Econ (I am cooked)

What does the long-run economic growth refer to?

The increase over time in the economy’s capacity to produce goods and services

How is economic growth measured?

Through changes in GDP or GDP per capita

When you see “per decade” in a question, what do you put for N in the formula?

1

What is the Rule of 70?

A way to approximate how long it will take a country to double their GDP per capita

What are the determinants of long-run growth?

Labor productivity and Property Rights

Why do we need the financial system?

Risk sharing, liquidity, information

Formula for Private Savings

Y + TR - T - C

Formula for Public Savings

TR - T - G

If T < (G +TR), what happens to the government budget?

There is a deficit

If T = (G +TR), what happens to the government budget?

There is a balance

If T > (G +TR), what happens to the government budget?

There is a surplus

Which factors explain labor productivity?

technological change; the quantity of capital per hour worked

An economic growth model explains what?

changes in real GDP per capita in the long run

Enforcing property rights in an economy will do what?

raise the level of investment

Which of the following accurately describes the impact of the rule of law on a country's economic growth rate?

With a stronger one, they have faster economic growth

The economic growth model predicts what?

the level of real GDP per capita in poor countries will grow faster than in rich countries

Paul Romer, an economist at Stanford University, is most closely associated with what economic theory?

New Growth

Knowledge capital is nonrival in the sense that:

two people can use the same knowledge to develop and produce a product

Why does the demand for loanable funds curve slope downward?

real interest rate is the opportunity cost of investment

The supply of loanable funds is from what?

households and the government if it has a budget surplus

What happens when there is Crowding Out of a private investment?

A negative movement along the demand curve

The response of investment spending to an increase in the government budget deficit is called what?

crowding out

What make up the financial system?

Financial markets and financial intermediaries

What will cause a movement along the demand and/or supply curve?

A change in the real interest rate

What could cause the demand and/or supply curve to shift?

-Change in corporate taxes

-Expected future profits

-Government deficit

-Desire by households to consume today

-Tax benefits

What is the business cycle?

Fluctuations (expanding and declining) in economic activity over short periods of time

What happens to inflation during the end of an expansion phase of the business cycle?

Tends to increase towards the end and into the beginning of the next recession

What happens to inflation during the recessions of the business cycle?

Tends to decrease

What is the New Growth Theory?

has a lot to do with ideas, and tries to explain the source of technological advances (ideas)

What happens when aggregate expenditure is less than real GDP?

inventories rise, GDP and employment decrease

What happens when aggregate expenditure is greater than real GDP?

inventories fall, GDP and employment increase    

The income-expenditure model of real GDP determination is due to the work of who?

John Maynard Keynes

What are the five most important variables that determine the level of consumption?

-Disposable income

-Wealth

-Expected future income

-Price level

-Interest rate