Solow model

Question 1

Catching-up growth

Answer 1

growth due to accumulation, using technologies that already exist and other ideas

Question 2

Cutting-edge

Answer 2

growth due to new ideas

Question 3

Solow model

Answer 3

Production function Y=F(A,K,eL)
K : physical capital
eL: human capital
A: ideas that increase productivity

Question 4

Marginal product of capital

Answer 4

increase in output caused by the addition of one more unit of capital. The marginal product of capital diminishes as more and more capital is added.

Question 5

Gross domestic product

Answer 5

the market value of all final goods and services produced within a country in a year

Question 6

Intermediate goods

Answer 6

goods and services are sold to firms and then bundled or processed with other goods or services for sale at a later stage

Question 7

GDP per capita

Answer 7

GDP divided by a country’s population

Question 8

National wealth

Answer 8

refers to the value of a nations entire stock of assets

Question 9

Recession

Answer 9

a significant widespread decline in real GDP and employment. It lasts longer than a few months and is visible in real GDP, real income, employment, industrial production and wholesale retail sales.

Question 10

unemployed workers

Answer 10

adults who dont have a job but who are looking for work.

Question 11

Unemployment rate

Answer 11

percentage of the labour force without a job

Question 12

Labour force participation rate

Answer 12

percentage of adults in the labour force

Question 13

discouraged workers

Answer 13

workers who have given up looking for work but who would still like a job. It is difficult to determine how many.

Question 14

frictional unemployment

Answer 14

short term unemployment caused by the ordinary difficulties of matching employees to employers.

Question 15

Structural unemployment

Answer 15

persistent, long-term unemployment, caused by long-lasting shocks or permanent features of an economy that make it more difficult for some workers to find jobs.

Question 16

Cyclical unemployment

Answer 16

relates to the regular ups and downs, or cyclical trends in growth and production, that occur within the business cycle. when business cycles are at their peak, cyclical unemployment will tend to be low because total economic output is being maximized

Question 17

unemployment benefits

Answer 17

include employment insurance, but also other benefits such as housing assistance

Question 18

Employment at will doctorine

Answer 18

states that an employee can leave a job whenever they want for any reason, and employers can fire an employee for any reason without notice or cause.

Question 19

Natural unemployment rate

Answer 19

defined as the rate of structural plus frictional unemployment

Question 20

Incentives for labour force

Answer 20

Taxes and benefits

incentives and the increase in female labour force participation

Question 21

Inflation

Answer 21

an increase in the average level of prices

Question 22

Price index : Consumer price index (CPI)

Answer 22

Measure the average price for a basket of goods and services bought by some countrys population

Question 23

Real price

Answer 23

a price that has been corrected for inflation. Are used to compare the prices of goods over time

Question 24

The quantity theory of money

Answer 24

sets out the general relationship between money, velocity, real output and prices and helps to explain the critical role of the money supply in determining the inflation rate

Question 25

Deflation

Answer 25

is a decrease in the average level of prices ( negative)

Question 26

Disinflation

Answer 26

a reduction in the inflation rate

Question 27

Money illusion

Answer 27

when people mistake changes in nominal prices for changes in real prices. Changes in M cant change Y. In the long run, money is neutral.

Question 28

Real interest rate formular

Answer 28

Nominal rate - inflation rate ( i - pi )

Question 29

Fisher effect

Answer 29

tendency of nominal interest rates to rise with expected inflation rates. Nominal interest rate = expected inflation rate + real interest rate ( i= Epi + requilibrium)

Question 30

Monetizing debt

Answer 30

when government pays off its debts by printing money

Question 31

Intertemporal substitution

Answer 31

allocation of consumption work, and leisure across time to maximize well-being. Person/business is most likely to work hard when when working hard brings the greatest return

Question 32

Irreversible Investment

Answer 32

have high value only under specific conditions - they cannot be easily moved, adjusted or reversed of conditions change. So, they have high sunk cost or are very costly to reverse.

Question 33

Labor adjustment costs

Answer 33

costs of shifting workers from declining sectors of the economy to the growing sectors

Question 34

Time bunching

Answer 34

tendency for economic activities to be coordinated at common points in time. The clustering or economic activity in time makes buying and selling more efficient, but it also causes shocks to spread through the economy and to spread through time

Question 35

Colleteral

Answer 35

a valuable asset that is pledged to a lender to secure a loan. If the borrower defaults, ownership of the colleteral transfers to the lender.

Question 36

Collateral Shock

Answer 36

is a reduction in the value of collateral. - make borrowing and lending more difficult