ECON 252 Exam 2 Important Terms

Economic Growth

The increase in GDP per capita of an economy

What was the average annual growth rate of the US economy between 1950 and 2016?

2.0%

Exponential/Compound Growth

New growth builds on past growth, and its effects compound

Catch-up growth

When poor countries tend to grow faster, or "catch-up," to rich countries as they adopt the production and technologies of the richest countries

Sustained Growth

Positive and relatively steady growth rates over an extended period of time

GDP Per Capita

A measure of the average living standard of a nation, but not the income of all individuals in that nation

Proximate Causes of Prosperity

Physical Capital, Human Capital, and Technology

Fundamental Causes of Prosperity

The root reasons for the differences in the proximate causes of prosperity

Geography Hypothesis

Claims that differences in geography, climate, and ecology are ultimately responsible for the large differences in prosperity observed around the globe

Culture Hypothesis

Claims that different values and cultural beliefs are ultimately responsible for the large differences in prosperity observed around the globe

Institutions Hypothesis

Claims that differences in the way societies organize themselves (so-called rules of the game) are ultimately responsible for the large differences in prosperity observed around the globe

3 Important Factors of Institutions

They are determined by individuals, they place constraints on behavior, and

they shape human behavior by determining incentives

Inclusive Economic Institutions

Institutions that support and encourage economic transactions; protects private property, private contracts, and strong rule of law

Extractive Economic Institutions

Institutions that remove resources from the economy; No private property, interfere with the market, weak rule of law

Creative Destruction

Predicts that economic growth destabilizes existing regimes and reduces political power

Impact of Foreign Aid

Most economists contend that foreign aid has been ineffective in alleviating poverty

Potential Workers

Everyone in the total population except: Children Under 16, Active military personnel, Institutionalized persons

Employed

Persons who hold a paid full-time or part-time job

Unemployed

Persons without a job who have actively searched for one over the last four weeks and are currently available for work

Not in Labor Force

Persons are without a paid job and are not actively searching for one

Marginally Attached Workers

Looked for a job in the last year, but not in the last month; considered not in the labor force

Discouraged Workers

Unemployed Workers that gave up looking for a job; considered not in the labor force

More is Better (Applied to Labor)

A firm will hire an additional worker as long as the marginal benefit is greater than or equal to the marginal cost

Diminishing Marginal Product (Applied to Labor)

A profit-maximizing firm will hire the amount of labor that makes the value of the marginal product of labor equal to the market wage

What causes the labor DEMAND curve to shift?

Changes in the output price of the good or service, the demand for the good or service, the technological progress and high productivity, or the input prices of capital and land

What causes the labor SUPPLY curve to shift?

Changes in consumer tastes or preferences, the opportunity cost of time working outside the home, or population and demographics

Frictional Unemployment

Workers and firms have imperfect information about each other and need to engage in a time-consuming job search

Structural Unemployment

Results from a persistent gap between the quantity of labor supplied and the quantity of labor demanded

Cyclical Unemployment

Unemployment that relates to the cyclical trends in growth and production that occur within the business cycle

Wage Rigidity

When the market wage is held above the market clearing-level

Debtors

Economic agents who borrow funds

Credit

The amount of loans that the debtor receives

Interest Rate

The additional payment, above and beyond the principle , that a borrower makes on a $1 loan

Nominal Interest Rate

The annual cost of a $1 loan

Real Interest Rate

The annual real or inflation-adjusted cost of a $1 loan

Balance Sheet

Records the assets and liabilities of a company

Asset

Something owned by a bank

Liability

Something owed to another institution

Insolvent

When a Bank's Total Assets < Total Liabilities

Bank Run

When a substantial number of depositors may try to withdraw their deposits at the same time due to concerns that a bank may run out of liquid assets

SIFI/Too Big to Fail

Financial Institutions that are so important to the health of the US economy that their failure would cause a major economic downturn

Living Will

Guides liquidation of that bank's assets

Wage Flexibility

When a wage is able to decrease in the labor market