Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Econ116 (S2020) > (Done) Day 1,2: Measuring the economy, long-run growth > Flashcards

(Done) Day 1,2: Measuring the economy, long-run growth Flashcards

1
Q

What’s free market?

A
  1. Buyers and sellers interact freely (with little gov’t intervention)
  2. No central planning: production and distribution are the result of individual choices, no “coordination from above” aka the gov’t.
  3. economy coordinated through prices
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What’s microeconomics?

A

Focuses on the study of the individual: people, firms, or markets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What’s macroeconomics?

A
  1. aggregate level
  2. Studying the collections of people and firms and how their interactions through markets determine the overall economic activity in a country/region
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What’s the difference between long-run and short-run?

A

long-runs usually greater than 6months/1 year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What’s macro policy?

A

used to stabilize the economy and prices, and increase employment/growth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

examples of macro topics?

A

economy-wide topics: GDP, growth rate, unemployment rate, etc.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What’re macro research steps?

A
  1. Gather the economic facts/data you want to explain/explore
  2. develop model to explain those facts
  3. compare model’s predictions with original facts
  4. use the model to make policy/run experiments (change parameters)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What should a successful model do?

A

A successful model should make general and quantitative predictions: 1. predict differences between firms/countries
2. AND by how much (numerically)

  • explain relationships between macro topics
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What’s a model?

A
  1. simplify reality by making assumptions

2. identify the most relevant drivers of the economic facts you’re exploring

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Are models realistic?

A

NEVER! The whole point of a model is to simplify reality and identify the most relevant drivers of the economic facts you’re exploring

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What’re models in econ made up of?

A

Models in econ consist of a set of math equations that summarize the main interactions we care about, and a set of unknowns (the endogenous variables). You solve the model by solving the equations for the values of the unknowns.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What’s a parameter?

A

variable that’s fixed over time unless you change it yourself (doesn’t change by itself over time)
input to the model

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What’s exogenous variable?

A
  1. input to model that’s allowed to change/vary over time, variations occur naturally
  2. Driving the model and the results
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What’s endogenous variable?

A

output, result of model

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What’s national income accounting?

A

measuring GDP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What’s the national income accounting equation?

A

total production (of goods/services) = total income = total spending

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What’s GDP?

A

GD{ is the value of goods/services produced in a country

  1. within its borders
  2. for final use
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What do u need to count GDP?

A
  1. unit of account
  2. common assessment method
  3. avoid double counting
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

what’s unit of account?

A

a standard monetary unit of measurement of value/cost of goods, services, or assets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

how to avoid double counting GDP?

A

To avoid double counting, GDP counts only the final output of goods and services, not the production of intermediate goods used as inputs to make final goods (eg raw materials).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What’s added value used for?

A

Use added value to calculate an individual person/firm’s contribution to GDP! Use the sum of an economy’s value added for total GDP.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What’s added value?

A

Use added value to calculate an individual person/firm’s contribution to GDP! Use the sum of an economy’s value added for total GDP.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Formula for added value?

A

value created/added value is = value of final goods/services sales - value of intermediate products (see above).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What does value added include?

A

wages, interest, depreciation, rent, taxes, and profit (usually splits into just profits + wages in most basic scenarios)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What’s productivity?

A

How good you are at producing added value per hour

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

productivity formula?

A

Productivity = Added value / Hours

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What’s trade surplus/trade deficit?

A
  1. Positive/trade surplus: imports are less than exports

2. Negative/trade deficit: imports are greater than exports

28
Q

What’s wrong with GDP?

A
  1. not happiness
  2. doesn’t measure welfare
  3. fiscal optimization by large companies
29
Q

3 GDP measures?

A

production (added value), income, and expenditure

30
Q

3 GDP measures formulas?

A

GDP = Σ Added Value = C+I+G+(Exp-Imp) = profits+wages+taxes

Finals: total production = total expenditure/consumption = total income

31
Q

What’s the added value GDP measure?

A

GDP = sum of the added values of all sectors/every firm at each stage of production

32
Q

What’s the expenditure GDP measure?

A

measure all consumption of FINAL goods/services

33
Q

What’s the expenditure measure formula?

A

GDP/Y = C + I + G + X ( = exports - imports)

34
Q

What’re inventories?

A

g/s produced this year but not sold.

35
Q

What’s net exports?

A

exports - imports

36
Q

Why isn’t imports in GDP?

A

GDP of a country is defined as the sum of values of goods and services produced in a country within its borders.

Since imports are not produced within the borders of a country, thus, it is not calculated in the GDP of that country.

37
Q

What’re IPP Intellectual property products?

A

Includes R&D spending and expenditures on durable intangible goods (software, movies, etc.).

38
Q

What’s gov’t spending?

A

Gov’t spending: all the money the gov’t spends, that includes purchases of goods and services, but also includes “transfer payments” (transfers don’t count in GDP: eg taxes, programs such as social security/medicare/welfare, and interest on gov’t debt, because nothing new is purchased/created.)

39
Q

What’re gov’t purchases?

A

gov’t purchases of goods and services that are produced in the economy only

40
Q

What’s the income measure of GDP?

A

GDP = sum of incomes and revenues (of producers/firms, consumers, and the gov’t)

41
Q

What’s the factor of production?

A

Element needed for production, but not consumed/transformed by production

Example: the field the farmer uses/baking oven, seeds are NOT a factor of production bc it’s gone.

42
Q

Benefits of higher GDP for poor countries?

A

when you make more things in a country, people have more resources (food, healthcare, etc.), which directly impacts life expectancy/happiness

  1. better health
  2. more child education
  3. more women’s rights
  4. less slavery
43
Q

minor costs of GDP growth?

A
  1. Environmental problems (eg pollution)
  2. Increased income inequality
  3. Technological advances may lead to certain jobs/industries disappearing
44
Q

Why do we need GDP growth in rich countries?

A
  1. growing social security/retirement needs
  2. reduces unemployment
  3. rising incomes increase satisfaction
45
Q

What’s the problem with comparing GDP across countries with exchange rate?

A
  1. vary a lot over time

2. don’t take purchasing power/price levels into account

46
Q

How do you compare GDP across countries?

A

use the Purchasing power parity (PPP) exchange rate: the exchange rate between different currencies that tells you an amount in one currency has the exact same purchasing power (can buy the exact same number/type of things) as another.

47
Q

What’s the price level?

A

the average of current prices across the entire spectrum of goods and services produced in the economy.

48
Q

What’s nominal GDP?

A

Calculating today’s GDP using prices in a certain place/time. Weakness is that it takes into account BOTH market values and real quantities produced, so can’t compare them

49
Q

What’s real GDP?

A

The actual quantity of goods and services produced, determines the purchasing power after adjusting for price changes in a given year with PPP.

50
Q

What do quantity indexes do?

A

Calculates the real GDP growth rate: change in real GDP

51
Q

What’s Laspeyres/Paasche index?

A
  1. Laspeyres: Calculating the change in real GDP with the initial prices
  2. Paasche: Calculating the change in real GDP with final prices
52
Q

What’s Fisher index/chain weighting?

A

average of laspeyres and paasche index real GDP growth rates!

53
Q

What do price indexes do?

A

calculate the inflation rate

54
Q

What’s the rule of 70?

A

If the income grows at a rate of g% per year (average annual growth rate is g), then the number of years it takes income to double is 70/g

55
Q

What to use rule of 70 for?

A

Use this to calculate the average annual growth rate (the rate at which a value grows per year) and to determine the growth rate from a ratio scale

56
Q

What’s ratio scale?

A

A plot where equally spaced tick marks on the vertical axis are labeled consecutively with numbers that exhibit a constant ratio (constant multiple, eg 1, 5, 25, 125, etc.).

57
Q

what do u use ratio scale for?

A

Allows you to quickly read growth rates from a graph: Used to tell if average growth rate is increasing, decreasing or constant

58
Q

how to interpret ratio scales?

A

Slope = growth rate

ower slope means lower growth

59
Q

Sustained increases in GDP which increased standards of living are a ____ phenomenon

A

Sustained increases in GDP which increased standards of living are a RECENT phenomenon

60
Q

What’s the great divergence?

A

only started seeing increased differences in per capita GDP recently (past 3 centuries)

61
Q

Why did countries have such different per capital GDP?

A

Small differences in growth rates tend to accumulate over time.

62
Q

When did per capital growth accelerate?

A

after WW2, rebuilding caused high growth/technological catchup

63
Q

What’s convergence?

A

the hypothesis that poorer economies’ per capita incomes will tend to grow at faster rates than richer economies. As a result, all economies should eventually converge in terms of per capita income

64
Q

Reasoning for convergence?

A
  1. Easier for poorer countries to grow fast, bc they can replicate the production methods, tech, and institutions of developed countries. (Rich countries wanting to grow can’t imitate bc no one else is doing better, so they have to innovate themselves).
  2. Poorer countries experience less diminishing returns (ex. capital)
65
Q

What type of growth is convergence?

A

convergence is TRANSITORY growth! Catchup growth only occurs until poor countries catch up economically and technologically.

66
Q

Does data support convergence theory?

A
  1. supports OECD developed countries, not developing countries
  2. poorer countries don’t necessarily grow faster, convergence isn’t a fact
67
Q

Why didn’t Africa conquer the world?

A

Africa’s vertical, and climate varies based on latitude, so harder to grow crops, free up time to innovate, and cause economic growth

Econ116 (S2020) (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions