Formulas and Vocabulary
What is the formula for the Rule of 72, what does it imply?
72/ Growth Rate; it implies the time that it will take approximately, for growth rates to double
Most economists agree that __ is/are the single most important source of economic growth
A. increases in human capital
B. technological advances
C. increases in physical capital
D. discoveries of natural resources
B. technological advances
Which of the following will NOT increase a nation's real GDP?
A. number of workers
B. labor productivity
C. technological progress
D. average price level
D. average price level
What are the three Effects that cause our AD curve be a downward sloping curve?
Real Balances Effect
Interest Rate Effect
Foreign Purchases Effect
a measure designed to quantify the severity of stagflation. Simply the sum of the UR rate and the Inflation rate
What is the misery index?
What is the Production Possibilities Frontier?
A graph that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology. The PPF shows the production combinations that are both attainable and efficient.
Which of the following is a measure of economic growth that is most useful for comparing changes in standards of living?
A.Growth in Nominal GDP
B. Decreases in the rate of UE
C. Increases in real GDP per capita
D. Increases in real GDP
C. Increases in real GDP per capita
Will an economy always be on its PPF? Why?
No. they can have underutilized resources like unemployed workers or idle capital.
If incomes in foreign countries rises? How does this effect the U.S, what moves?
If incomes rise in foreign countries, foreigners will be more willing/able to purchase goods and services form the U.S. then exports from the U.S will rise increasing NX. Increasing NX causes AD to increase and shift to the right.
Phillip's Curve is the theoretical relationship between what two factors?
Unemployment and the Inflation Rate
What is Human Capital?
refers to the knowledge and skills that people acquire in order to increase productivity
Te principle of diminishing returns to capital states that if the amount of labor and other inputs employed is held constant, then the greater the amount of capital in us the
A. less production is wasted
B. less is produced
C. the more an additional unit of capital adds to production
D. the less an additional unit of capital adds to production
D. the less an additional unit of capital capital adds to production
When there is an increase in the amount of resources available, new technology, or an improvement in the quality of resources available, does this shift the PPF curve as a whole or does it just move us as a point closer to the PPF?
This shifts the entire PPF curve. It can move to a new efficient output level
Suppose there is a negative shock to AD and AD falls at every price level. Explain what happens in the short run and the long run.
UE is higher than the natural rate, in the long run, UE labor bids down nominal wages. Lower wages means lower production costs, so firms produce more at every price level which causes AS to shift to the right to a new equilibrium.
The Phillip's Curve suggests what kind of relationship between inflation rate and Unemployment rate?
A negative relationship- especially when AD is changing in the economy.
What is the difference between Demand Pull Inflation and Cost Push Inflation?
DPI: The economy experiences inflation because AD Increases
Cost Push I: The economy experiences inflation because AS decreases
If the Growth Rate of an economy is 2% and it takes 36 years for rGDP per capita to double, if the growth rate is increased by 1%, then by how many years does it cut the time to take the rGDP per capita to double?
It cuts time for rGDP to double by 12 years
72/2 = 36
72/3= 24
36-24 = 12
If the government of the U.S relaxes its immigration policies, allowing million more people to immigrate into the U.S then before, how does the effect our PPF, and what is changing?
This shifts our entire PPF curve. Since immigration is relaxed, more labor is now available in the economy. This is an increase in the amount of resources available
Does productivity have an inverse or direct relationship with Aggregate Supply? Why?
Direct.
If productivity rises, aggregate supply increases
If productivity falls, aggregate supply falls
What is an Inflationary gap?
when the economy is producing more than the full-employment level of real GDP, there is pressure on prices and nominal wages to increase, thus, if left alone, an inflationary gap will result in … inflation!
What is the basic Expenditures Multiplier formulas, and what are the 2 ways to write the Expenditures Multiplier for consumption/saving?
Multiplier(E)= Change in Y/ Change in expenditure
Multiplier(E)= 1/1-MPC
Multiplier(E)= 1/MPS
A nation's real GDP was $250 billion in 2014 and $265 billion in 2015. Its population was 122 million in 2014 and 125 million in 2015. What is the growth rate of real GDP per capita in 2015?
A. 1.1%
B. 2.5%
C. 5.0%
D. 3.4%
D. 3.4%
Utilize real GDP per capita formula
Suppose there are two goods in the economy, tractors and salmon. Suppose the mating season for salmon is very abundant, and now there is more salmon for harvesting. How does this affect the PPF Curve for the two goods?
This is an example of an increase in the quality of the existing resources, as more salmon mate, they produce more salmon for harvesting then before. This moves the PPF for salmon to a higher output level, but tractors remain unaffected.
If output is above the full employment level, how does this effect input prices, especially wages? How does that effect AS?
input prices (especially wages) tend to increase, which shifts the AS curve to the left
Why does the government have a stronger incentive to intervene in the economy in a recession than in an expansion?
Because wages are more flexible upwards, and more sticky downwards.