Monday, December 9, 2013

Useful ratios

One of the great things about the "first law" of information transfer economics being a simple ratio is that it can serve as a good guide to economically useful ratios. Matthew Yglesias talks about the employment-population ratio being so broad as to be problematic. Of course the correct ratios to look at are NGDP/U and NGDP/L where U and L are the total number of people unemployed and the total number of people employed. These ratios are proportional to the price level, with the former showing far more of the "business cycle" than the latter:

The former is also related to the Phillips Curve.

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Also, try to avoid the use of dollar signs as they interfere with my setup of mathjax. I left it set up that way because I think this is funny for an economics blog. You can use € or £ instead.