Ch 6: Economic Growth

Front 1

Real GDP growth rate

Back 1

= Real GDP current yr - Real GDP previous yr/

Real GDP previous yr x100

Front 2

Real GDP per person growth rate

Back 2

divide Real GDP by population first

Front 3

Real GDP grows when

Back 3

the quantities of any or all of the four factors of production grow

persistent advances in technology make factors of production increasingly productive

human capital grows

Front 4

moving along the production function shows the relationship between_________, holding all else constant.

Back 4

labor input and real GDP

Front 5

movement along aggregate production function is the result of change in

Back 5

the quantity of labor

Front 6

a shift in aggregate production function is the result of change in

Back 6

physical/ human capital

technology

Front 7

Real Wage Rate

Back 7

= Money Wage Rate / Price Level

RWR= MWR/ PL

Front 8

increase in labor productivity ^____ v the real wage rate and an increase in population ^_____ v the real wage rate.

Back 8

raises, lowers

Front 9

advance in technology increases labor

productivity results in a

Back 9

rightward shift of labor demand curve

if labor is more productive, firms are willing to pay more for a given number of labor hours so the Demand for Labor INCREASES

Front 10

Classical Growth Theory

Back 10

real GDP growth is temporary and return back down to subsistence level.

Front 11

Neoclassical Growth Theory

Back 11

real GDP growth as a result of technological change induces saving and investment.

diminishing returns

technological change is based on chance

Front 12

New Growth Theory

Back 12

choices are made in pursuit of profit and growth will persist indefinitely.

technological discoveries are driven by incentives

knowledge is capital not subject to diminishing returns and is a public good

Front 13

New Growth Theory, technological change is

driven by

Back 13

firms attempts to increase their profit

Front 14

activities that encourage faster growth are

Back 14

investment in new physical and human capital

Front 15

a political system that can foster economic growth if it provides an incentive system that includes

Back 15

markets

government policies

property rights

Front 16

law of diminishing returns

Back 16

output increases at a decreasing rate as more labor is added to a fixed amount of capital

Front 17

to understand the growth of average living

standards, we need data on the growth rate of

Back 17

real GDP per person

Front 18

property rights

Back 18

social arrangements that govern the ownership, use, and disposal of goods and factors.

Front 19

the more education that a worker has

Back 19

the LARGER their human capital and HIGHER their productivity

Front 20

labor productivity is defined as

Back 20

the average amount of real GDP produced per hour of labor

Front 21

classical economist believe

Back 21

real wage would never rise about subsistence level in the long run

Front 22

Neoclassical growth theory proposes

Back 22

real GDP per person grows because to technological change increases the demand for capital

Front 23

Neoclassical growth theory predicts that

Back 23

growth rates of all nations will Converge

Front 24

the subsistence real wage rate is

Back 24

the minimum real wage rate necessary to

sustain life

Front 25

if real GDP per person is growing at 4% per year, aprox how many years will it take to double?

Back 25

= 17.5 years

Rule of 70 ( 70 / 4 )

Front 26

ongoing economic growth in real GDP per

person requires all of the following EXCEPT

Back 26

population growth

Front 27

economic growth requires preconditions that includes

Back 27

markets

property rights

monetary exchange system

Front 28

Labor productivity (real GDP per hr) increases if

Back 28

All of the above :

saving and investment increase quantity of capital per worker

new technologies are continuously discovered

there is an increase in accumulation of human capital

Front 29

new growth theory predicts

Back 29

growth can last indefinitely

Front 30

along a production possibilities frontier for real GDP and the quantity of leisure time,

as LT Increases,

Back 30

real GDP decreases

Front 31

moving along production function, all are held constant except

Back 31

labor

Front 32

when quantity of labor employed increases with no change in nations production function

Back 32

the marginal product of labor diminishes

Front 33

real wage falls if the money wage rate

Back 33

rises slower than the price level

RWR= MWR/ PL

Front 34

if price level falls by 8% and money wage remains constant, firms

Back 34

quantity of labor demanded will decrease

they don't want to pay that many workers with same prices

Front 35

when workers become more productive the demand for labor curve shifts

Back 35

rightward

firms want better workers

Front 36

when real wage rate rises

Back 36

people supply more labor because of

opportunity cost of leisure increases

(more money to afford taking off work)

some people are likely to enter the labor force

Front 37

an increase in price level and no change in

money wage rate

Back 37

downward movement along the labor supply curve

Front 38

equilibrium in the labor market

Back 38

when Actual GDP = Potential GDP

Front 39

when quantity of Labor Demanded EXCEEDS the quantity of Labor Supplied, the real wage rate

Back 39

Rises to eliminate the labor-market Shortage

LD > LS = Shortage

LD < LS = Surplus

Front 40

Given two tables of data showing the Labor Market and Production Function Schedule, find Potential GDP

Back 40

1. find equilibrium at RWR : Quantity of LD = LS

2. find Real GDP @ Quantity of labor

Front 41

when the Real Wage Rate is greater than the Equilibrium Wage Rate,

job search is _______

unemployment________

the natural unemployment rate

Back 41

job search INCREASES

unemployment is GREATER THAN

natural unemployment rate