ECON 3535 1st Edition Lecture 2 Current LectureCPI: Consumer Price Index below 1%o measure of inflationo low due to weak economic growth- GDP growth = 5%/year- <2% = good (no concerns about inflation)- Higher interest rates = lower investmento Government raises interest rates in order to prevent inflation in the long-termRussia:o -2.9% GDP growth in 2015 severe recessiono decreasing export revenues (sanctions) falling oil prices cuts in all of budget except for military ruble depreciation raising price of imports capital flight conversion of money into dollars and euroso raising interest rateso 17% interest rates by the Central Bank starting to use reserves to mitigate effects sanctions will expire this springResource Paradox:o Produced capital + natural capital + intangible capital = predictor of wealth Human capital increases 7% with every year of education K = capitalCountry Intangible Produced Natural Total Wealth per CapitaLuxembourg 73.2% 26.1% 0.7% $818, 081These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.U.S. 84.6% 13.5% 1.9% $741, 142Congo 27.4% 8.1% 64.6% $2,477 Natural resources makes you a poor country over timeThe World Bank’s Categories of Wealth:o The World Bank divides wealth into four categories: high income, upper middle income, lower middle income, low incomeo Intangible K: predictor of wealth develop education, people Greatest asset = people wealth = investing in people , education, healthcare, open access, EQUALITY Discrimination makes countries poor because they eliminate a big source of wealthIncome Intangible KNaturalKProducedKTotal WealthHigh 81.2% 16.9% 1.9% $583,306Upper middle 67% 16.6% 16.4% $86,190Lower middle 50.5% 24.1% 25.4% $17,162Low 51.5% 14% 34.4% $6,730o 2005: China rapidly developing countries invest a lot in physical capital in order to develop infrastructureo Natural resources are not a source of wealth, but povertyo U.S. imports most of its natural resources The manufacture of natural resources generate much greater value than the natural resources themselves Conversion of commoditiesEconomic Reasons for Resource Paradox:o Prices of natural resources: 1974=$15/barrel; 1980=$70/b; 1990=$30/b; 1998=$15/b; 2008=$110/b; 2012=$144/b; 2014=$110/b; 2015=$45/bo Currency appreciationo Rent seeking creates the action of funneling into dependency on natural
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