The presentation covered four wheels of economic growth, types of unemployment, and Okun's law. It defined economics and discussed factors like GDP, economic growth, unemployment, types of unemployment like frictional and structural unemployment. It also explained Okun's law relationship between unemployment and GDP, where a 1% rise in unemployment can lead to a 2% drop in GDP. The presentation was made to Sir Tauqeer Hussain by Maryam Bilal, Ayesha Ali Khan and Muhammad Irsam.

1. “Presentation of Economics”
Topic of Presentation:
Four wheels of Economic Growth
Unemployment, Types of Unemployment
Okun’s Law
Presented to:
Sir Tauqeer Hussain
Presented by:
Maryam Bilal (922128)
Ayesha Ali Khan (922129)
Muhammad Irsam (922130)

2. OUTLINE
 Definition of Economics
 Economic Growth and its importance, GDP
 Factors affecting Economic Growth
 Benefits of Economic Growth
 Unemployment
 Types of Unemployment
 Impact of Unemployment
 Okun’s Law
 Okun’s Coefficient
 Measures To Control Unemployment

3. ECONOMICS
"Economics is the study of production of wealth, distribution of wealth, consumption
of wealth and exchange of wealth.“
OR
"Economics is a science which gives relationship between unlimited wants and scare
resources which have alternative uses."

4. Economic Growth
Economic growth is the increase in the production of goods and services from one
period to another. As the value of these goods and services increases, greater is the
company profits. There is a snowball effect, which often leads to higher stock prices
and increased employment. Companies have more capital to invest in new businesses
and consumers can spend more. As such, economic growth is one of the most
watched indicators, if not the most important. Economists measure this in real terms,
either in inflation or nominal terms. Gross development is usually measured as:
 A country's gross national product (GNP) or
 Gross domestic product (GDP).

5. Gross Domestic Product
 Economic growth in a country is measured by the country’s Gross Domestic
Product (GDP) in one year
 GDP = the total amount of final goods and services produced in one year within a
country.
 GDP is the total value of all the goods and services produced in that country in
one year
1. Tells how rich or poor a country is
2. Shows if the country’s economy is getting better or worse
 Raising the GDP of a country can improve the country’s standard of living

6. Importance of Economic Growth

7. But how does economic growth work and
what factors affect it?
 It is only by increasing the quality and quantity of factors of production, i.e. the
resources used to create or produce goods or services.
 Economic growth is dependent on four factors of production. These four factors
are known as “FOUR WHEELS OF ECONOMIC GROWTH”
1. Land
2. Labour
3. Capital
4. Entrepreneurship

8. Land
When most people think of land, they automatically think of farmland. Although this is
true, it is not the only thing that causes this factor. Land is defined as “ All natural
resources or gifts of nature which are available for free”. It can include not only natural
resources, but also commercial real estate and renewable resources such as forests.
Producers also use natural resources that fit into this category. These resources include:
 Oil and gas
 Coal
 Silver, copper and other metals
In general, it is considered one of the most important factors of production. Some
industries are more dependent than others. For example, real estate developers need to
make good investments. But technology companies and people who rely on automation
are less likely to rely on places that don't care about production.

9. Labour
 According to S.E Thomas, “ Labour consists of all human efforts of body or of mind which are
undertaken in the expectation of a reward”. Labour consists of people who are responsible for the
creation (from start to finish) of goods and services and their businesses. These individuals include
factory workers, managers, salespeople, and engineers who design the equipment used in
production. As such, it can take many forms.
 For example, the efforts of builders working on construction sites and quality control personnel
ensuring products are ready for the market fall into this category.
 Individuals are compensated for their time and effort, and the amount paid depends on the skills
they bring to the table. People with less skills and education are paid less, while educated and
skilled people are paid more.
 And innovation is changing the workforce. Automation, advanced technology and tools that
increase the needs of workers. Companies that continue to innovate their manufacturing processes
do not rely on human labor. For example, the invention and availability of machinery reduced the
need for manual labor on farms.

10. Capital
Although many people think of capital as money, the term here describes a number
of other assets. According to Prof. Richard T. Gill, “A country’s capital is its stock of
produced or man-made means of production consisting of such items as buildings,
factories, machinery, tools, equipment, and inventories of goods in stock” Fixed assets
are capital that includes production plants, machinery, tools or equipment used in the
production process. Capital applies to most trucks or forklifts, as well as heavy
equipment. If the economy is booming and expanding, corporations can invest, so
they can continue to make profits. Remember, capital only refers to assets that are
used for business purposes and produce goods and services. As such, it is not
intended for personal use.

11. Entrepreneurship
 It is the fourth factor and includes the visionaries and innovators behind the entire
production process. An entrepreneur is a person who combines the different factors of
production, and initiates the process of production, besides bearing the risks involved.
Producers combine other factors of production to conceptualize, create, and produce a
product or service. The driver of all technical changes in the economic system is
identified as the main source of economic growth.
 Economists believe that entrepreneurship is an integral part of the production process.
Because it uses all three other factors to produce goods and services.
 The success of an entrepreneur depends entirely on the development of a business
plan. After the business plan is developed, the entrepreneur must find resources, hire
employees, and obtain financing

13. Benefits of Economic Growth
There are many benefits of economic growth.

14. Economic Growth and Public Policy
Governments can do a lot to improve productivity and living standards.
 Encourage savings and investment
 Encourage foreign investment
 Encourage education and training
 Securing property rights maintaining
 Political stability
 Promote free trade
 Population control
 Encourage research and development
 Economic development and public policy

15. Unemployment
In business cycle, during recession the unemployment rate increases and it is
important to study unemployment.
Labour force:
Labour force is defined as:
"All persons in the age group of 15 to 64 years who are working or actively seeking
work.“
In other words:
"Labour force is defined as people from the total population above 15 years of age,
who are not in any institution and are either employed or unemployed but actively
seeking employment."

16. Labour Force Participation Rate
“Labour force participation rate is defined as the fraction of the labour force to the
total working age group population, which is expressed as a percentage.“
The formula for labour force participation rate is as follows:
Labour force participation rate= Labour force/ Working age population
The working age of population ranges 15 to 64 years.

17. Unemployment
Unemployment is defined as:
"Labour force participants being available and willing to work, but are unable to find
jobs."

18. Unemployment Rate
“Unemployment rate is a percentage of the labour force that is unemployed and is
actively seeking employment.”
Unemployment Rate = Number of Unemployed/Labour force x 100

19. Terminologies
A Discouraged Worker
"A discouraged worker is an individual who wants to work but who has been
unsuccessful for a long period of time in finding a job and who has consequently
given up on job seeking.“
Underemployment
“Underemployment is a term used to describe those who take on part-time jobs
below their capability but are seeking full-time employment.“
People with education and skills accept unskilled jobs rather than remain
unemployed, e.g. a graduate working as a salesperson in s supermarket.

20. Terminologies
Full Employment
"The situation in the economy where all available resources are employed to produce
goods and services.“
However, it is difficult to define full employment because full employment does not
mean 100% of the working labour force. There are always some people who are
voluntarily unemployed, due to work dissatisfaction or resigning to look for another
job. Full employment means that the unemployment rate is equal to all types of
Unemployment, except cyclical unemployment.

21. Types of Unemployment
There are four types of unemployment.
 Frictional Unemployment:
Frictional Unemployment occurs when people are in between jobs, or are entering or re-entering the
labour force. e.g. Fresh graduates entering the labour force for the first time and actively seeking job
or some people voluntarily quit their jobs to look for the other suitable job.
 Cyclical Unemployment:
Cyclical Unemployment occurs when there is a lack of jobs, resulting from a downsizing in a business
cycle or a recession. When the economy encounters the downsizing or goes into the recession, the real
GDP falls, the demand for good and services decreases, companies close down and workers are laid
off.
 Structural Unemployment:
Structural unemployment arises due to structural changes in the economy of a country. This means a
worker loses his job because that job is no longer a part of the structure of the economy.

22.  Technological Unemployment
Technological unemployment is caused by changes in the techniques of production.
E.g. in agriculture sector, many workers who lack the adequate skills and education
are laid off, in favor of modern machinery
 Seasonal Unemployment:
Seasonal Unemployment arises due to a seasonal variation in the activities of
particular industries. E.g. fisherman is unable to fish in winter or during the monsoon
season.
This may be caused by climate changes, changes in fashion trends or the inherent
nature of the industries themselves. In this type of employment, the labour force is
employment at times and unemployed at other times.

24. Impact of Unemployment
1. Effects on Individuals and Society
Unemployment is much more than an economic problem; it is a social problem as well
 Loss of income and self respect
A worker who is unemployed for a long time may face financial problems, and consequently, lose his self respect and respect of immediate
family and friends. this lead to frustration causing him to turn to alcohol and drugs and resort to life of crime.
 Loss of job skills
Unemployed worker may lose their job skill due to lack of application. Retraining and educating them may prove expensive.
 Social and political problems
In some extreme cases, unemployed workers may join radical groups and engaged in troublesome social and political activities. The crime
rate would be high, if unemployment is high.
2. Effects on the Economy
High unemployment rate will affect the economy. The cost of unemployment is measure as the goods and services which society could
have produced, but did not. The GNP gap is one of the ways to measure the cost of unemployment.
The GNP is the difference between potential GNP and actual GNP. Potential GNP is determine by the level of output and full employment,
whereas, actual GNP is the current level of output. The higher the unemployment rate, the greater the GNP gap.

26. Okun's Law
 Okun's Law is presented by M. Okun in 1962 in his work potential GNP, its
measurement and significance.
It is stated that:
"There is a negative relationship between unemployment and real GDP.“
 A crucial aspect of an economy facing a recession is Rising Unemployment.

27. Effect of Unemployment on real GDP
 More Unemployment causes decrease in Real Output.
Unemployed workers do not help in production of goods and services which lead to
low production that in turn lead low real GDP.
 Increase in Employment causes increase in real GDP.
Employed workers help in the production of goods and services which leads to high
production that in turn lead to high GDP.

28. Okun's Coefficient
The coefficient of okun's law is as follows:
y-y˟/ y˟ = -β(u-u˟)
y = Actual GDP
y˟= Potential GDP
u = Unemployment rate of the current year
u˟= Unemployment rate of the previous year
β = Okun Coefficient

29. Falling and Rising percentage of GDP
 When unemployment rises by 1%, the real GDP is estimated to fall by 2%.
 When unemployment falls by 1%, the real GDP is estimated to rise by 2%.
Reason:
Output is determined not only by large number of unemployed worker but also by
less working hours per day/week of the unemployed worker and low average
productivity of the unemployed worker.

30. Output Gap
Output gap is the difference of actual GDP and the potential GDP.
Output Gap = Actual GDP - Potential GDP
1. If the result of output gap is negative, then there is under-utilization of resources
(labour) in the economy which leads to high unemployment and low output.
2. If the result of output gap is positive, there is more utilization of labour in
economy which lead to low unemployment/high employment and high output.

31. Usefulness
 The Kansas City Fed study concluded that “Okun’s law is not a tight relationship,”
but that it “predicts that growth slowdowns typically coincide with rising
unemployment.”
 The Federal Reserve Bank of St. Louis concluded that “Okun’s law can be a useful
guide for monetary policy, but only if the natural rate of unemployment is
properly measured.”

32. Measures to Control Unemployment
The government can implement any one of or a combination of monetary, fiscal and direct control policies.
1. Monetary Policy
The Government may practice expansionary monetary policies which increase money supply in the economy.
The following are some of the tools monetary policy and to control unemployment.
 Pen market operations - Purchase of securities or short-term bonds
The central bank may buy short-term bonds and government securities and treasury bills from individuals as
well as institution. The purchase of securities can increase the money supply and increase the purchasing
power of individuals and firms.
 Lowering the reserves requirement
Reserves requirement refers to the amount of reserves commercial banks are required to keep in the central
bank. During periods of unemployment the central bank lowers their reserves requirement to increase the
cash resources of commercial banks, thereby encouraging the bank to offer more loan to the public and
businessmen.

33.  Lowering the discount rate
The discount rate is also known as bank rate. A decline in the discount rate is followed
by the decline in other interest rate which leads to increase borrowing and increase
investment by private businessmen.
 Lowering the interest rate
The central bank may persuade commercial bank to decrease their rate of interest on
deposit from the public. For example a reduction of interest rate on fixed deposit
from 10% to 4% will result in consumer saving less and spending more.

34. 2. Fiscal Policy
The Government may practice expansionary fiscal policies through taxation and
public expenditure.
 Decrease in taxes
The control unemployment the government reduce the general burden of taxation on
the community. A reduction in excise duty, sales tax, service tax and other types of
taxes will increase the consumption expenses of the people.
 Increase in government expenditure
Increase in government expenditure will directly affect aggregate demand. For
example an increase in salary of civil servants create more development projects
which may reduce unemployment

35. 3. Direct Control Measures
Besides monetary and fiscals policies, some direct control measures are taken to control
unemployment
 Training and technical education
More training and education should be provided for the individuals who have difficulties
securing a job. For example unemployed graduates are given free short courses to learn
computer skill and languages.
 Development of new land
Developing new land can create more job opportunities, specially for people from rural
areas. The government of new land is through government agencies, such as FELDA, RISDA
and FELCRA.
This can reduce unemployment and rural and urban migration.

36.  Job creation in various sectors of an economy
More job opportunities can be created if there is diversification in an economy. If all
sectors in an economy such as transportation, finance, insurance, services, tourism,
manufacturing, construction and other expand, it will create more jobs, and thus,
produce employment.