ECN 211 Exam 3
Economic freedom
A condition in which people are able to make personal choices, their private property is protected by the rule of law, and they are free to buy and sell in markets
Increase
A decrease in wage rate leads to a(n) ________ in AS (curve will shift to the right)
Recessionary gap
A gap that exists when potential GDP exceeds real GDP and that brings a falling price level.
Inflationary gap
A gap that exists when real GDP exceeds potential GDP and that brings a rising price level
Real GDP, population
The formula for determining standard of living is: a % change of ______ ______ - % change in _______.
Marginal propensity to consume
The fraction of a change in disposable income that is spent on consumption- the change in consumption expenditure divided by the change in disposable income that brought it about.
Marginal tax rate
The fraction of a change in real GDP that is paid in income taxes-the change in tax payments divided by the change in real GDP
Marginal propensity to import
The fraction of an increase in real GDP that is spent on imports- the change in imports divided by the change in real GDP
Neoclassical
The growth theory that real GDP per person will increase as long as technology keeps advancing. Economic growth DEPENDS on technology. This theory cannot explain why there was an increase in technology. They believe that they were totally random occurrences. This theory also stated that an increase in productivity does NOT lead to a higher population. They believed that population changes depended on the opportunity cost of children. (Many people have decided not to have kids because the opportunity cost is too high).
Rule of 70
The number of years it takes for the level of any variable to double is approximately 70 divided by the annual percentage growth rate of the variable
Labor Productivity
What source of economic growth makes the biggest impact?
Full-employment equilibrium
When equilibrium real GDP equals potential GDP
Above full-employment equilibrium
When equilibrium real GDP exceeds potential GDP
Below full-employment equilibrium
When potential GDP exceeds equilibrium real GDP
Stagflation
A combination of recession (falling real GDP) and inflation (rising price level)
Human capital
A change in _____ _______: includes the accumulated skill and knowledge of people. It is the knowledge, training and experience people have. The expansion of this fundamental directly increases labor productivity and is the source of the discovery of new technologies. The better educated people are, the more productive they are. If you work less, but produce more, then economic growth will occur. It is part of a change in labor productivity.
Physical capital
A change in ______ ______: Savings and investment in this increase the amount of capital per worker and increase labor productivity. It has added incredibly to the productivity of our labor. They consist of Manmade factors of production. Things we produce that makes it more productive to produce other things) More or this = more efficient and productive. It is part of a change in labor productivity.
Technology
A change in ________: includes the technique/ knowledge we have about the production process. As we improve this, we get more efficient use of the physical and human capital that we have. The more of this we have = more productive = increases economic growth
Increase
A(n) _______ in expected future inflation increases aggregate demand because people decide to buy more goods and services now before their prices rise.
Decrease
A(n) ________ in expected future income, future inflation, or future profit has the opposite effect and decreases aggregate demand.
expected future income
An increase in _____ _______ ______ increases the amount of consumption goods that people plan to buy now and aggregate demand increases.
Decrease
An increase in wage rate leads to ________ in AS (curve will shift to the left)
Malthusian theory
Another name for classical growth theory- named for Thomas Robert Malthus
Real GDP per person
Real GDP divided by the population
Fiscal policy
Changing taxes, transfer payments, and government expenditures on goods and services
Monetary policy
Changing the quantity of money and the interest rate.
Shifts
If I change labor productivity, I change the production function. The curve ______ upward. An increase of labor productivity ______ the production curve upward. This occurs based on changes in physical capital, human capital, or technology (changes in labor productivity).
70/ growth rate
In the rule of 72 equation, the years to double = ______ / ______
Declining, increases
It the population growth rate is _______ it creates problems. If growth rate is higher, then the standard of living _______.
Inflation
Negative GDP Gap = GDP is greater than potential GDP. It means that we are in a state of _______ and are trying to produce more than is possible.
Population declining
One growth rate problem is the ________ _______. As the population ages, there is a problem with the labor force. More people are retiring than those entering the labor force (Ex: Japan). In Japan, they have had to import workers in to the country. The jobs are less paying and are the jobs that the Japanese people do not want to do. It also creates social problems due to the language barriers and the fact that the Japanese do not want to give the out of country workers citizenship and benefits. This will cause social strain.
International trade
Out of the four government policies for promoting an increase in economic growth, this one has to do with encouraging ____ _____. Countries open to this grow faster than those closed to trade. It is ESSENTIAL for economic growth
education, health
Out of the four government policies for promoting an increase in economic growth, this one has to do with encouraging ____ and ______.
Research
Out of the four government policies for promoting an increase in economic growth, this one has to do with encouraging ____ and development.
investments
Out of the four government policies for promoting an increase in economic growth, this one has to do with encouraging ____ and savings.
Aggregate planned expenditure
Planned consumption expenditure plus planned investment, plus planned government expenditure, plus planned exports minus planned imports
Recession
Positive GDP gap = Potential GDP is larger than GDP. It means that there is a _________ and we are not producing up to our potential.
Multiplier
The amount by which a change in any component of autonomous expenditure is magnified or multiplied to determine the change that it generates in equilibrium expenditure and real GDP
Economic growth rate
The annual percentage change of real GDP
Population, week, participation rate
The change in aggregate hours includes a change in ________, average work ______, and change in labor force _______ _______
Standard of Living
The change in real GDP per person. This depends on real GDP per person which is real GDP divided by the population. So the contribution of real GDP growth to the change in this on the growth rate of real GDP per person. It helps determine how much output is available PER PERSON (it is not a perfect measure, like normal GDP biases).
Faster, 2.1
The real GDP per person grows only if real GDP grows ______ than the population grows. To maintain a population, it needs to grow at an increase of _______% per year or the birth and death rate will not even out.
Consumption function
The relationship between consumption expenditure and disposable income, other things remaining the same.
Aggregate demand
The relationship between the quantity of real GDP demanded and the price level when all other influences on expenditure plans remain the same.
Aggregate supply
The relationship between the quantity of real GDP supplied and the price level when all other influences on production plans remain the same. Other things remaining the same, the higher the price level, the greater the quantity of real GDP supplied, and the lower the price level, the smaller the quantity of real GDP supplied.
Religion
What is one social problem some European countries are facing from importing Middle Easterners in to Europe?
New growth theory
The theory that our unlimited wants will lead us to ever greater productivity and perpetual economic growth.
Neoclassical growth theory
The theory that real GDP per person will increase as long as technology keeps advancing.
Classical growth rate
The theory that the clash between an exploding population and limited resources will eventually bring economic growth to an end.
Aggregate hours, labor productivity
The two sources of growth is a change in ______ ______ and ______ ______.
Real GDP
The value of all goods and services that are adjusted for inflation.
Classical
This growth theory predicts the clash between an exploding population and limited resources will eventually bring economic growth to an end. Thomas Malthus- wrote about economic issues. He argued that there is no long run growth possible. An increase in productivity leads to an increase in population which leads to a DECREASE in productivity/output per person. There is a natural tendency for people to have more kids and have more mouths to feeds leading to a decrease to provide for people.
Labor productivity
This is the measure of output/hours worked. It is the quantity of real GDP produced by one hour of labor.
Production function
This shows diminishing returns. If there is an increase in workers, it increases the amount of output, but by diminishing amounts. If I have 100 workers, I may produce 6 units of output. 300, I produce 12 units of output. As I add more units of labor, output increases, but by a lesser amount.
Modern Theory of Growth
This theory states that our unlimited wants will lead us to ever greater productivity and perpetual economic growth. It explains the improved technology. Unlimited wants lead to people making choices. These choices lead to an increased output and change in technology (increased profits). Unlimited wants --> choices --> increased output and technology --> increased profits. Profits spur competition --> spurs technology (Ex: cell phones. If you don't stay current, the market will sweep you away).
Dismal science
Thomas Malthus looked at economic growth throughout history for centuries and centuries. _______ ________ is the population grows so large that labor productivity falls and returns real GDP per person back to the subsistence level. When the year 1750 hit, economic growth began to increase significantly and the classical theory was not accurate anymore.
Labor, technology, wage rate
What are the three factors causing a shift in the aggregate supply curve? A change in productivity of _____, _____, and ______ _______.
Expectations, monetary, fiscal, exchange
What are the three shifts in the aggregate demand curve? A change in _____, ______ and ______ policy, and ______ rate.
Classical, Neoclassical, New Theory
What are the three sources of economic growth theories?
Foreign trade effect
When the US price level rises and other things remain the same, the prices in other countries do not change. So a rise in the US price level makes US-made goods and services more expensive relative to foreign-made goods and services. This change in real prices encourages people to spend less on US-made items and more on foreign- made items.
Interest rate effect
When the price level rises, the real interest rate rises. An increase in the price level increases the amount of money that people want to hold- increases the demand for money. When the demand for money increases, the nominal interest rate rises.
Macroeconomic equilibrium
When the quantity of real GDP demanded equals the quantity of real GDP supplied at the point of intersection of the AD curve and the AS curve
Equilibrium expenditure
the level of aggregate expenditure that occurs when aggregate planned expenditure equals real GDP
Labor productivity
the quantity of real GDP produced by one hour of labor.
