exam 2

Question 1

the importance of productivity in economic growth

Answer 1

Increases in productivity allow firms to produce greater output for the same level of input, earn higher revenues, and ultimately generate higher Gross Domestic Product.

Question 2

how to measure productivity

Answer 2

comparing the amount of economic output with the amount of inputs (labor, capital, etc.) used to produce those goods

Question 3

the factors of production: human capital

Answer 3

The skills a worker has as a result of education, training, or experience that can be used in production

Question 4

the factors of production: physical capital

Answer 4

tangible, human-made objects that a company buys or invests in and uses to produce goods.

Question 5

the factors of production: labor

Answer 5

Labor is the human effort that can be applied to the production of goods and services.

Question 6

the factors of production: natural resources

Answer 6

land

Question 7

how to manipulate the identity: Y=C+I+G+NX

Answer 7

GDP
C= consumption
I= investment
G= government spending
NX= net exports

Question 8

NX=0 for a

Answer 8

closed economy

Question 9

Y-G is negative if

Answer 9

the government is running a deficit

Question 10

nominal interest rate

Answer 10

the interest rate before taking inflation into account

Question 11

real interest rate

Answer 11

an interest rate that has been adjusted for inflation

Question 12

savings and the supply of loanable funds

Answer 12

The supply of loanable funds represents the behavior of all of the savers in an economy. The higher interest rate that a saver can earn, the more likely they are to save money. As such, the supply of loanable funds shows that the quantity of savings available will increase as the interest rate increases.

Question 13

the market for loanable funds and the equilibrium in the loanable funds markets

Answer 13

The equilibrium in the market for loanable funds is achieved when the quantities of loans that borrowers want are the same as the quantity of savings that savers provide

Question 14

S=I in a

Answer 14

closed economy

Question 15

the real interest rate:

Answer 15

r= i - inflation rate

Question 16

present value

Answer 16

Present value states that an amount of money today is worth more than the same amount in the future

Question 17

future value

Answer 17

is the value of a current asset at a future date based on an assumed growth rate.

Question 18

rule of 70

Answer 18

used to determine the number of years it takes for a variable to double by dividing the number 70 by the variable’s growth rate

Question 19

how to evaluate a project using present value

Answer 19

discounting the expected cash flow or cash amount to the present using a discount rate

Question 20

risk aversion

Answer 20

Risk aversion is the tendency to avoid risk and have a low risk tolerance. Low-risk means more stability. If you risk more there needs to be an increased payout.

Question 21

what is money?

Answer 21

a system of value that facilitates the exchange of goods in an economy

Question 22

what is barter and the problems with barter

Answer 22

A system of exchanging goods without using money is known as barter system. The problems associated with the barter system are inability to make deferred payments, lack of common measure value, difficulty in storage of goods, lack of double coincidence of wants.

Question 23

fiat money

Answer 23

a government-issued currency that is not backed by a commodity such as gold

Question 24

commodity money

Answer 24

a type of currency guaranteed by a physical commodity, such as gold or silver

Question 25

functions of money: medium of exchange

Answer 25

A medium of exchange is a portable instrument that is used as an intermediary to facilitate the sale and purchase of goods between parties

Question 26

functions of money: unit of account

Answer 26

A unit of account is something that can be used to value goods and services, record debts, and make calculations. In other words, it’s a measurement for value.

Question 27

functions of money: store of value

Answer 27

Store of value is an asset that can retain its purchasing power into the future and can be retrieved to be used again at a later time

Question 28

what is inflation?

Answer 28

a general increase in prices and fall in the purchasing value of money

Question 29

what is deflation?

Answer 29

reduction of the general level of prices in an economy

Question 30

the quantity equation or the equation of exchange:

Answer 30

MV=PY
M= money supply
V= velocity of money
P= price level or inflation
Y= real output or real GDP

Question 31

velocity of money

Answer 31

Velocity of money is a measurement of the rate at which money is exchanged in an economy.

Question 32

V is assumed constant in countries with

Answer 32

low inflation because we have evidence of that

Question 33

the dynamic equation of exchange (assuming V is constant)

Answer 33

inflation = % growth of money - economic growth

Question 34

money neutrality is a good way to

Answer 34

describe the economy in the long run, but not necessarily in the short run.

Question 35

video on hyperinflation in Zimbabwe

Answer 35

needed money
taxed pretty much everything the could, scared away investors, economy not doing well
printed more money
didn’t increase productivity, no new investors
economy couldn’t produce more goods
purchasing power of the Zimbabwean dollar fell
prices were increasing at a rate of 50% a year
printed more money to buy the same amount of goods
Zimbabwean dollar ceased to exist
legalized transactions in foreign countries
Zimbabwean hyperinflation ended