Economic measurements {econometrics}| can build and verify economic theories, typically using regression analysis. Analysis can be about one variable over time {time-series analysis}, two variables at one time {cross-sectional analysis}, both variables on same sample {panel analysis}, or both variables on different samples {pooled cross-sectional analysis}. Econometrics requires classifying businesses and industries, such as by Standard Industrial Classification or North American Industry Classification System.
Economy is in equilibrium if personal savings equal business investment plus government purchases minus taxes plus exports minus imports {national income identity, measurement}, because consumption equals output.
Economies can reach state in which one consumer cannot become better off without making another worse off {static efficiency} {Pareto optimum, economics}, with same resources and technology.
conditions
Static efficiency results under the following conditions {pure market economy}. Plants operate at capacity and are at optimum scale. For all goods, marginal utility divided by price are equal. Price equals marginal cost. For all resources, marginal product divided by price are equal. For all factors, marginal revenue products are equal for all uses. Leisure marginal value equals labor marginal value. Marginal saving value equals marginal consumption value. Good marginal-utility ratios are equal for all consumers. Workers do what they like best and can do best. Workers can move freely among jobs.
Because employment increases in economic expansions, which inflation typically accompanies, unemployment level and price level inversely relate {Phillips curve}. Money and wage inflation relates to unemployment: (dw / dt) / w = h(U), where dw is wage change, dt is time change, w is wage, U is unemployment, and h(U) < 0. As unemployment increases, wages and prices decline.
Trade balance, services balance, and interest payments {current account balance} measures exports compared to imports.
Personal consumption plus personal savings {disposable income}| is an economy measure.
People can try to keep money rather than spend {effective demand}, so demand is less than optimum. People feel that their money is not enough for future needs. Printing more money can increase effective demand because money seems plentiful.
gross investment + government purchases + personal consumption + net exports {gross national product}| (GNP) is an economy measure.
In economies, people receive different incomes {income, economy} depending on skills, education, experience, responsibilities, and rank.
inequality measures
Governments measure income inequality {Lorenz curve} {Gisi coefficient}.
policies
Government policies can increase income equalization.
School loans and scholarships {education grant} improve worker incomes later.
Unemployment payments, disability payments, illness payments, and old-age payments {transfer payment, income} provide money directly to people unable to work. Anti-poverty programs, retraining grants and programs, aid to dependents, and aid to handicapped people {welfare, income} provide money indirectly to people unable to work.
Progressive taxation takes more money from higher-income people and less from poorer people. Taxes on wealth take money from rich people.
Laws against discrimination help people have equal opportunity to get income.
Savings bonds allow people to receive income later.
Wages and salaries {labor value}, set in labor market, determines income. Money value, set in money market, also determines people's income.
Income {imputed income} can be real but not monetary: farm production consumed by farm family, value of rent not paid to owner for house use, and housewife-work value.
Governments have debt {national debt}|, which they typically owe to citizens. Taxes pay this debt. Debt payments go back to people that pay taxes {tax friction}.
Total country output income {national income}| does not equal national product, because some production remains unsold, in inventory.
Countries can produce goods and services {national product}|.
Gross national product minus capital consumption {net national product} is an economy measure.
Personal consumption + personal taxes + personal savings {personal income}| is an economy measure.
Economies have personal consumption schedules, business investment schedules, government expenditure schedules, and net export schedules {planned expenditures}. Saving schedule and investment schedule must be equal for optimum GNP, because then demand and supply are equal.
Economists can use models, with equations about economic indicators, to predict business cycle {econometric forecasting}.
Economists can use estimated government spending, investment, exports, imports, and consumer spending to forecast GNP {analytical forecasting}.
Economists can use past indicator performance to predict business-cycle turning points {barometric forecasting}.
Indicators {indicator, economy} {economic indicator}| can predict GNP and business cycles. Some indicators do not relate to business cycle: price index, imports, exports, payment balance, and government activities.
Indicators that accompany business cycles {coincident series} are job openings, employment, production, sales, income, investment backlog, wholesale-price index, bank reserves, and interest rates.
Indicators that lag business cycle {lagging series} are long-term unemployment, investments, inventories, labor costs, debt, and loan rates.
Indicators that predict GNP and business cycles {leading series} are average work week, overtime, new unemployment-benefit claims, new investment intentions, business creation, inventory investment, commodity prices, stock prices, profits, margins, cash flows, money flows, credit flows, delinquencies, business failures, hiring, and layoffs.
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Date Modified: 2022.0225