Quiz #5 Review Flashcards
(32 cards)
when did growth thing start?
INdustrial Revolution, 1750 in England
why was the INdustrial revolution in England?
- people there had property rights over what they produced
- had the ability to produce more and incentive to keep producing
What is an institution?
an institutions are rules and arrangements, formal and informal, that direct our behavior
what 4 things affect growth and labor productivity?
- technology and change: having better tools and equipment
- human capital: knowledge and education
- capital: tools and equipment, more tools and equipment
- : technological change: having better equipment
diminishing marginal productivity?
adding more of 1 input to a fixed amount of another input will increase your output but my smaller and smaller increments
Dismal Science
Thomas Malthus predicted we would starve to death because the earth is a fixed input and labor keeps growing
-didnt account for technology change
Standard Growth Theory
- Robert Solow said capital was the key to growth
- add more capital, you produce more
New Growth Theory
Technological change, rather than capital, is key to growth
- Paul Romer
- add more capital and you produce more…but adding better capital allows you to produce even more than more
4 barriers to growth
- corruption (property rights being violated)
- political instability
- poor public education and health
- low rates of savings and investment
Aggregate Expenditure
what we buy
GDP:
what we produce
what happens when we buy a little less than everything we produced?
- inventories increase
- next year we dont produce as much
- GDP and employment decrease
If AE = GDP, inventories are…
unchanged and the economy is in macroeconomic equilibrium
If AE < GDP, inventories….
rise and GDP and employment will decrease the following year
If AE > GDP, inventories…
inventories will fall and GDP and employment will increase following year
what 5 laws of CONSUMPTION drive AE?
- curent disposable income
- household wealth
- expected future incomes
- price level
- interest rate
Marginal Propensity to Consume
how much of each additional dollar of income you spend on consumption
The Multiplier
(1) / (1-MPC)
4 laws of PLANNED INVESTMENT that drive AE
- expectations of future probability
- interest rate
- taxes
- cash flow
3 laws of NET EXPORTS that drive AE
- price level in the US compared to other countries
- growth rates of US compared to other countries
- exchange rate
as disposable income rises, consumption…
rises
as wealth increase, consumption…
rises
as expected income rises, consumptions…
consumption increases
as price level rises, consumption…
consumption decreases
