Chapter 12 Business cycles and economic growth Part 4

Flashcards covering key concepts related to business cycles, economic growth, Solow growth model, and property cycles.

What are the goals of macroeconomic policy?

To reduce the severity of the business cycle, limit the rise of unemployment during recessions, and prevent the economy from growing too fast to control inflation.

What are the determinants of economic growth?

Growth in demand (capacity to buy goods and services) and growth in supply (capacity to produce).

What factors lead to output growth?

Increases in land, labor, and capital.

How can output per unit of labor increase?

By increasing the quantity of capital per unit of labor.

What determines the level of investment possible?

Household savings.

What is the Solow Growth Model?

An early growth model that explains how consumption, saving, capital, labor, and technological change combine to determine a nation’s economic growth in the longer term.

What is assumed about technological change in the Solow model?

It is assumed to be exogenous.

According to Robert Solow's 1956 model, how can economic growth be increased when resources are fully employed?

Through R&D and innovation that improves technology and raises productivity.

What is the focus of Paul Romer’s 1986 endogenous growth model?

Investment in human capital, innovation, and knowledge as central to long-run economic growth, focusing on positive externalities and spill-over effects in a knowledge-based economy.

How does the property cycle relate to the business cycle?

The property cycle generally follows the business cycle, reflecting changes in GDP growth rates over time, but with greater volatility.

What is a key factor that sometimes leads to speculative bubbles in property markets?

The availability of credit, cheaply and easily.

List the 4 phases of property cycle dynamics.

Recovery, Peak, Crash, Trough.

What happens to rents and vacancies during the RECOVERY phase?

Rents rise and Vacancies fall

What happens to rents and vacancies during the CRASH phase?

Rents fall/incentives rise and Vacancies increase