10/8/18

What is modern economic growth?

ECON EXAM #2

1. CHAPTER 6: INTRO TO MACROECONOMICS

The main objectives of this chapter are to go over some fundamental  terms and ideas of macroeconomics. It explains how GDP, inflation, and  unemployment are focused on when assessing the health of an entire  economy. We also look at how and why the standards of living have  dramatically increased in recent history. Looking at economic trends, we  look at the flexibility of prices and how it affects to economy.

A. Key terms and Concepts

i. Business Cycle: increases and decreases in economic activity over  time; consisting of peaks, recession, troughs, and expansion ii. Recession: period of declining real GDP, accompanied by a lower  real income and higher unemployment rate

What is the result of a recession?

iii. Real GDP: Gross Domestic Product adjusted for inflation (GDP in a  year divided by GDP Price Index, expressed as a decimal)

iv. Nominal GDP: GDP measured in terms of price level at that time,  not adjusted for inflation

v. Unemployment: failure of an economy to employ its full labor force vi. Inflation: a general increase in prices and fall in the purchasing  value of money

vii. Two important economic questions: Can the government promote  economic growth, and can they reduce the severity of recession? viii. Modern Economic Growth: increase in the capacity of an economy  to produce goods and services, compared to a previous time period ix. There is no recorded economic growth in history before the  Industrial Revolution

How inflation affects the economy?

x. Investment: purchase of goods that are not consumed today but are used in the future to create wealth We also discuss several other topics like What are the five types of chemical bonds?

xi. Financial Investment: investment in monetary assets such as stock xii. Economic Investment: investment in durable, productive resources xiii. Shocks: unexpected or unpredictable event that affects an  economy, either positively or negatively If you want to learn more check out What is meant by the concept of a strategic fit?

xiv. Inventory: produced goods that are unsold

xv. Inflexible (Sticky) Prices: prices that remain the same, despite  changes in the broad economy that suggest a different price is  optimal

xvi. Flexible Prices: prices that adjust in response to market shortages  or surplus

xvii. All prices are flexible in the long run

2. CHAPTER 7: MEASURING DOMESTIC OUTPUT AND  NATIONAL INCOME

This chapter focuses on GDP, how it is determined, its relationship to other important economic terms, its nature and function, and the limitations of  GDP.  

A. Key Terms and Concepts

i. National Income Accounting: technique to measure the overall  production of a country’s economy

ii. Gross Domestic Product (GDP): the total market value of all final  goods and services produced annually in a nation

iii. Intermediate Goods vs Final Goods: Final goods are what is finally  sold as the product and intermediate goods are all the goods that  go into a final good

iv. Multiple Counting: wrongly including intermediate goods when  calculating GDP

v. Value Added: when the price a product is sold at is higher than the  cost of production

vi. Expenditures Approach: a way to view GDP as the sum of all the  money spent in buying it If you want to learn more check out What are the types of enzyme inhibition?

vii. Income Approach: a way to view GDP in terms of the income  derived or created from producing it

viii. Personal Consumption Expenditures (C): covers all the expenditures made by households on goods and services

ix. Durable vs Nondurable goods: durable goods are products that  have a life expectancy of 3 or more years, nondurable goods are  goods that are consumed quickly, if not immediately

x. Services: work done by laborers

xi. Gross Private Domestic Investment (Ig): All final purchases of  machinery, equipment, and tools by business enterprises/all  

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construction/changes in inventories/money spent on research and  development or art

xii. Net Private Domestic Investment: only investment in the form of  added capital

xiii. Government Purchases (G): expenditures for goods and services  that the government consumes in providing public service/ for  publicly owned capital/ on research and development and other  activities that increase the economy’s stock of know-how We also discuss several other topics like Why is the destruction of pompeii historically significant?

xiv. Net Exports (Xn): Exports minus imports

xv. National income: total income earned by resource suppliers xvi. Consumption of fixed capital: amount of capital used during  production

xvii. Net domestic product (NDP): capital that had been consumed over  the year in the form of housing vehicle, or machinery deterioration xviii. Personal income (PI): before-tax income of an individual xix. Disposable income (DI): amount of money that households have  available for spending and saving after income taxes  

xx. Price Index: comprehensive measure used for estimation of price  changes in a basket of goods and services

xxi. Base Year: a year used to compare in the measure of a business  activity

xxii. Gross Output (GO): total economic activity in the production of new  goods and services in an accounting period

3. CHAPTER 8: ECONOMIC GROWTH

This chapter covers the ways that economic growth is measured, defines  “modern economic growth”, identifies forces that grow the economy, and  discusses differing perspectives as to whether growth is desirable and  sustainable.  We also discuss several other topics like What is parsimony?

A. Key Terms and Concepts

i. Economic Growth: an increase in the amount of goods and services  produced per head of the population over a period of time

ii. Real GDP per capita: Inflation-adjusted output per person iii. Rule of 70: means of estimating the number of years it takes for a  certain variable to double (years)

iv. Modern Economic Growth: sustainable increase in real GDP per  capita

v. Leader Countries: countries that develop and use the most  advanced technologies

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vi. Follower Countries: countries that adopt the technologies of leader  countries

vii. Supply Factors: supply related factors that boosts economy improved tech, increase in quality and quantity of natural  

resources, human resources, and stock of capital goods If you want to learn more check out What is the death instinct?

viii. Demand Factor: aggregate demand increases at the same rate as  potential output

ix. Efficiency Factors: capacity of an economy to achieve allocative  efficiency and productivity efficiency

x. Labor Productivity: total output divided by the amount of labor  employed to produce it

xi. Labor-Force Participation Rate: percentage of the working-age  population that is actually in the work force

xii. Growth Accounting: procedure used to measure the contribution of  different factors to economic growth  

xiii. Infrastructure: basic physical systems of business or nation  (transportation, communication, sewage, water and electric  systems)

xiv. Human Capital: collective skills, knowledge, or other intangible  assets of individuals that can be used to create economic value for  laborers

xv. Economies of Scale: the situation when a firms average total cost of producing a product decreases in the long run as the firm increases  the size of its plant

xvi. Information Technology: efficient methods of receiving information  through technology

xvii. Start-Up Firms: a new firm focused on creating and introducing a  particular new product or employing a specific new production or  distribution method

xviii. Increasing Returns: larger increase in output than in input xix. Network Effects: increases in the value of a product to each user,  including existing users, as the total number of users rises

xx. Learning by Doing: skills and knowledge gain from repetition of a  task

4. CHAPTER 8: BUSINESS CYCLES, UNEMPLOYMENT, AND  INFLATION

This chapter discusses the business cycle and its primary phases. More in  depth, it explains unemployment (how it is measured and the different  

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types), how inflation is measured and how it related to real income, and  how inflation may affect the economy’s level of real output.

A. Key Terms and Concepts

i. Peak: a point in the Business Cycle at which business activities have reaches a temporary maximum

ii. Trough: a point in the Business Cycle at which business activities  have reaches a temporary minimum

iii. Expansion: Real GDP, income, and employment reach a maximum iv. Labor Force: all people 16+ who are employed or seeking work v. Unemployment Rate: percent of the labor force that is unemployed  at any time

vi. Discouraged Workers: employees that leave the labor force because they were unable to find work

vii. Frictional Unemployment: a natural form of unemployment caused  by workers in between jobs

viii. Structural Unemployment: employees who lack sufficient skill for  the job or can’t easily move locations

ix. Cyclical Unemployment: unemployment due to recession x. Potential Output: real output an economy can produce when fully  employing its resources

xi. Okun’s Law: for every 1% rise in unemployment, there is a 2% loss  in country’s production

xii. Deflation: opposite of inflation, overall decrease in average price  level

xiii. Demand-Pull Inflation: Inflation resulting from increase in aggregate demand

xiv. Cost-Push Inflation: Inflation caused by decrease in aggregate  supply

xv. Nominal Income: Number of dollars received by an individual for  their work

xvi. Real Income: Nominal income adjusted for inflation xvii. Unanticipated Inflation: affects fixed-income receivers, savers, and  creditors

xviii. Anticipated Inflation: redistribution from lender to borrower may be  altered

xix. Cost-of-living Adjustments (COLAs): adjusted incomes for workers xx. Hyperinflation: abnormal, rapid, and extreme inflation

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