macro(UNI) Flashcards
(55 cards)
What is the main measure used to assess changes in living standards?
Real GDP per person (GDP per capita)
What are the two components of GDP per capita?
Average labor productivity and the share of the population employed
Why do small differences in growth rates matter in the long run?
Because of compound growth—small annual differences can lead to large income gaps over time
How is compound interest related to economic growth?
Like compound interest, economic growth builds upon itself and accelerates over time
What are the six determinants of average labor productivity?
- Human capital, 2. Physical capital, 3. Natural resources, 4. Technology, 5. Entrepreneurship & management, 6. Political & legal environment
What is human capital?
The education, skills, and training that workers possess
What is diminishing marginal returns to capital?
As more capital is added, holding other inputs constant, each additional unit adds less to output
What does the Solow Growth Model explain?
How capital accumulation, labor, and technology affect economic growth
What is the steady state in the Solow model?
A situation where capital per worker and output per worker are constant over time
What happens when the savings rate increases in the Solow model?
Investment increases, leading to a higher steady-state level of capital and output per worker
What is the long-run source of sustained growth in the Solow model?
Technological progress
What does the production function Y = F(K, N) represent?
The relationship between output, capital, and labor
What are the potential costs of economic growth?
Reduced current consumption, environmental damage, less leisure, and increased education/R&D costs
How can governments promote human capital formation?
Through education funding, training programs, and support for early childhood education
How does democracy support economic growth?
By promoting stability, human capital, low inflation, and efficient institutions
What limits might there be to economic growth?
Finite natural resources, environmental degradation, and externalities
What are the main trends observed in industrialized labor markets?
1) Real wage growth, 2) Wage stagnation post-1973, 3) Rising wage inequality, 4) Employment growth, 5) Higher European unemployment
What factors drive labor demand?
Worker productivity and output prices. Firms hire until the value of the marginal product (VMP) equals the wage.
Why is the labor demand curve downward sloping?
Because of diminishing marginal returns: as more workers are hired, each additional worker adds less output, so firms are willing to pay less.
What causes the labor demand curve to shift right?
Increases in output prices and worker productivity (due to capital, technology, or training).
What determines an individual’s reservation wage?
The minimum wage a worker is willing to accept, which compensates for the opportunity cost of leisure and job unpleasantness.
What factors affect aggregate labor supply?
Population size, labor force participation rate, education and training, and the market wage rate.
Why is the labor supply curve upward sloping?
Higher wages incentivize more individuals to work or existing workers to work more hours.
What are the main causes of rising wage inequality?
Globalization, skill-biased technological change, education gaps, policy changes, and discrimination.
