Econ Midterm 2

Ace your homework & exams now with Quizwiz!

facts about wealth of nations and economic growth

GDP per capita varies enormously, everyone used to be poor, there are growth miracles and growth disasters

owners equity

The value of an asset minus the debt associated with the asset

national spending approach to GDP calculation

Y + C + I+ G+ (Exports- Imports). Consumption, investment, government purchases,

higher

______interest rates result in more savings

not in investment category of national spending

a household purchasing stock in apple

is higher

all else equal, people will usually save more if the interest rate

increases interest rate

an investment tax credit, an increase in large investments

GDP deflator

Nominal GDP/ Real GDP x100

saving

People whose incomes fluctuate (like salespeople, writers, and homebuilders) smooth consumption by

interest rate

Percentage of amount borrowed to be added to the amount loaned and paid back

crowding out

The decrease in private consumption and investment that occurs when government borrows more is called:

advancement in technology

causes production function to shift upwards, can produce more capital,

quantity demanded will increase

decrease interest rates

economies of scale

decrease of average cost of production that occurs as total quantity of production increases

lawful goods sold under table to evade taxes

do not show up in GDP

rule of 70

doubling time is equal to 70/x (x being the percentage growth rate )

upward shift of supply of loanable funds

equilibtrium quantity of savings decreases

catching up growth

growth due to capital accumulation and adopting already existing ideas

cutting edge growth

growth due to new ideas

shifts demand curve to the right, increase in equilirbium interest rate and quantity of funds demanded and supplied

how does in an increase in investment demand change the equilibrium interest rate and quantity of savings

conditions that lead financial intermediation to fail

insecure property rights, politicized lending, controls on interest rates, bank failures and panics

key to producing/ organizing factors of production

institutions that create incentives

in opposite directions

interest rates and bond prices move

steady state K

investment = depreciation. every unit of investment is being used to replace depreciated capital . no new net investment, economic growth stops

Gross Domestic Product (GDP)

market value of all finished goods and services produced by a countries permanent residents wherever located within the borders of a country, in a year

CPI (Consumer Price Index)

measures average price for a basket of goods and services bought by a typical american consumer

what production function should look like

more capital produces more output, but at a diminishing rate, increase in capital produces less output. output increases but at diminishing rate

factors of production

physical capital, human capital, technological knowledge

factors that increase speed of technology growth in the future

population, incentives, ideas

key institutions include

property rights, honest government, political stability, dependable legal system, competitive and open markets

how does greater patience affect supply of savings and change the interest rate and quantity of savings

shift supply of savings curve to the right, increase in quantity of savings, decrease in equilibrium interest rate

increase in supply in savings

shifting supply curve down and to the right (more savings at any interest rate)

microeconomics

study of how households and firms make choices, how they interract in markets, how government attempts to influence their choices

macroeconomics

study of the economy as a whole, inflation, unemployment, economic growth

All else equal, if consumers decide to save more, the

supply curve in the market for loanable funds will shift to the right. interest rate falls

market for loanable funds

the market in which those who want to save supply funds and those who want to borrow to invest demand funds, determining equilibrium interest rate

events that cause GDP to increase

total value of goods and services that domestic producers sell to foreign countries exceeds the total value of foreign goods and services that domestic consumers buy.

nominal GDP

variables that have not been adjusted for changes in price. calculated using prices at time of sale

interest rate

what represents the price of a loan

GDP

where production takes place

GNP

who is doing the production

Solow production function Y = F (A, K, eL)

Y(output) is a function F of the inputs A (technological knowledge) , K (physical capital) and eL (human capital)

iron logic of diminishing returns

as more capital is added, output increases by less and less

when investment is greater than depreciation

capital stock grows and output next period is bigger. economic growth

when investment is less than depreciation

capital stock shrinks

included in GDP calculation

consumption, investment, government purchases, exports-imports (net exports)

countries with a high GDP

have alot of physical human capital that is organized using best technological knowledge to be highly productive .

in solow model which factors are constant

human capital, technological knowledge

quantity supplied will increase

increase in interest rates

marginal product of capital

increase in output when capital increases by one unit

decreases interest rate

increase in saving, decrease in investor optimism

in solow model if first unit of capital increases output by one unit, then the second unit of capital will cause total output to....

increase, but by less than one unit

If the stock of physical capital (e.g., machinery and equipment) and human capital remain the same but the population increases:

labor productivity will decrease

decreases demand to invest and borrow

less optimistic investors, recession, unprofitable projects

depreciation increases with capital stock at a ....

linear / constand rate

greater investment rate....

more capital, more output , increases steady state level of GDP

production functions

show relationship between output and the factors of production

the higher the interest rate

smaller quantity of funds demanded for investment

intermediate good

sold to a firm than bundled or processed with other goods for sale at a later stage

finished good

sold to the end user and then consumed or held in personal inventories

growth in real GDP per capita is

the best reflection of changing living standards

the greater the capital stock....

the more capital will depreciate (more tractors, more tractor repairs)

investment

the source for demand for loanable funds is

saving

the source for supply for loanable funds is

physical capital

the stock of tools that include machines, structures, and equipment. (desks, computers, hammers etc) more and better toold make workers more productive

if a nation sells fewer finished goods and services abroad than it buys from other nations

net exports will be negative

weekly earnings increase over the course of a year and prices in economy rise over

nominal earnings rise, real earnings fall

Fisher equation

nominal interest rate = expected inflation rate + equilibrium real rate of return. nominal rate will rise with expected inflation

nominal v real gdp

nominal is for a given year , gdp is for some base year

excluded from GDP calcuation

non priced production, environmental costs, health of nations, distribution of income, imported goods

purchases of stocks and bonds are

not included in GPD because they are not part of production and goods

capital

output that is saved and invested rather than consumed . divided between consumption and investment (ex out of 10 units of output, 7 units might be consumed and 3 units invested , gamma= 3/10= .3)

depreciation

.02 x K (ex)

investment

.3 x square root K (ex)

Supply in the market for loanable funds would increase, and the interest rate would fall

All else equal, if consumer preferences changed so that they generally decided to save more, what would occur

does not

Buying and selling existing shares of stock _____increase net investment in the economy.


Related study sets

CHNOPS meaning/ atomic number, symbol, and mass

View Set

Prep U Chapter 34: Assessment and Management of Patients with Inflammatory Rheumatic Disorders

View Set

6270 - diabetes mellitus - chapter 30

View Set

Solids - Vertices Edges and Faces - CONVEX POLYHEDRON

View Set

Exam 1- Chapter 3- IS5610 Cybersecurity

View Set