chapter 6 (simple version) Flashcards
<p>when you want to find the real gdp per capita ANNUAL growth rate, what is the first step?</p>
<p>identify how many years of a difference there is</p>
<p>what is the rule of 70 used for?</p>
<p>estimating the number of years it takes for an investment or your money to double.</p>
<p>what is the formula for finding how long it will take to double a countries income?</p>
<p>70/growth rate%</p>
<p>if you want to know how long it will take for a country to double it's income, what do you do?</p>
<p>rule of 70</p>
<p>is a one shot increase in GDP = economic growth?</p>
<p>nope</p>
<p>economic growth is the sustained year to year increase in \_\_ GDP</p>
<p>potential GDP</p>
<p>Economic growth occurs when \_\_ increases</p>
<p>real GDP</p>
<p>in order to have an increase in Real GDP we need an increase in \_\_\_</p>
<p>potential GDP</p>
<p>if we have a higher Real GDP than our potential GDP this can lead to what and why</p>
<p>burn out because we are doing more than we are capable of</p>
<p>if our potential GDP is not growing, what will this lead to</p>
<p>leads to our real gdp not growing</p>
<p>potential GDP is defined as</p>
<p>the capability of production</p>
<p>potential gdp depends on</p>
<p>how much resources/inputs we can use</p>
<p>our standard of living depends on</p>
<p>how much we consume</p>
<p>output depends on</p>
<p>our inputs</p>
<p>what does Capital mean?</p>
<p>goods used in the production process</p>
<p>give an example of capital</p>
<p>computers (for coding a biz) or tractors (for using corn to sell)</p>
<p>when goods are used to produce other goods, this is known as</p>
<p>capital</p>
<p>what are the 4 productive resources of an economy?</p>
<p>1. labour2. capital 3. land4. entrepreneurship</p>
<p>the aggregate production function shows the amount of \_\_\_ that could be produced by various quantities of \_\_</p>
<p>output/production; labour</p>
<p>the aggregate production function exhibits \_\_</p>
<p>diminishing returns to labour</p>
<p>as the labour increases in the aggregate production function</p>
<p>as labour increases, production produces less and less compared to previous units (diminishing returns)</p>
<p>in regards to the aggregate production function: a graph is concave rather than straight line because of</p>
<p>diminishing returns to labour</p>
<p>aggregate production function: "moving along the line" refers to what?</p>
<p>a change in the size of labour</p>
<p>to find the labour productivity:</p>
<p>you divide real GDP (Y) by Labour (L)</p>
as more labour is used, Aggregate output ___ but output per unit of labour ___
increase; decrease
an increase in human capital means?
you have a more educated team/humans have more skills
what happens when capital stock, human capital, and technology improves?
increase in labour productivity
what are the three questions you ask when looking at the aggregate labour market? and what are the answers
who are the demanders for labour?: firmswho are the suppliers?: householdswhat is the price?: real wage rate
what is the formula for real wage?
nominal wage/price level
what does price level mean?
average of current prices across the entire spectrum of goods and services produced in an economy.
what are the two things that suppliers of labour are thinking about?
1. what is the wage, and 2. what can I buy with it
price in the labour market is the
real wage rate
when there is a change in real wage, what does it effect and what does it not effect
it affects the nominal wage, but does not effect the price level
what is a basic behaviour of demanders for labour?
the lower the wage the more hours of labour demanded
what do you put on the x and y axis of the demand for labour curve
on the x axis is L for labour, on the y axis, it is real wage
the curve for the demand for labour is
downward sloping
demand for labour curve: the points on the line represent the
real wage rate
for an improvement in production, what will happen to the demand curve
it will shift to the right
if buyers require less labour, what happen to the demand curve?
it will shift to the left
what are the factors the increase the demand for labour
Better human capital, better tech
anything that affects your production function will also affect your
demand for labour
if there is an earthquake, and capital stock goes down, what will happen to the demand for labour and why
shift the curve to the left because there is less capital to work with
an increase in productivity increases demand by 10 units, how would this affect the demand schedule and the graph
at every unit of hours of labour demanded, it increases by 10
why is the most people supplied for the highest wage?
because the higher the wage the more it is as a incentive to attract more people
do you draw a new supply curve if there is a change in the real wage rate?
no, just move along the line
a change in the real wage causes a ___ the supply curve
movement
a movement along the supply curve is indicative of what
a change in the real wage
what are the factors the effect the supply of labour?
population# of hours worked on average
real wage above the equilibrium creates a surplus in the labour market, the real wage will fall/rise?
falls
real wage below the equilibrium creates a
shortage
a shortage in the aggregate market leads to a __ in real wage
rise
equilibrium level of employment is also called __
full employment
one way to find the potential GDP is to find the
equilibrium of the aggregate economy
if aggregate employment goes up, what will happen to potential gdp
its gonna go up
increase in labour =
increase economic growth
an increase in population has two noticeable things related to the production function curve
1. it increases the production output2. output per hour falls (diminishing returns)
when there is an increase in the population, does this increase economic growth? explain
no, because even though potential GDP has gone up, output per hour has fallen
in order to have economic growth, there must be
an increase in technology, a increase in human capital, and capital
what is the premise of economic growth?
every unit of labour is more productive
I have better computers/ more human skill/ better tractors, this means I have
better output per hour / economic growth
this is due to:
increase in output per person. Ie: better tech, better human capital, better capital
if the labour is more productive, firms will
hire more at every wage rate
if the demand for labour goes up, what happens to the wage rate (try and draw this in your head)
the average wage rate goes up
