Economic Growth
How do we measure economic growth?
What is the equation for solving for the labor force participation rate?
(LF/Working Age Pop)*100=LFPR
How does CPI differ from GDP deflator?
GDP deflator includes non-consumer goods and services (government spending, investment spending)
Draw an aggregate market that is experiencing stagflation.
N/A
Which economist believes that supply drives demand and his work is what the neoclassical perspective is based on?
Jean Baptiste Says
Give two examples of things that impact standard of living not included in GDP.
Air quality, life expectancy, child mortality rates, education levels.
Give an example of a frictionally unemployed and structurally unemployed individual.
Frictional unemployment: college student that just graduated looking for a job.
Structural unemployment: EZ pass toll booth worker.
In 2022 a basket of goods and services cost $145.87 in 2023 it was $160.96 assume 2022 is the base year. What is inflation?
10.34%
During a recessionary gap the difference between the natural rate of unemployment and our new unemployment value represents what?
The percentage of people cyclically unemployed.
If consumers have a marginal propensity to consume of 0.8 what is the multiplier effect of every additional dollar spent on the economy?
$5
What are the four components of the aggregate production function that contribute to economic growth?
Population, physical capital, human capital, technology
What does it mean to be unemployed?
You are without work and have been actively applying for jobs in the last 4 weeks.
What would an ECI indicator of 4% mean? What should firms do with this information?
Wages increased by 4% across all occupations this year and firms should increase wages by at least 4% to remain competitive.
Give an example of something that would cause an inflationary gap and something that would cause a recessionary gap.
Inflationary gap: increase in consumer spending, decreasing interest rates, exporting more goods because it is cheaper for us to produce them.
Recessionary gap: decrease in consumer spending, increasing interest rates, importing more goods if a countries currency is weakening.
From a neoclassical prespective how should we respond to an inflationary gap?
Allow wages to increase.
Country A: 14 million GDP, growth rate 3%
Country B: 10 million GDP, growth rate 5%
Which country has a larger GDP after 7 years?
Country A
Give three examples of people who are not apart of the labor force.
Stay at home parents, incarcerated individuals, military members, people on disability, full-time students
What is the one thing economists believe will fix stagflation without resulting in higher inflation? What are the three characteristics of stagflation?
Improvements in productivity growth
High unemployment, high price level, stagnant economy
Explain what expansionary fiscal policy consists of. Explain what contractionary fiscal policy consists of.
Expansionary fiscal policy: Increase government spending decrease taxes.
Contractionary fiscal policy: Decrease government spending increase taxes.
What does a high MPS mean in relation to the slope of the consumption function and the economy?
A flat consumption function and in a recessionary gap.
What economic concept benefits developing countries and allows them to converge more quickly in comparison to developed countries?
Diminishing marginal returns
Draw an aggregate market and phillips curve graph that depicts an unemployment rate that is less than the natural rate of unemployment.
N/A
Explain the difference between an inflationary gap and stagflation.
An inflationary gap only exists when real gdp exceeds potential gdp. Stagflation results in real gdp being less than potential gdp.
Give an example of a scenario that would impact the aggregate market and result in a lower unemployment rate.
Anything that shifts AD to the right: more consumer spending, decrease in taxes, lower interest rates.
Explain the difference between rational and adaptive expectations.
Rational expectations uses all available information and past experiences to make decisions. Adaptive expectations uses just past experiences.