Macroeconomics Long-Run Economic Growth Quiz

How do you calculate the labor force participation rate

(Labor force/adult population) x 100 Or ((# employed + # unemployed)/adult population) x100

Who answers each question (what profession?): How large are the supplies of key natural resources? How effective will technology be at finding alternative resources? Can sustainable long-run economic growth continue during scarcity of natural resources?

1. Geologists 2. Engineers 3. Economists

What four things essentially affect the growth rate of Real GDP per capita?

1. Physical Capital - Savings and Investment 2. Human Capital - Education 3. Technological Progress - R&D 4. Government

How can the Government affect growth rates of Real GDP Per Capita, or basically productivity? (7 ways)

1. R&D 2. Honesty 3. Property rights 4. Stability 5. Education 6. Monetary system 7. Infrastructure

What three things help to explain why growth rates differ in various countries?

1. Research and Development 2. Investment spending and savings 3. Education

Robert Gordon, an economist argues that the current information technology will not have as great of an impact in economic growth as some of the inventions during the late 19th century (Second Indústria Revolution). What are these five inventions?

1. Running water and heating system 2. Internal Combustion engine 3. Electricity 4. Modern Chemistry 5. Wide communication, as well as movies, phones, etc.

Example: If Real GDP per capita is growing at an annual growth rate of 3.5 percent, it will double in?

20 years

What percentage of the world's population now lives under a standard of living lower than that in the US in 1900?

50 % of the world's population now lives under standard of living lower than that of the US in 1900.

Aggregate production function definition

A hypothetical function which illustrates how productivity (Real GDP Per worker) depends on the quantities of physical capital and human capital per worker, and as the state of technology.

What is a market basket

A market basket is a hypothetical set of purchases (typically of an everyday consumer).

Bottom 80% of the world have only blank percent of the world's wealth.

Bottom 80% of the world only have 6% of the world's wealth

What does CPI stand for?

CPI stands for Consumer Prince Index

Carbon tax system definition

Carbon tax is a tax on each unit of carbon that is emitted by the company.

What's holding Africa back?

Civil wars and political instability Government corruption Unfavorable geography

Index definition

Cost of a market basket, in relation/normalized to a base year

Cyclical unemployment is the deviation from the natural rate of unemployment because of how it is closely related to the...

Cyclical unemployment is the deviation from the natural rate of unemployment because of how it is closely related to the business cycle.

How can diminishing returns disappear?

Diminishing returns can disappear by increasing the amount of human capital per worker or more technological progress, or even both at the same time.

What are efficiency wages

Efficiency wages are wages that employers basically put above the equilibrium price in order to incentivize the workers to continue doing well in their jobs - can essentially cause Structural unemployment.

Growth accounting

Estimates the contribution of human capital, physical capital, or technological progress in the increasing labor productivity (Real GDP Per Worker)

Frictional + Structural =?

Frictional + Structural = Natural Rate of Unemployment

What two types of unemployment make up natural unemployment?

Frictional and Structural

What are the three types of unemployment rates? Definitions?

Frictional unemployment - unemployment cause by people moving between jobs (looking for work), whether that be because he or she quit, or was fired, etc. Structural unemployment - when the demand for a particular job has decreased below the level of supply (to many workers for a particular type of job). Cyclical unemployment - unemployment that is affected by the economy's success (unemployment increases due to a recession and vice versa)

How do you calculate GDP Deflator?

GDP Deflator is calculate by: (Nominal GDP/Real GDP) x 100

Brookings Institution Aggregate Production Equation

GDP Per Worker = T * (Physical Capital per Worker)^.4 *(Human Capital per Worker)^.6

What is GDP?

GDP is the market value of all final goods and services produced within the country over a year (or a certain period of time).

What is GDP Per Capita?

GDP per capita is basically the GDP divided by the population. It stands for the GDP per person.

The role of government in promoting economic growth: three roles

Government policies Protection of property rights Political stability and good governance

What are the four different types of government policies?

Government subsidies to infrastructure Government subsidies to education Government subsidies to Research and Development Government maintaining a strong financial system (allows for savings to be turned into investment spending to purchase physical capital)

Growth has benefits and costs. Provide an example of a nation.

Growth has benefits and costs, such as in China, a country which has seen a healthy increase in GDP. But, even though there has indeed been an increase over the years, the amount of pollution that facilities and factories over the country have produced, is quite devastating.

Global wealth - the richest 2% have more wealth than...

Half of the rest of the world.

Diminishing returns to physical capital

Holding both human capital and technological progress constant, the more physical capital that is acquired by each worker, the less of an increasing impact it will have on productivity (Real GDP Per Worker).

What is human capital?

Human capital involves the human mind and the intelligence behind the workforce. Human capital is essentially associated with education.

What are the three things (again) that increase productivity?

Increase in physical capital Increase in human capital Technological progress

How do you calculate inflation

Inflation is calculated by ((Index of year 2 - Index of year 1) / Index of year 1) x 100

Convergence hypothesis definition.

International differences in Real GDP Per Capita tend to narrow over time.

What's holding Argentina and other Latin American countries back?

Irresponsible govt (eroded savings and opportunities for investment spending) Lack of emphasis on Education Political instability

Labor force includes individuals who are working and who are...

Labor force includes individuals who are working, and who are actively looking for work

What is labor productivity commonly called?

Labor productivity is commonly called or referred to as just productivity.

What is labor productivity?

Labor productivity is essentially and simply the output per worker.

Long-run economic growth is measured as the increase in... (3 things)

Long-run economic growth is measured as the increase in real GDP per capita, how real GDP per capital has changed, and how it varies across countries.

Minimum wage typically creates low-....

Minimum wage typically creates low-skilled workers.

Is Africa poor because its politics are unstable, or vice versa?

No definitive answer.

Even though it may indeed be true that China has a higher overall GDP than the United States, does that mean that it is more successful?

No, that does not mean that China is more successful than the United States. GDP per capita is essentially what counts (it takes away the effects due to population size), and in the United States, the GDP per capita is strong compared to China (50,000s vs 10,000s).

Do unemployment rates always fall during expansions?

No, they do not always fall but they regularly do.

Is GDP a way that economists track the performance of the country?

Of course, Gross Domestic Product is a way that economists track the progression and overall performance of the country.

How many percent of Americans have 40 percent of the nation's wealth?

One percent of Americans have 40% of the nation's wealth

What is physical capital?

Physical capital can essentially be categorized as machines that help with the overall working progress, and infrastructure (such as buildings and facilities)

What three things drive productivity?

Productivity is driven by physical capital, human capital, and technological progress

Research and Development definition (who created R&D)

Research and Development is the spending to create new technology and making this newly formed technology have practical use (spending in new technology and its implementation). Thomas Edison was the individual who created Research and Development

What is stagflation?

Stagflation is a situation that is caused by high inflation during times of a stagnant or slow economy (such as in the 1970s) - Try to avoid this!

How do you calculate the value of a market basket?

Sum (number of item x their corresponding price)

Sustained long-run economic growth.

Sustained long-run economic growth is the ability for the economy to keep growing in the face of diminishing natural resources and the impact of growth in the environment.

What three things caused East Asia's Technological Progress?

Technological progress Emphasis on solid education Well-functioning financial systems which allowed for high savings, and thus, high investment spending opportunities on physical capital.

How do you calculate the Index?

The Index is calculated by: (Cost of basket in current year/Cost of basket in base year) x 100

How much more per person, since 1900, does the US Economy currently produce?

The US Economy, per person, currently produces more than seven times more than it did in 1900.

What is the definition of technological progress?

The advance in the technical means of producing goods and services.

How much of the nation's wealth do the bottom 80% (0-80%) of Americans have?

The bottom 80% of Americans share only 7% of the nation's wealth

What is the key statistic when it comes to companies economies?

The key statistic when it comes to comparing economics of countries, is Real GDP per capita (Real GDP divided by the population size).

What is the key to long-run economic growth?

The key to long-run economic growth is productivity

What is the labor force participation rate?

The labor force participation rate is a percentage illustrating the adult (16+) non-institutionalized civilian population working or actively looking working for work.

What is the natural rate of unemployment within the United States?

The natural rate of unemployment within the United States is somewhere between 4-6 percent

The richest 1% of the world have accumulated roughly blank percent of the world's wealth

The richest 1% of the world have accumulated roughly 43% of the world's wealth.

What is the rule of 70 used for? What is the equation?

The rule of 70 is used to magnify small changes at a time (small changes, especially when compounded can make big differences). Specifically, the rule of 70 is used to determine how many years it would take for a figure to double. Rule of 70: 70/percent of growth rate

What are the three main goals of any economy?

The three main goals of any economy: 1. Economists want to see the economy grow over time. 2. They want to keep the unemployment rate low. 3. They want to keep the prices stable.

What are the three main measurements of prices?

The three main measurements of prices are: 1. Consumer Price Index (CPI) 2. Producer Price Index (PPI) 3. GDP Deflator

What was the total wealth in the United States in 2009?

The total wealth in the United States in 2009 was roughly 54 trillion dollars

What is the unemployment rate?

The unemployment rate is the percentage of individuals in the labor force who are lacing a job (are without a job/are not working).

What is the world's wealth?

The world's wealth is roughly at $223 trillion.

Cap and trade system definition.

There is a cap on the total amount of carbon emissions and a necessity to buy likeness in order to emit greenhouse gases.

Total factor productivity

Total factor productivity is the amount of output that can be produced with the given amount of factor inputs.

What are the three ways of calculating GDP?

Value added Factor Income Final Goods

When total factor productivity increases, the economy can produce more output when what three things stay the same? What does this show?

When total factor productivity increases, the economy can produce more output by keeping the same amount of physical capital, human capital, and labor. This shows that output heavily depends on technological progress (or total factor productivity depends on technological progress). Technological progress is crucial to economic growth.

Is it true that long-run growth heavily depends on productivity?

Yes, it is true that long-run growth heavily depends on productivity!

Is it true that in the modern world, both human and physical capital matter more than natural resources for productivity?

Yes, this is true.

Do unemployment rates always rise during recessions?

Yes, unemployment rates always rise during recessions.

How do you calculate Actual Unemployment?

You calculate actual unemployment by: Natural Unemployment + Cyclical Unemployment.

How do you calculate the unemployment rate?

You calculate the unemployment rate by: (#unemployed/labor force) * 100 Or (#unemployed/(#unemployed + #employed)) * 100