Econ Exam

Productivity, or per unit of labor input, is determined by four primary factors:

1. Human capital per worker 2. Natural resources per worker 3. Physical capital per worker 4. Technological knowledge

Foreign Direct Investment

Capital Investment that is owned and operated by a foreign entity.

Technological Knowledge

Human capital measures the resources expended (years of training, education, or experience) transmitting society's technological knowledge to workers. Ex: A route fishing boats can follow to maximize their catch at different points in the day

National Savings is

National Saving (S) = Y−C−G The total income in the economy that is left over after paying for consumption and government purchases. In a closed economy, subtracting consumption and government purchases from GDP also yields investment spending, so national saving equals investment

Private Saving

Private Saving = Y-C-T Private saving is the income that remains after households pay taxes and make consumption expenditures

Public Saving

Public Saving = T-G Public saving is the amount of tax revenue that the government has left over after paying for its spending

Foreign Portfolio Investment

Refers to an investment that is financed with foreign money but operated by domestic residents.

Average Annual Growth Rate (AAGR)

The average increase in the value of an individual investment, portfolio, asset or cash stream over specific interval of time

Brain Drain

The brain drain occurs as the best and brightest workers from poor countries leave for higher compensation and better living standards in rich countries. As the skill level of the workforce in less developed countries dissipates along with their most skilled professionals, the countries become even poorer and less capable of developing technological knowledge and enhancing productivity.

Catch-Up Effect

The catch-up effect is when higher productivity growth in countries with less capital per person helps those countries grow faster and catch up to the per-capita incomes of countries with more capital per person. Poor Countries can grow more rapidly then Richer Countries.

Natural resources

The inputs into the production of goods and services that are provided by nature, such as land, bodies of water, forests, and mineral deposits. Ex: The fertile waters in which the fish feed and breed

Human Capital

The knowledge and skills that workers acquire through training, education, and experience. Ex: The skills workers develop through training before working on and piloting boats

Debt Finance

The sale of bonds to raise funds

Equity Finance

The selling of stocks

Physical capital

The stock of tools, machinery, equipment, and structures that are used to produce goods and services. Ex: The boats in the fishing fleet

A closed Economy does not?

Trade with the rest of the world, and, thus, its net exports are zero.

At the household level, saving is

What's left over after subtracting taxes paid and consumption from household income. Depositing unspent income in a bank is an act of saving, as is using unspent income to purchase stocks or bonds.

GDP Formula

Y = C + I + G + (X-M) Y = National Income (GDP) C = Consumer Spending I = Investment G = Government Spending X = Exports M = Imports

When a firm encounters financial difficulty, the firm is obligated to pay off

bondholders before giving anything to stockholders. Stockholders, however, stand to gain more if a firm is profitable

Less developed countries hoping to boost productivity and economic growth should pursue policies that increase

physical capital per worker, human capital per worker, and technological knowledge

Investment is

spending on new capital, such as machines, equipment, tools, or buildings. Also note that spending on new residences is the one component of household expenditures that counts toward investment spending, rather than consumption, in national income accounting.