econ test #2

factors affecting labor productivity growth

1. capital: manufactured goods that are used to produce other goods and services (a) physical capital (b) human capital 2. natural resources 3. technological knowledge 4. public policy: outward oriented policies: open economies, encourage savings and investments, control population growth

several factors to explain great moderation

1. increasing importance of services 2. the establishment of unemployment insurance 3. active government stabilization policies 4. increased stability of finical systems

financial system provides three key services

1. risk sharing 2. liquidity 3. information

number of years to double

70/ growth rate

Y (GDP)

C + I + G + NX

national income is

GDP- deprecation

savings public

T - G - TR

savings private

Y + TR - C - T

household income

Y + TR(transfer payment)

I

Y - C - G

financial intermediaries

banks take deposits from savers and make loans to borrowers, insured by FDIC

long run growth in GDP is determined by

capital, labor productivity, and technology

C

consumer goods

Your father earned $34,000 per year in 1984. To the nearest dollar, which is that equivalent to in 2008 if the CPI in 2008 is 215 and the CPI in 1984 is 104? a. $16,447 b. $73,100 c. $34,000 d. $70,288

d. 34000 (215/104)

bond market

debt financing interest depends on (a) credit risk, high interest rate could be a junk bound . (b) term to maturity, wait for longer time the interest tends to be higher. (c) tax treatment, corporate or municipal if same you want to buy municipal due to no taxing

real wage formula

divided nominal wage by CPI for that year then multiply by 100

SG: public savings

government savings, makes income through taxes T- G - TR SG = O budgeted balance SG> O income > expenditure budget surplus, T > G + TR sg< 0 income expenditure budget deficit T< G + TR Total saving s= sp + sg

disposable income

income households have left over after paying taxes Y + TR - T = C + SP

which of the following make changes in the CPI overstate true inflation

increase in quality bias new product bias subsitution bias

potential GDP

increases overtime as labor force grows, increases overtime as technological change occurs

financial intermediaries mutual funds

institutions that sell shares to the public and uses the proceeds to buy a portfolio of bonds and stocks

financial markets

institutions through which a person who wants to save can directly supply funds to a person who wants to borrow

increases in RGPD

measured from increases in labor productivity

what costs are run into even with perfectly anticipated inflation

menu costs paper money loses it purchasing power by the rate of inflation some wages will fail to keep up with anticipated inflation

personal income is

national income minus retained corporate earnings plus government transfer payments and interest on government bonds

technological progress is affected by

new software developments, private property rights, entrepreneurship, and investment in capital

formula for unemployment rate

number of employed divided by number in labor force times 100

what services do finical systems provide to savers and lenders

provides an easy method of exchanging a finical security for money, allows savers to spread their money among many financial investments, collects and communicates information about borrowers to savers

stock market

represent ownership in firm, returns vary and will not make a fixed interest,

what effect do labor unions have on the unemployment rate

since few non-government workers are unionized, there is no significant effect on unemployment rate

private savings

sp= Y+TR - T - C loanable funds market

T

taxes

public policy

to promote and maintain political and social stability

TR

transfer payments