New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Econ 201 - Chapters 9-10

by: Courtney Finnigan

Econ 201 - Chapters 9-10 ECON 201 Macro Economics

Courtney Finnigan
GPA 3.55

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

One week of notes, covers Lecture 7 (Chapters 9-10)
Introduction to Macroeconomics
Dennis O'Dea
Class Notes
25 ?




Popular in Introduction to Macroeconomics

Popular in Economcs

This 6 page Class Notes was uploaded by Courtney Finnigan on Saturday January 30, 2016. The Class Notes belongs to ECON 201 Macro Economics at University of Washington taught by Dennis O'Dea in Fall 2015. Since its upload, it has received 88 views. For similar materials see Introduction to Macroeconomics in Economcs at University of Washington.


Reviews for Econ 201 - Chapters 9-10


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 01/30/16
Chapters 9­10  Econ 201    Chapter 9 (Lecture 7):    Long Run Economic Growth:  Real GDP per capita = Real GDP/ Population Size  ● Economic growth is measured by using real GDP per capita  ● Why?  ○ Economic progress raises the living standards of the average resident of a  country  ● Real GDP does not account for growth in number of residents    Rule of 70:  The time it takes a variable that grows gradually over time to double is approximately 70  divided by that variable’s annual growth rate  ● Example: # of years for variable to double = 70/ annual growth rate of variable  ● If GDP grows at 2% per year, it will take 35 years to double    Labor Productivity:  Often referred to as simply productivity ­ output per worker    Physical Capital:  Consists of human­made resources such as building and machines    Human Capital:  Is the improvement in labor created by the education and knowledge embodied in the  workforce    Technological Progress:  Is an advance in the technical means of the production of goods and services    Why do countries with low income have a higher growth rate?  Aggregate Production:  Hypothetical function that shows how productivity (real GDP per worker) depends on  the quantities of physical capital per worker as well as the state of technology  ● GDP per worker: T x (Physical Capital per worker) x (Human Capital per worker)  ○ T stands for the estimate of level of technology    Year  K/L  Y/L  Investment  1  18,000  10,000  2,000  2  20,000  11,000  2,200  3  22,200  12,000  2,400  4  24,600  12,900  2,800    Aggregate Production Function:  Y/L= f(K/L, H/L, T)    Capital has diminishing returns because without additional workers, new machinery  won’t be useful.  Developing country has a lower capital stock and higher returns of capital.    Diminishing returns to physical capital:  When holding the amount of human capital per worker and the state of technology fixed,  each successive increase in the amount of physical capital per worker leads to a  smaller increase in production    Growth accounting:  Estimates the contribution of each major factor in the aggregate production function to  economic growth    Total factor productivity:  The amount of output that can be achieved within a given amount of factor inputs    Natural resources are less important today than physical and human capital as sources  of productivity growth in most economics    Four Government Policies:  1. Roads, power lines, ports, info networks and other underpinnings for economic  activity are known as ​ infrastructure​.  2. Government subsidies to education  3. Government spending to R & D  4. Maintaining a well­functioning financial system    Convergence hypothesis:  International differences in real GDP per capita tend to narrow over time  ● Economists believe that countries with relatively low real GDP per capita have  higher rates of growth than countries with high GDP per capita  ● Eventually, less developed countries will catch up and grow slowly like everyone  else  ● As technologies spread and returns to capital fall, growth rates will equalize    Sustainable long­run economic growth:  Long run growth that can continue in the face of the limited supply of natural resources  and the impact of growth on the environment  ● Long run growth is ​ sustainable​  if it can continue in the face of the limited supply  of natural resources and the impact of growth of the environment    Technology, Markets and the New Growth Theory    Why Growth Rates Differ:  ● Differences in institutions (invest/innovate more)  Government Policies:  ­Savings and investment spending  ­foreign investment    Chapter 10:    Savings­investment spending identity:  Savings and investment spending are always equal for the economy as a whole    GDP = C + I + G + X­IM  Total Income = Total Spending  GDP = C + G + I  Total Income = Consumption Spending and Investment Spending  C + G + S = C + G+ I  Consumption spending + Savings = Consumption Spending + Investment  Spending    Budget Surplus:  Difference between tax revenue and government spending when tax revenue exceeds  government spending    Budget Deficit:  Difference between tax revenue and government spending when government spending  exceeds tax revenue    Budget Balance:  Difference between tax revenue and government spending ((s)govt. = T­ G ­ TR    National Savings: (Closed Economy)  Sum of private savings and the budget balance, is the total amount of savings  generated within the economy  ((s)National = (s)Govt. + (s)private    Net Capital Inflow: (Open Economy)  Total Inflow of Funds into a country minus the total outflow of funds out of a country    Loanable Funds Market:  Hypothetical market that illustrates the market outcome of the demand for funds  generated by borrowers and the supply of funds provided by lender  ● The interest rate at which the quantity of loanable funds supplied equals the  quantity of loanable funds demanded (equilibrium interest rate)    Crowding Out:  Occurs when a government budget deficit drives up the interest rate and leads to  reduced investment spending    Fisher Effect:  An increase in expected future inflation drives up the nominal interest rate, leaving the  expected real interest rate unchanged    Wealth:  The value of its accumulated savings    Financial asset:  Paper claim that entitles the buyer to future income from the seller    Physical Asset:  Is a paper claim that entitles the buyer to future income from the seller    Liability:  Requirement to pay income in the future  Transaction Costs:  The expenses of negotiating and executing a deal    Financial Risk:  Uncertainty about the future outcomes that involve financial losses or gains    Diversification:  Investing in several different things so the possible losses are independent events    Liquid:  Quickly converted into cash with relatively little loss of value    Illiquid:  Cannot be quickly converted into cash with relatively little loss of value    Loan:  Lending agreement between an individual lender and an individual borrower    Default:  Occurs when a borrower fails to make payments as specified by the loan of bond  contract    Loan­backed security:  An asset created by pooling individual loans and selling shares in that pool    Financial intermediary:  An institution that transforms the funds it gathers from many individuals into financial  assets    Mutual funds:   Financial intermediary that creates a stock portfolio and then results shares of this  portfolio to individual investors    Pension fund:   Type of mutual fund that holds assets in order to provide retirement income to its  members        Life­insurance company:  Sells policies that guarantee a payment to a policy holder’s beneficiaries when the  policy holder dies    Bank Deposit:  Claim on a bank that obliges the bank to give the depositor his or her cash when  demanded    Bank:  Financial intermediary that provides liquid assets in the form of bank deposits to lenders  and uses those funds to finance the illiquid investment spending needs of borrowers    Efficient market hypothesis:  Asset prices embody all publicly available info    Random walk:  Movement over time of an unpredictable variable    Present Value:  $1 received in a year = $1/ (1 + r)  r = interest rate           


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."

Allison Fischer University of Alabama

"I signed up to be an Elite Notetaker with 2 of my sorority sisters this semester. We just posted our notes weekly and were each making over $600 per month. I LOVE StudySoup!"

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.