Macro Ch 7

Assume the initial value of an investment is $1,000 and the growth rate is 5%. Using the Rule of 70, how many years will it take for the initial value to double?

14 years Number of years to double value = 70/growth rate

Assume the U.S. economy increased about 0.8% quarter to quarter. What is the annualized percent change in real GDP?

3.2% The annualized rate of change is the quarter rate multiplied by 4.

Assume the initial value of an investment is $1,000 and the growth rate is 20%. Using the Rule of 70, how many years will it take for the initial value to double?

3.5

rule of 70

Doubling time (in years) = 70/(percentage growth rate).

percent change in cpi

Finally, to find the percent change in CPI, subtract 100.

economic growth for GDP and prices

GDP doubles while prices stay the same

GDP

Gross Domestic Product- the total market value of all final goods and services produced annually in an economy; total output of final goods/serivces produced in a country in one year

factors of production

Land, labor, and capital; the three groups of resources that are used to make all goods and services

Which type of growth would follow the reopening of idled manufacturing plants to produce additional product?

The economy would move from a point beneath the production possibilities frontier to one on the PPF. Short-run growth occurs when production moves from a point beneath the PPF to a point to the right of (but still beneath) or on the PPF.

Which of the following is a key way in which the government contributes to productivity?

The government acts as a facilitator of economic growth.

CPI (Consumer Price Index)

To calculate CPI, or Consumer Price Index, add together a sampling of product prices from a previous year. Then, add together the current prices of the same products. Divide the total of current prices by the old prices, then multiply the result by 100. add all samples, add current prices of those products, divide current prices by old price, then multiply that by 100 a measure of the overall cost of the goods and services bought by a typical consumer

Real GDP is not enough to measure change in country's standard of living, why?

a country's GDP could increase by 5%, but population could increase by 10% so then it would be decrease in standard of living

a higher real GDP per capita usually means

a higher standard of living

economy faces deflation

aggregate price level is declining

Government spending on _____ is considered a contribution to physical capital.

airline systems

land

all natural resources used to produce goods and services; raw materials that come directly from its land and stock of natural resources (ex steel and rubber)

strong financial systems

allows individuals and businesses to save and borrow money banks, bonds, stock markets entrepreneurs and investors can borrow money

what causes improvements in factors of production? a. land capital labor and govt b. land labor capital entrepreneurship c. labor capital defense services and entrepreneurship d. natural resources, defense services, govt, entrepreneurship

b

the benefits of economic growth in a country includes a(n)

better standard of living for the country's citizens

Which of the following would increase the quality of the labor force?

college degree programs

Which of the following government policies might enhance labor force participation?

day care subsidies

what is the production function

describes the way inputs transformed to output; the relationship between quantity of inputs used to make a good and the quantity of output of that good

true or false: as economies grow in size, it is easier to grow at a high rate

false

what are the strong institutions you need for economic growth

financial system legal system government institutions

Which of the following plays the MOST significant role in economic growth?

improvements in technology

strong legal system

including courts and a rule of law; not only protects citizens from crime and corruption, but also property rights (physical properties and intellectual property such as new inventions and artwork

inflation

increase in overall price

real GDP takes what into account by measuring what??

inflation; output using constant prices (allows GDP to be compared over time)

main factors of production

land, labor, physical capital, human capital

Creating a new technology that makes production line workers more efficient is likely to produce _____ growth.

long run

Physical capital, a factor of production, includes:

manufactured products that are used to produce other goods and services.

According to modern growth theory, economic growth is driven most by:

new knowledge gained by technical change

do richer countries have a much higher growth rate?

no

the rule of 70 estimates the

number of years it takes a value to double given a consisten growth rate

for living standards to rise, what must occur?

output must grow faster than the population

production function

output=technology x f(labor, physical cap, land)

What 2 factors did South Korea focus on for its great economic growth

physical and human capital

economic growth is normally measured by the growth in a country's

real GDP

What is real GDP per capita?

real GDP divided by population

how to find real GDP per capita

real GDP/population

measuring economic growth generally focuses on

real gross domestic product (Real GDP)

Moving from a point beneath the production possibilities frontier to a point farther to the right but still beneath the PPF illustrates _____ growth.

short run

to achieve economic growth, one must have

strong institutions

Government spending on _____ is considered a contribution to human capital.

subsidizing student loans

According to the aggregate production function, output is determined by _____, capital, natural resources and land, and labor.

technology

According to the aggregate production function, output is determined by

technology, physical capital, human capital, natural resources and land, and labor.

Government spending on _____is considered a government contribution to physical capital.

telecommunications

What is the capital-to-labor ratio?

the capital employed per worker

compounding effect

the effect of interest added to existing debt or savings leading to substantial growth in debt or savings over the long run

what causes inflation?

the government printing too much money

physical capital

the human-made objects used to create other goods and services; roads, bridges that connect, machinery, clothing

the catch-up effect

the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich

strong government institutions

those that invest, for example, in infrastructure and education as well as promote competition in marketplace

Misery Index

unemployment rate + inflation rate

can a 1% difference in growth rate lead to large differences in GDP per capita?

yes

is it possible for income inequality to exist and still have economic growth benefit even the poorest citizens

yes

Assume the U.S. economy shrank about 0.25% quarter to quarter. What is the annualized percent change in real GDP?

−1.0% The annualized rate of change is the quarter rate multiplied by 4.