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ECON104:ch4-6
EXAM #1
| Question | Answer |
|---|---|
| price ceilings | the controlled price is below the market equilibrium price |
| Price ceilings create five important effects | Shortages Reductions in product quality. Wasteful lines and other search costs. A loss from gains from trade. A misallocation of resources. |
| Lost consumer surplus (CS) | CS=demand price- market equilibrium price |
| Lost producer surplus (PS) | PS=market equilibrium price-supply price |
| The total lost gains from trade/ deadweight loss | =sum of the lost consumer surplus and producer surplus for all buyers and sellers. |
| price floor | a minimum price allowed by law |
| Price floors create four important effects | Surpluses,A loss of gains from trade deadweight loss),Wasteful increases in quality,A misallocation of resources |
| GDP and GDP per capita are measures ... | used to reflect changes and differences in standards of living. |
| Intermediate goods | are sold to firms and then bundled or processed with other goods or services for sale at a later stage. |
| Final goods | are the finished goods sold to final users and then consumed or held in personal inventories.To avoid double-counting, only final goods are included in GDP. |
| Goods | are tangible. i.e. cars, food, clothes,and included in GDP |
| Services | are intangible. Transportation, haircuts, medical care.and included in GDP |
| GDP | measures production.The services of realtors, stock brokers, used car salesmen ARE included because their services represent current economic activity.NOT included:Sale of used goods,The sale of financial assets such as stocks and bonds |
| GNP | (Gross National Product) The value of goods and services produced by U.S. residents no matter where they live. |
| The growth rate of GDP | tells us how rapidly the country’s production is rising or falling over time***look at equation ch.5 |
| Nominal variables | such as nominal GDP, have not been adjusted for changes in prices. |
| Real variables | such as real GDP, have been adjusted for changes in prices. |
| Real Growth per Capita | Best reflection of changing living standards.Per capita real GDP is real GDP divided by the population.Growth of per capita real GDP |
| Recession | a significant, widespread decline in economic activity spread across the economy, lasting for more than a few months, normally visible [as a decline] in real GDP, real income, employment, industrial production, and wholesale-retail sales. |
| National spending approach | Y = C + I + G + NX **see ch.5 slide 33 |
| Factor income approach | Y = Wages + Interest + Rent + Profit **see ch.5 slide 37 |
| two biases in GDP statistics | Biases over time,Biases across nations |
| GDP statistics are imperfect because | Many goods are not included.“Bads” are not subtracted.Do not tell us anything about the distribution of income or who benefits from growth |
| Three Key Facts of Wealth of Nations and Economic Growth | GDP per Capita Today Varies Enormously Among Nations,Everyone Used to Be Poor,There are Growth Miracles and Growth Disasters |
| How is economic growth measured? | **ch.6 slide 8 |
| The rule of 70 | **ch.6 slide 9 |
| Physical capital | the stock of tools, structures, and equipment. |
| Human capital | is the productive knowledge and skills that workers acquire through education, training and experience. |
| Technological knowledge | knowledge about how the world works that is used to produce goods and services. |
| Institutions | are the “rules of the game” that structure economic incentives. |
| Institutions of Economic Growth | Property rights,Honest government,Political stability,A dependable legal system,Competitive and open markets |
| Property rights | the right to benefit from one’s effort.Provide incentive to work hard.Encourage investment in physical and human capital.Are important for encouraging technological innovation.ch.6 slide 21 |
| Honest Government | Property rights are meaningless unless government guarantees property rights.Corruption bleeds resources away from productive entrepreneurs.Corruption takes resources away from more productive government activity. |
| Political Stability | Changing governments without the rule of law results in uncertainty which leads to less investment in physical and human capital.In many nations civil war, military dictatorship, and anarchy have destroyed the institutions necessary for economic growth. |
| Dependable Legal System | A good legal system facilitates contracts and protects property from others including government.Poorly protected property rights can result from too much government or too little government. |
| Competitive and Open Markets | Encourage the efficient organization of resources.About half the differences in per capita income across countries is explained by a failure to use capital efficiently. |
| Inefficient and unnecessary regulations(poor countries use their capital inefficiently) | Create monopolies,Impede markets |
| Compound Growth: The Shortcut | If the growth rate is r percent and we grow for n years then:**ch.6 slide 35 |
Created by:
aevanch1
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