At some point when studying economics, you’ve likely studied production functions, which detail how firms use inputs like labor and capital to produce goods and services. You’ve also studied aggregate production functions that detail inputs versus outputs on a national scale. We can thus model shifts and changes using these production functions. The Cobb-Douglas model […]

Photo by Michael on Unsplash The Consumer Price Index (CPI) and Personal Consumption Expenditures Price Index (PCE) are both common indexes tracking changes in price levels over time, commonly known as inflation or deflation. The Federal Reserve Bank uses the PCE to track inflation, despite the CPI certainly being a more common and reported-on metric. To

Photo by Tyler Casey on Unsplash The aggregate production function describes the relationship between aggregate output and the production inputs that drive said output. “Output” is real GDP, or total real income. This essentially describes on a national level the value of goods and services that are produced once adjusted for inflation or deflation. For inputs, we’ll

Okun’s Law describes a relationship in economics between unemployment and economic output, such that when unemployment falls GDP increases, and when unemployment rises, GDP decreases. Context: Okun’s law is named for Arthur Okun of the 1960s. The law states that for every 1% decrease in the unemployment rate, a country’s GDP will be roughly 2% higher

Photo by Dan Cristian Pădureț on Unsplash Throughout the study of economics, many variables change over time—think GDP, the number of workers, or the level of technology. The growth of these variables can be modeled either with discrete growth or continuous growth. You’ll need to be familiar with both ideas and mathematical models of growth while

What is the Solow Growth Model? The Solow Model of Economic growth, named for Nobel 1987 winner Robert Solow, helps us understand the dynamics of national economic growth and the pace of said growth. In this article, we’ll explore down the conceptual basis for the Solow Growth Model, understand the relationships it presents via graphs, derive

There are two common measures of price level (P): The GDP Deflator and the Consumer Price Index (CPI). However, the Federal Reserve Bank looks at the Personal Consumption Expenditure Price Index (PCE) as their preferred index. The PCE is complied and released monthly in the Personal Income and Outlays report and attempts to capture price level

Photo by Kaleidico on Unsplash The Phillips Curve represents the inverse relationship between unemployment and inflation. So, as inflation rises unemployment should go down, and vice versa. The Phillips Curve was named after its creator, A.W. Phillips, who developed the concept in 1958. We’ll consider the Phillips curve through the short-run and the long-run lens; first note

Purchasing Power Parity I wanted to make a quick note of a single sentence that’s helped me in learning how to calculate purchasing power parity between countries, which goes as follows: evaluate consumption of both countries using prices of one country. Using one price lets us normalize the productivity and standard of living across two or

In a previous article here, we covered the formulas for nominal and real GDP. In that article, we also touched on GDP deflators. I’ll repeat our prior definition and a short excerpt here: So, the real GDP in 2026 is $120, while the nominal GDP is $144. This means that roughly half of the “increase in