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econ midterm > Chapter 10 > Flashcards

Chapter 10 Flashcards

1
Q

What is long term economic growth?

A

The process by which rising productivity increases the average standard of living

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2
Q

What is the best measure for the standard of living?

A

Real GDP per capita

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3
Q

How do you calculate real GDP growth rate?

A

Current - Base/Base *100

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4
Q

How do you calculate how rapidly an economic variable (real GDP per capita) doubles?

A

Rule of 70

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5
Q

What is the formula for rule of 70

A

Number of years to double = 70/Growth Rate

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6
Q

What is the relationship between real GDP per capita and labor productivity?

A

Directly proportional

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7
Q

What is labor productivity?

A

The quantity of goods and services that can be produced by one worker or by one hour of work

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8
Q

What are the 2 factors that cause increase in labor productivity?

A
  1. Quantity of Capital per hour worked
  2. Level of Technology
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9
Q

True or False: As the amount of capital per hour worked increases, so does worker productivity

A

True; there is a direct relationship

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10
Q

What is technology?

A

The processes a firm uses to turn inputs into outputs of goods and services

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11
Q

What is technological change?

A

Increase in quantity of output firms can produce, using a given quantity of inputs, and can come from many sources

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12
Q

What are the roles for entrepreneurs in technology?

A

They make the decision as to introduce new technology or not. Government is usually slow in adopting to new technology than entrepreneurs

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13
Q

How can the government enforce contracts between individuals for their property rights?

A

By establishing an independent court system

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14
Q

What is potential GDP?

A

The level of real GDP attained when all firms are producing at capacity

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15
Q

How is capacity measured?

A

By its production when operating on normal hours, using normal workforce

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16
Q

What are retained earnings?

A

Profits that are reinvested in the firm rather than paid to firm’s owners

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17
Q

What is the financial system?

A

The system of financial markets and financial intermediaries through which firms acquire funds from households

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18
Q

True or False: Economic growth is possible without financial systems

A

False; people need money and need it quickly to expand

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19
Q

What are financial markets?

A

Markets where financial securities, such as stocks and bonds, are bought and sold

20
Q

What is financial security?

A

A document - often in electronic form - that states the terms under which funds pass from the buyer of the security, who is providing the funds, to the seller

21
Q

What is a stock?

A

Representing partial ownership of a firm

22
Q

What is a bond?

A

Promises to repay a fixed amount of funds

23
Q

What are financial intermediaries?

A

Firms such as banks, mutual funds, pension funds, and insurance companies, that borrow funds from savers and lend them to borrowers

24
Q

What is a mutual fund?

A

Sells shares to savers and then uses the funds to buy a portfolio of stocks, bonds, mortgages, and other financial securities

25
Q

What services do financial systems offer?

A
  1. Risk Sharing
  2. Liquidity
  3. Information
26
Q

What is risk?

A

Chance the value of a financial security will change relative to what you expect

27
Q

What is liquidity?

A

The ease with which a financial security can be exchanged for money

28
Q

What is financial information?

A

Collection and communication of facts about borrowers and expectations about returns on financial securities

29
Q

True or False: The total value of saving in the economy must equal the total value of investment

A

True

30
Q

What is national income accounting?

A

Methods of the Bureau of Economic Analysis uses to keep track of total production and total income in the economy

31
Q

What is the open economy?

A

Interaction with other economies in terms of both trading of goods and services and borrowing and lending

32
Q

What is the closed economy?

A

When there is no trading or borrowing and lending with other economies

33
Q

What is private saving?

A

What households retain of their income after purchasing goods and services and paying taxes

34
Q

What is the formula for private saving?

A

S(private) = Y + TR - C - T

35
Q

What is public saving?

A

Amount of tax revenue the government retains after paying for government purchases and making transfer payments to households

36
Q

What is the formula for public saving?

A

S(public) = T - G - TR

37
Q

What is a balanced budget?

A

The government spends the same amount it receives in taxes

38
Q

What is budget deficit?

A

Government spends more than it collects in taxes - reduces saving in economy

39
Q

What is budget surplus?

A

Government spends less that it collects in taxes

40
Q

What is the market for loanable funds?

A

The interaction of borrowers and lenders that determines the market interest rate and the quantity of loanable funds exchanged

41
Q

What is crowding out?

A

A decline in private expenditures as a result of increase in government purchases

42
Q

How is the effect of government budget surpluses and deficits on equilibrium real interest rates?

A

Relatively small

43
Q

What is the expansion phase of the business cycle and how does it end?

A

When production, employment, and income are increasing and this ends with a business cycle peak

44
Q

What is the contraction phase of the business cycle and how does it end?

A

When production, employment, and income are decreasing and this ends with a business cycle through

45
Q

When does the NBER announce recessions?

A

Typically after it has begun

econ midterm (7 decks)

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