference to at least one diagram

Try to use all of the techniques needed for a top scoring evaluation based essay.

Create a Google doc (or some similar document) that you will share with your partner(s).

A suggested site to search on: http://news.google.co.uk/

Here is the evaluation spreadsheet to provide feedback with. Make a copy and share it with your partner to offer them feedback with.

Here are the syllabus requirements:

• Aggregate supply

a) short-run

b) long-run (Keynesian versus neo-classical approach)

• Full employment level of national income

• Equilibrium level of national income

• Inflationary gap

• Deflationary gap

Make sure you can define each of these as well as explain them.

To recap on inflationary and recessionary (deflationary) gaps, refer to this video by ACDCLeadership but note that it explains it from a neo-classical perspective. He then goes on to explore fiscal and monetary policy responses, which we will explore in more detail later, but is worth watching now.

A quick and very useful summary of some of the key differences is given by ACDCLeadership in his video Classical vs. Keynesian Aggregate Supply- Macroeconomics. He is delivering this to an AP audience (as opposed to IB). Notice that he combines Keynesian, Intermediate and Classical ranges into what we can simply think of as the Keynesian AS curve.

This next clip could also help understanding already reached in class / revised through the text book.

pajholden on Keynesian Vs Monetarist on the LRAS curve

He refers to those holding the neo-classical perspective as ‘monetarists’. Good for understanding how the market for labour is understood under each perspective. Notice the simplified (original) Keynesian AS curve which he starts off with for the Keynesian perspective.

http://www.youtube.com/watch?v=QG56sFoNNa8

BrynJonesOnline on Aggregate Demand & Aggregate Supply

Notice that his AS curve is very similar to the Keynesian version. So he assumes a Keynesian perspective (without saying it), and it is good for showing the three different phases / segments along it. Note that at 2 minutes 10 seconds, he is now mentioning supply side bottle necks (again without actually saying it). For now, you do not need to view any further from 2 minutes 45 onwards (after the interlude) as he now moves on to AS changes – (a) increased costs and (b) successful supply side policy which we explore later.

From http://reffonomics.com, this slideshow also combines the Keynesian and neoclassical perspectives on to one graph whereas we have preferred to keep them separate. However, this is very good for getting the history of thought behind these two perspectives, including the name of influential economists, and for seeing the simple differences between the Keynesian and Neo-classical view of AS. Note also that they put Yfe (Full employment level of national income – what they say is 97%)) at the vertical segment whereas some text books prefer to think of that as the maximum level of employment (100%).

Click here: Aggregate Supply Ranges

Finally, from the same website, this slideshow is excellent for summarising where we are and indicating where we are headed next with possible government policies

Macroeconomics Graphs