Ch. 6

Question 1

output =

Answer 1

GDP = y

Question 2

S of L =

Answer 2

GDP/population = y/p

Question 3

y/p (SofL) =

Answer 3

y/l x l/pop

Question 4

y/l =

Answer 4

labor productivity

Question 5

l/pop =

Answer 5

% pop who works

Question 6

% change y

Answer 6

economic growth rate

Question 7

% change pop

Answer 7

pop growth rate

Question 8

% change y/l

Answer 8

growth rate labor production

Question 9

% change SofL =

Answer 9

% change y - % change pop

= % change y/l + % change l/pop

Question 10

rule of 72

Answer 10

ex question: if x goes up at n% per year, then x doubles in 72/n years (must write n as a whole number!)

Question 11

potential output =

Answer 11

yp

Question 12

what is potential output?

Answer 12

the maximum sustainable output

Question 13

Cobb Douglas Equation

Answer 13

yp = A L(1/2) K(1/2)

Question 14

yp will rise if one of these three things happen:

Answer 14

1. labor force goes up
2. capital goods goes up
3. technology goes up

Question 15

unemployment formula

Answer 15

U% = # U/labor force x 100

Question 16

what constitutes the “labor force”

Answer 16

unemployed + employed but NOT discouraged workers

Question 17

why do we want U>0

Answer 17

because we want people to find jobs that match their skill set and this takes time

Question 18

what is the max official U in the USA

Answer 18

25% in 1932

Question 19

Japan U%

Answer 19

1-2%

Question 20

USA U%

Answer 20

5-6%

Question 21

EU U%

Answer 21

10+%

Question 22

Convergence Theory

Answer 22

SL of all countries will eventually converge bc:

• poor countries will copy tech of rich countries
• rich countries will invest in poor countries (like China)

Question 23

Evidence for Convergence Theory:

Answer 23

• CT holds true for similar countries i.e. rich and poor
• CT does not hold true in general i.e. the gap between the rich and the poor countries is growing wider
• CT appears to be holding true for the 4 asian tigers and China…who are being invested in by rich countries and growing SL

Question 24

what is labor productivity and what happens when it rises

Answer 24

labor productivity = Y/L

when Y/L rises, SL rises..making countries go from poor to rich

Question 25

how does labor productivity rise for rich countries?

Answer 25

technology advances (this includes improved management)

Question 26

how does labor productivity rise in poor countries?

Answer 26

they see what rich countries do and copy...use capital goods

Question 27

%change y/l > 0 in rich countries when:

Answer 27

technology rises

Question 28

%change y/l > 0 in poor countries when:

Answer 28

k/l rises (k being capital goods)

Question 29

what is k?

Answer 29

capital goods ie structures and equipment

Question 30

what is the primary cost of economic growth

Answer 30

consume less now!! - you and your family have less money for now - countries must produce fewer C goods and more capital goods