Mod 6 words
Suppose, for example, that in the current year, when real GDP is $11 trillion, the population is 202 million. Then real GDP per person is what
$11 trillion divided by 202 million, which equals $54,455.
What if this year real gdp per person is 54,455 and last years was 50,000. What is the real gdp per person growth rate
((54,455-50,000)/50,000)x100= 8.9%
What tells us the quantity of real gdp that a given amount of labor can produce
(Aggregate) production function
What is a defining factor between real gdp per person growing and falling
Real GDP per person grows only if real GDP grows faster than the population grows. If the growth rate of the population exceeds the growth rate of real GDP, then real GDP per person falls.
What is the real gdp growth rate
Real gdp growth rate= ((real gdp in cutting year- real gdp in previous year)/real gdp in previous year)x100
If you put 100 in a bank that earns 5%interest how many years until its 200
Since 200 is double 100 we can use the rule of 70. 70/5=14 years until 200
If the growth rate of real gdp growth rate is 2 percent how long will it take to double
Since double we use rule of 70 so 70/2=35 so 35 years for the real gdp per person to double
At a 1% growth rate how long does it take for the standard of living to double
Since it's doubling we can use rule of 70 so 70/1= 70 years for it to double- average human life
What actually produces real gdp
The factors of production produce real gdp- land,labor,capital,entrepreneurship
China's real GDP was 69.9 trillion yuan in 2015 and 74.6 trillion yuan in 2016. China's population was 1,375 million in 2015 and 1,383 million in 2016. Calculate China's real GDP growth rate and its population growth rate during 2016.
The growth rate of a variable equals the annual percentage change in the value of the variable.
China's real GDP was 69.9 trillion yuan in 2015 and 74.6 trillion yuan in 2016. China's population was 1,375 million in 2015 and 1,383 million in 2016. Calculate the growth rate of China's standard of living during 2016.
The growth rate of the standard of living equals the growth rate of real GDP minus the growth rate of the population.
When graphing potential gdp/ the aggregate production function what is on the x and y axis is and why
The labor(billions of hours per year) is on the x axis- think of it like the quantity of labor hours supplied. The real gdp(trillions of 2009 dollars) is on the y axis and it's what a certain number of labor hours was able to produce
What is classical growth theory
is a theory of economic growth that the view that the growth of real GDP per person is temporary and that when it rises above the subsistence level, a population explosion eventually brings it back to the subsistence level.Classical growth theory reminds us that our physical resources are limited and that without advances in technology, we must eventually hit diminishing returns.
What is the real wage rate
is the money (nominal) wage rate divided by the price level. The real wage rate is the quantity of goods and services that an hour of labor earns. Basically it's the price of labor
What is labor productivity and how to calculate it
is the quantity of real GDP produced by an hour of labor. It is calculated by dividing real GDP by aggregate labor hours. For example, if real GDP is $18 trillion and aggregate hours are 200 billion, labor productivity is $90 per hour.
What is the aggregate production function
is the relationship that tells us how real GDP changes as the quantity of labor changes when all other influences on production remain the same. Curve is PF
What does the PPF represent?
production possibility frontier
What is the money wage rate
which is the number of dollars that an hour of labor earns
What does the rule of 70 state
which states that the number of years it takes for the level of any variable to double is approximately divided by the annual percentage growth rate of the variable.
What is new growth theory
A theory of economic growth based on the idea that real GDP per person grows because of the choices people make in the pursuit of profit and that growth will persist indefinitely. According to the new growth theory, the pace at which new discoveries are made—and at which technology advances—is not determined by chance. It depends on how many people are looking for a new technology and how intensively they are looking. The search for new technologies is driven by incentives.Two facts about discoveries and technological knowledge play a key role in the new growth theory: Discoveries are (at least eventually) a public capital good; and knowledge is capital that is not subject to diminishing marginal returns. Unlike the other two theories, new growth theory has no growth-stopping mechanism. As physical capital accumulates, the return to capital—the real interest rate—falls. But the incentive to innovate and earn a higher profit becomes stronger. So innovation occurs, capital becomes more productive, the demand for capital increases, and the real interest rate rises again.Labor productivity grows indefinitely as people discover new technologies that yield a higher real interest rate. The growth rate depends only on people's incentives and ability to innovate. New growth theory emphasizes the capacity of human resources to innovate at a pace that offsets diminishing returns. New growth theory fits the facts of today's world more closely than do either of the other two theories.
What is the neoclassical growth theory
A theory of economic growth that proposes that real GDP per person grows because technological change induces saving and investment that make capital per hour of labor grow. Growth ends if technological change stops because of diminishing marginal returns to both labor and capital. Neoclassical growth theory's big break with its classical predecessor is its view about population growth.In neoclassical growth theory, the pace of technological change influences the economic growth rate but economic growth does not influence the pace of technological change. Neoclassical growth theory assumes that technological change results from chance. When we're lucky, we have rapid technological change, and when bad luck strikes, the pace of technological advance slows.Neoclassical growth theory says that the prosperity will last but the growth will not last unless technology keeps advancing.According to neoclassical growth theory, the prosperity will persist because there is no classical population growth to induce the wage rate to fall. So the gains in income per person are permanent.Neoclassical growth theory reaches the same conclusion but not because of a population explosion. Instead, it emphasizes diminishing returns to capital and reminds us that we cannot keep growth going just by accumulating physical capital. We must also advance technology and accumulate human capital. We must become more creative in our use of scarce resources.
Are all nations converging to the same level of real GDP per person? Briefly discuss your answer.
All nations are not necessarily converging to the exact same level of real GDP per person. The jury is still out because there is conflicting theories and conflicting models. In pretty much all cases, real GDP per person has grown but with varying degrees of extravagance. Japan was blooming and many people thought they would peak over the United States but they didn't and the growth curve became more even. Japan shows the differing ideas about if all the nations are converging into the same level of real GDP per person. The idea that the curve evened out and Japan started to grow more in line with the other nations shows how this might be the case. But it growing more similarly with the other nations and not meeting the same level of real GDP per person shows this theory might not be true.
To determine potential gdp what are the two components
An aggregate production function An aggregate labor market
When examining potential gdp an increase in labor hours brings an increase in what hint-aggregate production function
An increase in labor hours brings an increase in real gdp. Think of it like a PPF tradeoff between the two axis
If the economy has the equilibrium quantity of labor what can we conclude
At the equilibrium quantity of labor, the economy is at full employment, and the quantity of real GDP at full employment is potential GDP. So the full-employment quantity of labor produces potential GDP.
Why does the amount of capital per worker increase labor productivity
Because a worker with more tools advances is more productive bc they have all these tools to increase production
Because of this economic factor, firms will hire more labor only if the real wage rate falls, what is this called- the law of diminishing returns
Because of diminishing returns, firms will hire more labor only if the real wage rate falls to match the fall in the extra output produced by that labor. Bc each additional hour of labor increases real gdp by successively smaller amounts, hiring more labor bings in a smaller window of productivity and a bigger window of unproductive activity
In the labor market, how do shortages and surpluses get fixed, what is the influence on the money wage rate from employees and employers
But a shortage or a surplus of labor brings only a gradual change in the real wage rate. If there is a labor shortage so this shortage forces the real wage rate to rise up closer to equilibrium real wage rate. If there is a labor surplus so this surplus forces the real wage rate fall down closer to the equilibrium real wage rate. if labor market equilibrium quantity of labor demanded=quantity of labor supplied (full employment)and the quantity of real GDP at full employment is potential GDP. So the full-employment quantity of labor produces potential GDP.
Which theory predictsreal GDP per person keeps returning to the subsistence level.
Classical
What is economic growth
Expansion of production possibilities
What does the growth rate of real gdp tell us
How rapidly the total economy is expanding but it does not tell us about changes in standard of living
How is human capital growth the fundamental source of labor productivity growth
Human capital grows when a new discovery is made and it grows as more and more people learn how to use past discoverie like writing, math
The quantity of labor supplied ____ as the real wage rate _____ so the supply of labor curve slopes upward. Why
Increases, increases. At a higher real wage rate, more people choose to work and more people choose to work longer hours if they can earn more per hour.
The quantity of labor demanded ___ as the real wage rate ___ so the demand for labor curve slopes downward.
Increases; decreases
If there is only an increase in the demand for labor and no change in the supply of labor the real wage rate does what
It rises and the quantity of labor supplied increases and the equilibrium quantity of labor also increases t
What do the curves LD and LS stand for
LD is the demand for labor curve and LS is the supply of labor curve
So an increase in labor productivity increases potential GDP for two reasons
Labor is more productive and more labor is employed.
What is a common economic growth theory that says we must contain population growth as we wreck our world
Modern-Day Malthusians Many people today are Malthusians. They say that if today's global population of 7.2 billion explodes to 11 billion by 2050 and perhaps 35 billion by 2300, we will run out of resources, real GDP per person will decline, and we will return to a primitive standard of living. We must, say Malthusians, contain population growth. Modern-day Malthusians also point to global warming and climate change as reasons to believe that, eventually, real GDP per person will decrease.
When the quantity of employment changes there is what with the aggregate production function
Movement along the curve so the quantity of real gdp produced changes along with that movement
Is a one shot rise in real gdp or a recovery from a recession when reaching full employment economic growth, why or why not
NO. Economic growth is a sustained, year-after-year increase in potential GDP.
Which theory emphasizes growth in capital per worker
Neoclassical
Which theory says diminishing returns to capital limit economic growth.
Neoclassical
Which theory predicts that economic growth can last indefinitely
New growth theory
Is The return to full employment in an expansion phase of the business cycle economic growth
No, it is just taking up the slack that resulted from the previous recession
Is a push from inside PPF to on the PPF line economic growth
No, that is a return to full employment in the business cycle expansion that picks up slack from previous recession
Economic growth is a sustained, year-after-year increase in ___GDP.
Potential
What do we call the level,of real gdp when the quantity of labor employed is the full-employment quantity
Potential gdp
What does an increase in the population do with potential gdp
So an increase in the population increases the full-employment quantity of labor, increases potential GDP, and lowers the real wage rate. But the population increase decreases potential GDP per hour of labor.Diminishing returns are the source of the decrease in potential GDP per hour of labor.
to achieve faster economic growth, we must increase the growth rate of physical capital, the pace of technological advance, or the growth rate of human capital and openness to international trade. How do we do this
Stimulate saving Stimulate research and development Improve the quality of education Provide international aid to developing nations Encourage international trade
along the production function, each additional hour of labor increases real GDP by what type of amounts
Successively smaller amounts
What causes movement along the PF curve
The PF curve is the aggregate production function that illustrates potential gdp. An increase in the quantity of labor (and a corresponding decrease in leisure hours) brings a movement along the production function and an increase in real GDP. Think of it like a PPF- it's a tradeoff between the x and y axis
What do we use to graph the potential gdp of an economy
The aggregate production function
New growth theory vs Malthusian
The contrast between the Malthusian theory and new growth theory couldn't be more sharp. Malthusians see the end of prosperity as we know it today and new growth theorists see unending plenty. The contrast becomes clearest by thinking about the differing views about population growth. To a Malthusian, population growth is part of the problem. To a new growth theorist, population growth is part of the solution. People are the ultimate economic resource. A larger population brings forth more wants, but it also brings a greater amount of scientific discovery and technological advance. So rather than being the source of falling real GDP per person, population growth generates faster labor productivity growth and rising real GDP per person. Resources are limited, but the human imagination and ability to increase productivity are unlimited.
We are determining potential gdp- what is the demand for labor
The demand for labor is the relationship between the quantity of labor demanded and the real wage rate. The quantity of labor demanded is the number of labor hours hired by all the firms in the economy during a given period. This quantity depends on the price of labor, which is the real wage rate.
What are the two distinct reasons that real gdp can increase
The economy might be returning to full employment in an expansion phase of the business cycle or potential GDP might be increasing.
China's real GDP was 69.9 trillion yuan in 2015 and 74.6 trillion yuan in 2016. China's population was 1,375 million in 2015 and 1,383 million in 2016. If the growth rate of China's standard of living during 2016 is maintained, how many years will it take to double?
The number of years it will take for the standard of living to double its 2015 level is given by the Rule of 70. In 2016, China's standard of living is growing at 6.1 percent a year. The Rule of 70 says that if this growth rate is sustained, China's standard of living will double in 70 years divided by 6.1, which equals 11.5 years. China's standard of living will be twice what it was in 2015 sometime during 2027.
Lets say this year the population was 202 million and last year was 200 million. An the growth rate from real gdp is 10%
The population changes from 200 million to 202 million, so the population growth rate is 1 percent. The growth rate of real GDP per person is approximately equal to 10 percent minus 1 percent, which equals 9 percent.
What determines the quantity of real gdp that can be produced
The productivity of the factors of production-land,labor,capital, entrepreneurship (the factors of production are what actually produced real gdp)
What is the quantity of labor demand
The quantity of labor demanded is the number of labor hours hired by all the firms in the economy during a given period. This quantity depends on the price of labor, which is the real wage rate.
What is the quantity of labor supplied
The quantity of labor supplied is the number of labor hours that all the households in the economy plan to work during a given period. This quantity depends on the real wage rate.
When looking at the four factors of the factors of production-land, labor, capital, entrepreneurship. Which are variable and which ae fixed
The quantity of land is fixed and on any given day, the quantities of entrepreneurial ability and capital are also fixed and their productivities are given. The quantity of labor employed is the only variable factor of production.
How does the real wage rate influences the quantity of labor demand
The real wage rate influences the quantity of labor demanded because what matters to firms is not the number of dollars they pay (money wage rate) but how much output they must sell to earn those dollars.
How does the real wage rate influences the quantity of labor supplied
The real wage rate influences the quantity of labor supplied because what matters to households is not the number of dollars they earn (money wage rate) but what they can buy with those dollars.
What is the difference between the money wage rate and the real wage rate?
The real wage rate is more adaptive to the current economy while the money wage rate is more about a numerical value. Money wage rate is the numerical quantity firms pay per hour of labor. The real wage rate is about how far the money wage rate will take you in an economy. To elaborate, it is the amount of goods and services that can be obtained with the money earned from one hour of labor. Knowing this, it makes sense how we can find the real wage rate by dividing the money wage rate by the price level because it reflects how far one hour of labor will take you in the current economy.
We are looking at potential gdp- what does the supply of labor mean
The supply of labor is the relationship between the quantity of labor supplied and the real wage rate. The quantity of labor supplied is the number of labor hours that all the households in the economy plan to work during a given period. This quantity depends on the real wage rate
Quick compare an contrast og theories please
The three theories of economic growth, the classical, neo-classical, and new growth, differ in a two major ways. First, they differ according to the role they assign technological advances. The classical theory sees technological advances as happening infrequently; the neo-classical theory assumes technology advances more or less randomly; and the new growth theory sees technology advancing continually as people spy profit opportunities. Second, the theories differ according to which resource, labor or capital, they focus upon. The classical theory emphasizes labor; the neo-classical theory stresses capital and assumes diminishing marginal returns to increasing the capital stock; and the new growth theory also stresses capital but assumes that returns to capital do not diminish.
When looking at the long term growth in the US what does the potential gdp line tell us
The trend in potential GDP tells us about economic growth. Fluctuations around potential GDP tell us about the business cycle.
How do technological advances increase labor productivity
To reap the benefits of technological change, capital must increase. Some of the most powerful and far-reaching fundamental technologies are embodied in human capital—for example, language, writing, and mathematics. But most technologies are embodied in physical capital
T/f economic growth occurs when real gdp increases
True
In the labor market, what happens when there is not a shortage or a surplus
When there is neither a shortage nor a surplus, the labor market is in equilibrium—a full-employment equilibrium.
Is The expansion of potential GDP economic growth.
Yes
Is a shift of the PPF line outwar economic growth
Yes
Does the The quantity of real GDP produced increases as the quantity of labor increases
Yes bc the aggregate production function
If labor productivity increases, does the production possibilities expand
Yes, it expands meaning there is a shift and a new curve bc The quantity of real GDP that any given quantity of labor can produce increases. If labor is more productive, firms are willing to pay more for a given number of hours of labor so the demand for labor also increases.
What does the law of diminishing returns illustrates
along the aggregate production function(graph potential gdp), each additional hour of labor increases real GDP by successively smaller amounts. This tendency has a name: the law of diminishing returns
What is real gdp per person
also called per capita real GDP), which is real GDP divided by the population. So the contribution of real GDP growth to the change in the standard of living depends on the growth rate of real GDP per person. We use the above formula to calculate this growth rate, replacing real GDP with real GDP per person.
With an increase in the supply of labor and no change in the demand for labor, the real wage rate does what
falls and the equilibrium quantity of labor increases. The increased quantity of labor produces more output and potential GDP increases.
what are the G7 nations
seven richest countries—known as the G7 nations. Among these nations, the United States has the highest real GDP per person. In 2016, Canada had the second-highest real GDP per person, ahead of Japan and France, Germany, Italy, and the United Kingdom (collectively the Europe Big 4).real GDP per person has grown slightly faster in the United States than in Canada and the four big countries of Europe (France, Germany, Italy, and the United Kingdom). Japan had the fastest growth rate before 1990 but then growth slowed and Japan's economy stagnated during the 1990s.
When looking at the long term growth of America economy what big growth events stand out
the Great Depression of the 1930s, when growth stopped for a decade, and World War II of the 1940s, when growth briefly exploded.
What is the growth rate
the annual percentage change of a variable—the change in the level expressed as a percentage of the initial level.