Chapter 6 Flashcards
What is economic growth?
The expansion of production possibilities.
How is growth rate calculated?
Percentage change of a variable.
Real GDP Growth Rate Formula:
((Current Real GDP - GDP of Previous Year) / GDP of Previous Year) x 100
How does real GDP Per Person grow?
Real GDP grows faster than Population
General Growth Rate Formula:
((Current Year Variable - Previous Year Variable) / Previous Year Variable) x 100
Why might Real GDP grow?
Economy is reaching full employment in expansion phase of business cycle OR Potential GDP is increasing
Is expansion in the business cycle economic growth?
No, it is just picking up the slack of previous years
How do you figure out how long it takes for a variable to double in size?
The rule of 70. 70/growth rate
What determines Potential GDP?
An aggregate production function
An aggregate labour market
What does the Aggregate Production Function measure? What is its shape?
Labour, Real GDP
Upwards rising with diminishing marginal returns
How does an increase in the quantity of labor change Real GDP?
It creates a movement up along the production function. Raises Real GDP
What are the axis of the Aggregate Labour Market?
Labor on X, Real Wage Rate on Y
What is the Demand for labour?
The relationship between the quantity of labour demanded and real wage rate
What is Real Wage Rate?
Money Wage Rate / Price Level
What is the Supply for labour?
The relationship between the quantity of labour supplied and the real wage rate
What is employment when the labour market is in equilibrium?
Full employment
What does the full employment quantity of labour produce?
Potential GDP
What makes potential GDP grow?
Growth in Supply of Labour
Growth in Productivity of Labour
What changes create a change in the Supply of Labour?
Average Hours per Worker
Employment Rate
The working-age-population
How does an increase in the supply of labor change Real Wages and Labour hours and Potential GDP?
Real wages fall
Labour hours increase
Potential GDP increase
What is Labour productivity?
Quantity of Real GDP produced / An hour of labour
What are the effects of an increase in the productivity of labour?
Expansion of production possibilities
Increase in Demand for labour
Increase of potential GDP
What influences the pace of the growth for the productivity of labour
Growth of:
Physical Capital (more stuff)
Human Capital (better quality of labour)
Technological Advancements (better stuff)
