Chapter 6 Flashcards
What three factors cause increases in labour productivity?
1) Quantity of capital per hour worked 2) Human capital 3) Technological advancements
Define long-run economic growth.
Process by which rising productivity increases the average standard of living.
What is the growth rate of real GDP?
The percentage change of growth from the previous year.
What is the rule of 70?
70/Growth Rate (i.e. Growth rate = 5% so 70/5 = 14 years to double)
What is the nominal interest rate?
The observed interest rate.
What is the real interest rate?
The nominal interest rate minus the inflation rate.
If taxes are greater than government spending what is there?
A budget surplus.
If taxes are less than government spending what is there?
A budget deficit.
If taxes are the same as government spending what is there?
A balanced budget.
National savings is what?
The sum of private & public savings.
Will firms spend less or more on investment when interest rates are high?
They will spend less.
What factors 4 factors shift the demand curve for loanable funds?
1) Business confidence 2) Technological change 3) Investment tax credit (i.e. government fiscal policy) 3) Income & wealth (Increase in income or wealth shifts curve right)
What 4 factors cause the supply curve of loanable funds to shift?
1) Households decide to save more 2) Incentives to save (such as RRSP’s & TFSA’s) 3) Governments run surpluses or deficits 4) Older populations (tend to save more)
What 3 key services does the financial system offer to savers & borrowers?
1) Risk sharing 2) Liquidity 3) Information
What happens when there is an economic expansion?
Production, employment, and income are increasing.
