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[ECON 202] Chapter 10

4 different ways to calculate GDP:
Production Consumption Factors of production Value added
real GDP per capita
Real GDP / Population OR (Nominal GDP/GDP Deflator )/ Population
Which of the following does NOT lead to long-run economic growth??
Increase in average wages
Potential GDP
increases over time as technological change occurs.

increases over time as the labor force grows.

real GDP per capita
real GDP per capita is the amount of production in the economy, per
person, adjusted for changes in the price level.
It is most commonly used to measure the average standard of living.
long-run economic growth
which rising productivity increases the average standard of living.
For longer time periods we can solve for the GROWTH RATE g using:
Previous real GDP * (1 + g)t = Current real GDP

t = number of time periods between the previous and current periods.

Use the Rule of 70
70 / growth rate
Factors affecting labor productivity growth
Increases in capital per hour worked Capital is manufactured goods that are used to produce other goods and services.
Factory buildings
Machine tools
Human capital represents the accumulated knowledge and skills workers possess.
Technological change are improvements in capital or methods to combine inputs into outputs that allows workers to produce more in a given period of time.
New machinery
New equipment
New software
Entrepreneurs are critical for implementing technological change. They create ways to bring together the factors of production to produce better or lower-cost products.
Factors affecting labor productivity growth
provide secure rights to private property.
The government can also facilitate:
A financial system
Systems of education
Systems of communication
Saving rate
(Income – Spending) / Income
National Savings
Private saving + Public saving
Private saving
Household saving + Businesses saving

Y – T* – C

Public saving
Net Taxes (T*) – Government purchases (G) = T* – G

T* = Taxes – Transfers – Government interest payments

Budget Deficit and Budget Surpluses:
T* = G (or T = G + t) Balanced government budget
T* > G Government budget surplus
T* < G Government budget deficit
Firms that act as financial intermediaries LOADING… match households that have excess funds with firms that want to borrow funds. What other key services does the financial system provide to savers and? lenders? ?(Mark all that? apply.)
-Provides an easy method of exchanging a financial security for money.

-Allows savers to spread their money among many financial investments.

-Collects and communicates information about borrowers to savers

Evaluate the following? statement:
?”Saving money is not lending. How can it? be? When I save my? money, I put it in a bank. I? don’t loan it out to someone? else.”
incorrect. The supply of loanable funds is determined by household saving.
Panel? (a) above shows an idealized business cycle. Panel? (b) shows an actual business cycle by plotting fluctuations in real GDP during the period from 1999 to 2002. Use the graphs to help determine which one of the following statements is NOT? true:
Inconsistent movements in real GDP around the business cycle peak can mean that the beginning and ending of a recession are? clear-cut.
What is the general relationship between the business cycle and unemployment and? inflation?
During an? expansion, unemployment falls and inflation increases.

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