In a closed economy without government? spending, all income must be? ____________.
A.consumed or? saved; therefore, GDP is equal to the sum of aggregate consumption and investment.
B.?invested; therefore, GDP is equal to the sum of aggregate saving and i
A.
consumed or? saved; therefore, GDP is equal to the sum of aggregate consumption and investment.
What is the basket of goods?
A basket of goods refers to a fixed set of consumer products and services valued on an annual basis and used to track inflation in a specific market or country. The goods in the basket are often adjusted periodically to account for changes in consumer hab
Physical capital accumulation is driven by? ____________.
A.government purchases.
B.the marginal product of capital.
C.the growth rate of GDP.
D.investment.
D.
investment.
Suppose that a 10 percent increase in the physical capital stock increases GDP by 10 percent. Now consider an additional 10 percent increase in the physical capital stock.
This increase in the physical capital stock will increase GDP by______
Less than 10% remember the law of diminishing demand
Households play a role in physical capital accumulation because? ____________.
A.the population growth rate determines the number of efficiency units of labor and therefore output.
B.households provide the human capital that produces the physical capital.
C.
it is households that determine their level of consumption and therefore the rate of saving.
Which factors explain economic growth in the United States over the past few? decades? ?(Check all that apply.?)
A. Physical capital ?(K?).
B. Human capital ?(H?).
C.An increase in the saving rate ?(S?).
D. Technology ?(A?).
A. Physical capital ?(K?).
B. Human capital ?(H?).
D. Technology ?(A?).
Which factor is the most important contributor to growth in the United? States?
A.Number of hours worked per capita.
B.Technology ?(A?).
C. Physical capital ?(K?).
D. Human capital ?(H?).
B. Technology (A)
Physical capital accumulation is driven by? ____________.
A. the growth rate of GDP.
B. the marginal product of capital.
C.investment.
D. government purchases.
C. Investment
Households play a role in physical capital accumulation because? ____________.
A. it is households that determine their level of consumption and therefore the rate of saving.
B. the interest rate on investment is determined by households.
C. the populatio
A. it is households that determine their level of consumption and therefore the rate of saving.
How do increases in technology affect the aggregate production? function?
A. Even with technology? increases, the aggregate production function will remain constant unless the technology increases are matched by increases in the physical capital stock.
B.
C. With increases in? technology, the aggregate production function shifts? up, indicating more output is produced from the same amount of inputs.
Given the aggregate production? function, we can be certain GDP will increase if? ____________.
A.the index of technology and efficiency units of labor increase and the physical capital stock of the country decreases.
B.the efficiency units of labor incre
D.the index of technology increases and the efficiency units of labor and physical capital stock of the country remain constant.
Using the? 3-point curved line drawing tool?, on the graph to the? right, draw an aggregate production function that displays diminishing marginal returns to capital. Assume the total efficiency of labor remains constant.
A. Is it curved as a result of di
A
Productivity varies across countries because of differences in? ____________. ?(Check all that apply?.)
A.income.
B.GDP.
C.human capital.
D. physical capital.
E.technology.
...
Using the? 3-point curved line drawing tool?, on the graph to the? right, draw an aggregate production function that displays constant returns to capital. Assume the total efficiency of labor remains constant.
A. Is it curved as a result of diminishing re
A
Human capital is
each person's stock of skills to produce output or economic value
Physical Capital is what
any good, including machines and buildings, used for production
Tech is what
the ability to use labor and capital more efficiently
The total efficiency units of labor are? ____________.
A.how much more efficient a? first-world worker is than a? third-world worker.
B.the product of the total number of workers and the average human capital of each worker.
C.how much cheaper a? third-wo
B.the product of the total number of workers and the average human capital of each worker.
The relationship between this concept and human capital is described? as:
An increase in the average? worker's level of human capital? will, all else? equal, ____________ the total efficiency units of labor in an economy.
A.increase.
B.not alter.
C.decrea
A. Increase
Factors of production are the? ____________.
A. inputs that are used to redistribute income and thus reduce inequality.
B. items needed to reduce income inequality.
C. resources needed to produce new technology.
D.inputs used to produce other goods and se
D.inputs used to produce other goods and services in an economy.
The aggregate production function describes the relationship between the? ____________.
A.level of income inequality and the national fairness index.
B.gender pay gap and the growth of GDP per capita.
C.amount of discrimination and the level of income ine
D.aggregate GDP of a nation and its factors of production.
Productivity is? ____________.
A.an indicator of how hard workers apply themselves to their tasks.
B.a measure of the speed with which inputs can be transformed into products.
C.the value of output that a worker generates for each hour of work.
.D. the va
C.the value of output that a worker generates for each hour of work.
Productivity varies across countries because? ___________.
A.human capital per worker varies substantially from country to country.
B.the level of technology differs across countries.
C.the quantity of physical capital that workers can access varies great
D. All the above
How do you calculate PPP
divide the USA bigmac/other countries bigmac x the countries GDP per capita
The Human Development Index measures? ____________.
A.the amount of ethnic welfare and disease in? third-world countries.
B.the relative lifespan and education in? third-world countries.
C. living standards across various countries.
D.how fairly income is
C. living standards across various countries.
The correlation between this index and real income per capita in a country is? ____________.
A. no discernible association exists between this index and income per capita.
B.a positive association is apparent but only for? high-income economies.
C.countri
C.countries with higher real income per capita tend to have higher levels of this index.
Suppose you are comparing the income per capita in the United States and Ghana. You try two approaches. In the first? approach, you convert the Ghana values into U.S. dollars using the current exchange rate between the U.S. dollar and the Ghanaian cedi. I
B
How does the income approach to measuring GDP compare to the production and the expenditure approach to measuring GDP?
A) it is higher if the economy is in a time of strong economic growth, and it is lower in times of reccession
B) it is the same because
C
Which equality is not guaranteed by the circular flow diagram?
A) THe market value of the expenditure must ewual the market value of income
B) THe market value of production must equal the market value of expenditure
C) The income paid to factors of produ
D
If dell buys a computer from a foreign producer for $500 and sells to best buy for $800 and they sell it to a consumer for $1200, what is Dells value added, Best buys value added, and the computers contribution to GDP
A) $800, $1200, $400
B) $300, $400, $
D
How do you get real GDP
Multiply the current years quantity x the prices of a past year
GDP of Ritzland: $120
Expenditure on investment: $16
Gov Expenditure: $35
Value of exports: $10
Value of imports: $22,000
Value of expenditure on consumption??:
Y= C + I + G + (X-M)
120= C + 16 + 35+ (10-22)
y=81
If donald trump uses his foreign affairs account to pay a scottish citizen $30,000 to caddy for him on a residential golf trip in scotland. As a result what happens
US gov purchases increase by 30,000 and net exports decrease by 30,000 and us gdp is unaffected
The introduction of the assembly line allowed GDP per hour worked to increase substantially. This is an example of an improvement in what?
A) Physical capital
B) Education
C) Technology
D) Human Capital
Tech
Scenario: A farm country and industry country are two neighboring countries. Both countirees only produce one good: Good X. Production in both countries is a function of the total efficiency units of labor and physical capital stock.
A) higher amount of c
A
Which of the following is likely to increase the productivity of workers in the economy?
A) An increase in the labor force participation rate in the economy
B) An increase in the number of years of training that each worker recieves
C) An increase in the
B
What is the definition of GDP
the market value of all final goods and services produced within a country in a given period of time
Capital (k)
the equipment and structures used to produce goods and services
Physical things u use to turn raw material into product
Entrepeneurship
Organization of 4 factors of production: Coordination of land, labor, and capital
Labor
Human time & effort dedicated towards production
Aggregate demand function
AD = C+I+G+(X-M)
what are net exports defintion and what are they in the national income identity equation
Yearly trade surplus or deficit
(X-M)
X= exports
M= imports
National Income identity Equation
Y=C+I+G+ (X-M)
C= consumption of household
I= Investment
G= Gov spending
x= exports
M= imports
IF we consume more, do we save less?
yes
Households produce what 2 things in the GDP methods
EXPENDITURE on goods/services
FACTORS OF PRODUCTION
Firms produce what 2 things in the GDP methods
INCOME PAID to factors of prodiction
PRODUCTION OF GOODS AND SERVICES
How do calculate income in the gdp method
Adding up all raw material, land, capital
All value added created has to be paid as income
How to calculate nominal GDP
Quantity x Price
Would you look at real or nominal gdp to tell if output has really gone up from a previous year
real gdp
How to use production function to find GDP
Q of goods x The price
If you produce 5mil units from $30k
5mil x 30K=150 bil
If an item is made in the US but not sold, does it count to GDP?
Yes. It is still part of capital
What are firms
they supply goods and services
How to calculate value added
Firm sales - firms purchase of the intermediate products with other firm
Dells buys for 600 and sells for 1000
1000-600= 400 value added
How do you account for imports and exports in the National income identity
Y= C + I G ( X-M)
If it were not for trade it would be Y = C + I + G
How to calculate change in gdp from 2016 - 2015
Real gdp in 2016 (w 2016 q and 2015 P) - Nominal GDP 2015 / Nominal GDP 2015
How to calculate GDP deflator
Nominal GDP/Real GDP x 100
How do you measure inflation?
((B - A)/A)*100
Where "A" is the Starting number and "B" is the ending number.
What does CPI measure
The cost of a basket of goods relative to the cost of the same basket in the base year
what is CPI
(consumer price index)
a measure of the overall cost of the goods and services bought by a typical consumer
How to calculate CPI
(expenditures in the current year/expenditures in the base year) x 100
Lets say you wanted to calculate the cost of something in 1909 compared to the cost of something in 2015. How would you go about calculating this
PriceIndex2015
----------------- X The amount of money in 2015
PriceIndex1909
whats the equivalent salary in 2014 ($25,000):
CPI
1975 53.8
1983 100(Base year)
2014 236.7
236.7
------
53.8
once you do that, multiply X 25000= $109,990
in 1984 an item cost $1.00. In January of 2006 that same item cost $1.98 But let's calculate the price difference between 1984 and 2006. Whats the inflation of the item?
1.98-1.00
---------- X 100 = 98%
1.00
What are the three problems associated with CPI?
1) FIxed basket overtime
2) Treatment of new goods
3) No adjustment for quality improvements (Ex) Computers, medical services & instruments
What if actual inflation > expected inflation?
Borrowers gain because they are paying back money LESS valuable than PLANNED
Ex) a mortgage Lender Loaning money to a BORROWER would suffer bc the money they get back is less valuable
What if Actual inflation < Expected inflation?
Lenders gain from this because they are paid w money more valuable than planned
Ex) a mortgage Lender Loaning money to a BORROWER would BENEFIT bc the money they get back is MORE valuable
Lets say your nominal wage increase was 5%
Now, lets say that the rate of inflation was MORE than expected and =5%.
WHat is your REAL WAGE INCREASE?
0%.
WI5%-ROI5%= 0
Lets say your nominal wage increase was 5%
Now, lets say that the rate of inflation was Less than expected and =0%.
WHat is your REAL WAGE INCREASE?
5%
Unexpected inflation causes a ____________ from workers to firms
redistribution
What does an unexpected increase in inflation cause? -4 things
- Lowers workers real wage
- Makes workers cheaper
- Firms can hire MORE workers
- Can still stimulate economy
5 costs of anticipated inflation
- Increased uncertainty - high inflation is more volatile
- Fiscal drag & bracket creep (nominal tax code)
- Shoe - leather cost (people engage in costly behavior to avoid inflation)
- Menu Costs (costs of changing prices)
- People w fixed income
How do you calculate income per capita
GDP
-----
Population
If Chinas GDP = 60,000 Billion Yuan
ANd chinas Pop.= 1,737 Million People
WHat is income per capita
60,000 Billion Yuan
----------------------
1,737 Million PPL
How to use the exchange rate based measure to calculate the difference in another countries currency VS. US currency?
Other countries GDP per capita X the exchange rate
What are the two ways to convert GDP in another country to a single (US) currency
Method 1- Exchange rate based measure
Method 2- Purchasing Power Parity measure (PPP) aka the big mac jawn
Convert to US currency using the following numbers thot
GDP per capita in China = $43,686 Yuan.
Exchange rate = .161
43,686 x .161 = $7,033 US currency
How to use the Purchasing Power Parity method
Other countries GDP per capita x PriceUSA/Price other country
Calculate GDP in china using the PPP method
GDP per capita=$43,686 Yuan
Price Big Mac USA= $4.79
Price Big Mac CHINA= 17.2
4.79
------ X 43,686 = $12,166 US currency boiii
17.2
What is productivity?
the value of GOODS & SERVICES that a worker generates each hour of work
How do you calculate productivity
GDP
----------------
hours worked
Productivity differences are the drivers of what two things
Income per capita and income per worker differences
what are the 3 reasons why productivity differs across countries
1) Human Capital
2) Physical Capital
3) Technology
What is human capital
The stock of skills emobdied in labor to produce output.
How do you calculate Human Capital
Total # of workers X Avg human capital efficiency
H= Lxh
WHat is physical capital
the stock of business structures (plants) & the equipment (machines) used for production
Increases in tech is what
superior knowledge in production or more EFFICIENT processes so that MORE OUTPUT CAN BE PRODUCED WITH the SAMEEEE human & physical capital
what is the aggregate production function
y = A x F (K,H)
Y= GDP
K= Physical Capital
H= total efficiency units of labor
F()= mathematical function
A= Technology
What does "more is better" mean in the aggregate production function?
An increase in either PHYSICAL CAPITAL (k) or Total efficiency units of labor (H) leads to increase in GDP
What is the law of diminishing marginal product and what does it mean? (in the aggregate production function)
MARGINAL PRODUCT (i.e contribution) of either physical capital (MPx) or efficiency units of labor (MPl) to GDP DIMINISHES *
when we increase the quantity used of that factor
*
Is Labor demanded upward sloping or downward ? Also, is it constant or does it level off?
Downward and constant
What is growth rate
THe hange in quantity between 2 dates, relative to the beginning rate
Is the labor supply curve always upward sloping? does it level off or is it constant
yes. But, it also levels off due to diminishing returns
what are the 3 ways a country can increase GDP
Increase physical Cap(k)
Increase total efficiency units of labor (H)
Improve tech (A)
Lets choose dates, t & t1. Denote the gdp per capita in those dates as y.
If you were to calculate growth rate, how would you set it up
Growth (t, t1) = yt1 -yt
--------
yt
What kind of happiness does Consumption bring
Immediate happiness
What kind of happiness does saving bring
Future consumption and happiness
What determines Aggregate Savings, S?
Households decide hhow much of their income they consume vs save.
Who are potential workers
Everyone in the general population except=
Children < 16
Active military personnel
Institutionalized/Hospitalized
Workers fall into 3 categories:
1) employed - full/partime job
2) Unemployed - w/ out job, looking for one tho
3) Not in the fuccin labor force - w/out job, not looking for one either
What is the labor market
Where the equilibrium real wage and the quantity of labor are determined
How to measure the unemployment rate (whats the formula)
unemployed
---------------- X 100
Labor force
what is the formula for the labor force participation rate
Labor force
--------------
potential workers
then x100
How do you maximize profits
Marginal profit > Marginal Cost
What is equilibrium in the labor market
Value of marginal Marginal Wage
product of labor (MPl) = (W)
Labor demand curve shifts when what 4 things change
1) Output price of goods/services
2) Demand of good/service
3) Tech progress and high productivity
4) Input prices of labor, capital, land
Who demands labor? Firms or households
Firms
Who supplies labor? firms or households?
Houses baby
What is marginal benefit of labor?
the value added by, or, by not adding another worker
Diminishing returns overtime
What are new aggregate jobs?
jobs that arise when lower level jobs are erased due to shifts in tech
Why are labor supply curves upward sloping
BC workers repond positively to a higher wage (up to a certain point tho... afterwards it always levels off)
Labor supply curve shifts when 3 of what change
1) Taste of preferences --ex) during war this changes
2) Opportunity cost of time
3) Population and demographics
*
REMEMBER FOR QUIZ: ANYTHING WITH WAGE AND LABOR DEMAND DOES NOT CHANGE SUPPLY CURVE
*
frictional unemployment
Workers have imperfect info about job openings and need to engage in time consuming job searches
Structural unemployment
unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one
Gap between QDemand and Qsupply in labor
Wage rigidity
What causes wage rigidity? 4 things
Minimum wage laws
Unions negotiate higher wages
Firms pay higher wages to raise productivity
*
Workers resist wage reductions
*
WHat is downward wage rigidity
Workers are highly adverse to decreases in wage
Causing firms to rather fire someone than cut wages
What us cyclical unemployment
Unemployment based upon the *
BUSINESS CYCLE
*
During boom periods, the unemployment goes down. During the recession, the unemployment goes up.
Anthony owns a landscaping business that has 4 employees. His company is able to earn revenue of? $600 per day. He knows that if he hires another? worker, he would have to pay that worker? $50 per day and the company would earn revenue of? $680 per day if
A *******
The value of the marginal product of labor is the? ____________.
A. cost to a firm of hiring an additional worker.
B. market value of a? worker's additional output for a firm.
C. change in output from hiring an additional worker.
D. value that workers pla
B tf
An aggregate production function shows the relationship between
real GDP and the quantity of labor employed.
The supply of labor curve
shows how much labor workers are willing to supply at various real wage rates.
An increase in a nation's population results in
A) an upward shift in the production function.
B) a movement along the production function.
C) a leftward shift in the labor supply curve.
D) Both answers A and C are correct.
b
GDP per labor hour can increase due to
A) increases in productivity.
B) increases in the quantity of money.
C) increases in population.
D) decreases in the quantity of capital.
a
Which of the following will NOT work to increase the rate of economic growth?
A) increase saving
B) limit competition from international trade
C) improve the quality of education
D) All of the above will work to increase the rate of economic growth.
b
Which of the following statements is INCORRECT?
A) The labor force is equal to the number of people employed plus the number of people
unemployed.
B) Potential Workers includes everyone over the age of 16.
C) The unemployment rate is the number of persons
b
The unemployment rate is the ________ who are unemployed.
A) number of people in the labor force
B) percentage of people in the labor force
C) percentage of people in the country
D) percentage of the working-age population
b
How to calculate CPI
CurrentpricesXCurrentQuantity
--------------------------- X 100
OLDPricesXOLDQuantity
Suppose that over a period of years the country of Quasiland switched from being an
agriculturally-based economy to a technologically-based economy. As a result, many people lost jobs because they lacked the correct skills. As they search for new jobs, th
B
Income per worker
GDP divided by the number of people in employment
what does the market clearing wage represent
the point at which everyone can work. It is the equilibrium point in labor market graph.
If you are not working at this point, its simply because you do not want to.
How do you rationalize the labor demand curve ? 1 key feature
1) Demonstrates the marginal product of labor (MPl) decreasing as Q labor increases
Factors that SHIFT the quantity labor supplied - 3things
Taste change
Opportunity cost of time change
Population change
Factors that shift demand of labor curve- 4 things
Change in the output price
CHange in the demand for good
Tech change
Input price
if you want to hire fewer workers, is that a shift or a movement on the demand curve
a shift.
will an increase in saving impact the gdP?
no - it wont. Saving = investment. Therefore it does not havee any effect
What is the difference between CPI and GDP deflator
the two indexes measure price changes for different "Baskets" of products
GDP deflator=Entire nominal / real gdp... its for the collective whole
WHile CPI is for the culture (citizens buying normal goods)