MACRO ECON Chapter 7 Test Prep

H

Human Capital

Land, Natural Resources

Improved _____ or discoveries of ____ _____ (such as oil and natural gas lead to growth)

L

Labor

Real, constant

_____ GDP: Total output in a year measured in ______ year prices.

- These countries have high growth rates. - Individuals and businesses can make investment and production decisions freely - They have high levels of government integrity and judicial effectiveness.

these statements are TRUE of nations that have higher levels of economic freedom

Human Capital

Investments in ______ _____ improves the quality of labor, leading to higher growth rates.

A(L/L+K/L+H/L+N/L)

Output Per Worker Formula

Output = A x f(L,K,H,N)

Production Function Formula

facilitate

A government can ______ the economic growth by - Enforcing contracts; - Protecting property rights; and - Stabilizing financial system.

technology

According to this function, _______ (A ) enhances the productivity of all physical resources.

23 Years

If a country grows at 3% per year, approximately how many years will it take for its GDP to double?

Economic Analysis

The Bureau of ______ _____ provides quarterly reports on changes in U.S. GDP. The reports reflect these two rates: - ANNUALIZED RATE The quarterly change in GDP multiplied by 4. It highlights seasonal fluctuations in growth. - YEAR-OVER-YEAR RATE A comparison of the GDP at the current quarter with the previous year. It provides the trend in growth for the entire year.

Land, Resources

_____ and ______ resources (N) include land and raw resources from the land.

70 / Annual Growth

Rule of 70 Formula

inputs, outputs, existing

A Production Function measures how an economy turns ____ into ____ using ____ technology.

influence

A government can _________ the economic growth in a country by - contributing to physical capital, human capital, and technology; -enforcing contracts, protecting property rights, and maintaining a stable financial system; and - promoting free and competitive markets.

2 chairs per hour

Cedar Valley Furniture uses 5 workers, each working 8 hours, to produce 80 rocking chairs. What is the per hour productivity of these workers?

Land, Labor, Capital, and Ideas

Factors of Production

. 80

Suppose a new island is discovered in the Atlantic Ocean and a new colony is created on that island with the production function output = Output= f(A, L, K, H, N) = A × (L + K + H + N). If A equals 4, and each of L, K, H and N equals 5, then how much output would this new colony produce?

It was unchanged

Suppose that twenty-five years ago a country had nominal GDP of $1,000, a GDP deflator of 20 percent, and a population of 100. Today it has nominal GDP of $3,000, a GDP deflator of 40 percent, and population of 150. What happened to the real GDP per capita?

Increased Productivity

What is the single most important factor influencing economic growth for an economy?

the portion of output that is NOT EXPLAINED by the amount of inputs used in production

What is total factor productivity?

These countries have low per capita gross domestic product (GDP per capita).

Which of these statements is NOT true of nations that have higher levels of economic freedom?

16 years

3%. The GDP growth rate in Country B is 8.75%. Based on Rule 70, assuming both growth rates remain the same, estimate when will GDP of Country B surpass GDP of Country A?

2 tables per hour

Bistro Belle Vie employs 4 waiters, each working 8 hours, to serve total of 64 tables. What is the per hour productivity of each waiter? Computation: 1) 64/8=8 , to estimate how many tables are served in 1 hour. 8 tables are served by 4 waiters in 1 hour. 2) 8/4=2, to estimate how many tables are served by 1 waiter or the productivity of each waiter.

diminishing returns

Capital is subject to _____ ____: Each additional unit of capital increases output by a positive but smaller amount.

existing technologies

Developing countries can use _______ ______ to make their inputs more productive, while developed countries must innovate to increase growth.

A

Entrepreneurship

diminishing returns to capital

Figure 1. On the horizontal axis, K/L represents capital (K) per worker (L). On the vertical axis, Y/L represents output (Y) per worker (L). The curve becomes flatter as the amount of capital per worker increases because of_____ Figure 1

16 years

GDP of Country A is double the size of Country B' GDP. The GDP growth rate in Country A is 3%. The GDP growth rate in Country B is 8.75%. Based on Rule 70, assuming both growth rates remain the same, estimate when will GDP of Country B surpass GDP of Country A?

The PPF would shift outward.

How would an innovation that speeds up processing times and makes workers more productive be illustrated on the production possibilities frontier?

constant

Many production functions have a property called _____ returns to scale. - A production function has _______ returns to scale if an increase of an equal percentage in all factors of production causes an increase in output of the same percentage. -Mathematically, a production function has ______ returns to scale if: z𝑌 =𝐹 (z𝐾, z𝐿)

K

Physical Capital

Compounding

Power of ______: Compounding allows small rates of growth to turn into substantial increase in income over time.

Per Capita

Real GDP ____ _____: Real GDP divided by population

poverty

THOMAS MALTHUS (1766-1834) -First academic economist -Argued that society is doomed to THOMAS MALTHUS (1766-1834) First academic economist Argued that society is doomed to _____ because population increases geometrically and food supply grows arithmetically His views led Thomas Carlyle to describe economics as the dismal science. because population increases geometrically and food supply grows arithmetically -His views led Thomas Carlyle to describe economics as the dismal science.

Factor Productivity

TOTAL ______ _______MEASURES THE PORTION OF OUTPUT THAT IS NOT EXPLAINED BY THE AMOUNT OF INPUTS USED. IT CAPTURES THE EXTERNAL EFFECTS INFLUENCING PRODUCTIVITY OF ALL INPUTS. - It includes factors such as - natural disasters, - new discoveries or innovations, and - changes in a country's institutions.

70

The Rule of ____ can be used to estimate the number of years for a value to double.

Capital-To-Labor

The ____-__-____ ratio measures the amount of physical capital available per worker. A higher ratio equals greater labor productivity.

grow faster

The catch-up effect describes why developing countries may initially _____ ______ than developed countries.

diminishing returns to capital

The catch-up effect is subject to _____ ____ ___ ______.

Trade Barriers To Protect Domestic Industries

Which of the following is NOT an effective tool used by the government to promote economic growth?

manufactured products that are used to produce other goods and services

Which of these is/are classified as physical capital?

Year-Over-Year

____ -_____-_____ RATE A comparison of the GDP at the current quarter with the previous year. It provides the trend in growth for the entire year

Production Possibilities Frontier

_____ _____ _____: Short-run growth is shown as a movement toward a PPF, while long-run growth is shown as an expansion of the ____ ____ _____

Economic growth

_____ _____ contributes to the following factors that improve the standard of living: • Reduced poverty rates, • Improved health and longer life expectancies, and • Greater investment in education and technology.

Labor productivity

_____ ______ is the ratio of the output of goods and services to the labor hours used to produce that output.

Human

_____ capital (H) includes improvements to labor from training and education.

Long

_____-Run Growth: Occurs when an economy finds ways to use existing resources better.

Short

_____-Run Growth: Occurs when an economy makes use of existing but underutilizing resources. It is common during recovery from a recession.

Annualized

______ Rate :The quarterly change in GDP multiplied by 4. It highlights seasonal fluctuations in growth.

economic freedom

______ _____ AND PER CAPITA GDP Countries with higher _______ _____ have a higher average per capita GDP (measured in dollars).

Physical capital

______ capital (K) is manufactured items used to produce goods and services.

Productivity

______ is the key driver of wages and incomes.

Labor

_______ (L) is physical talents contributing to production of output.

Real

_______ GDP Growth: Economic: Most commonly measured by real GDP and Real GDP Per Capita

Productivity

_______ measures how effectively inputs are converted to outputs.

Increasing

_______ productivity can result from several factors.

Index

________ of Economic Freedom: -Property rights; - Government integrity; - Judicial effectiveness; - Taxes; - Government spending; - Fiscal health; - Business; - Labor; - Money; - Trade; - Investment; - Finance.

Technological

________Progress - Primary driver of the US economic growth, - Contributes to development of developing nations, - Allows investments in business of other countries.

Entrepreneurship

__________ (A) is the ability to use technological resources to produce goods and services.