Chapter 6 - Economic Growth, the Financial System, and Business Cycles Flashcards
Long-run economic growth :
The process by which rising productivity increases the average standard of living
When do we use the growth rate of real GDP/real GDP per capita?
During a particular year
When do we use the average annual growth rate
For longer periods
What is the rule of 70?
A way to calculate approx how many yrs it will take real GDP to double
What is the formula of the rule of 70?
Number of yrs to double=
70/Growth Rate
Labour productivity :
The quantity of goods/services that can be produced by 1 worker or by 1 hr of work
Capital :
Manufactured goods that are used to produce other goods/services
Potential GDP :
The level of real GDP attained when all firms are producing at capacity. It grows over time
“Output gap” :
The percentage difference between actual GDP and potential GDP
Retained earnings :
Profits that are reinvested in the firm rather than paid to the firm’s owners.
Financial system :
The system of financial markets and financial intermediaries through which firms acquire funds from households.
Financial markets :
Markets where financial securities, such as stocks and bonds, are bought & sold
Financial intermediaries :
Firms, such as banks, etc that borrow funds from savers and lend them to borrowers
Market for loanable funds :
The interaction of borrowers and lenders that determines the market interest rate & the quantity of loanable funds exchanged
Crowding out :
A decline in private expenditures or private investment expenditures as a result of an increase in gov purchases
