Econ 203 EXAM 2 Flashcards
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What is Economic Investment?
Businesses spending on capital goods, such as new equipment, technology, or infrastructure.
Examples include a motor vehicle manufacturer building a new factory, a farmer purchasing new agricultural machinery, and an athletic shoe company expanding its production facilities.
What is Financial Investment?
The purchase of financial assets such as stocks, bonds, or real estate for future returns.
What are the rewards for savers provided by financial institutions?
- Interest payments
- Dividends
- Capital gains
How do financial institutions promote economic growth?
They invest savings into businesses and government projects.
What must an economy do to raise living standards?
Increase its real output and productivity over time.
What is Normal Gross Domestic Product (GDP)?
The total value of goods and services produced within a nation in a given year, measured in current prices.
What is Savings Generation?
Occurs when current income exceeds current spending.
What is the economists’ definition of investment?
Spending on new capital goods and infrastructure.
Which government agency estimates GDP?
Bureau of Economic Analysis (BEA).
What does the nation’s stock of capital refer to?
The total accumulation of capital goods used for production.
What does US GDP include?
Goods and services produced within the U.S.; excludes foreign production and second-hand sales.
What was the approximate US GDP in 2021?
Around $23 trillion.
What determines GDP?
It depends on where it is produced, not who consumes it.
What is Hedonic Adjustment?
Adjusting GDP calculations to account for quality improvements.
What does GDP understatement exclude?
Non-market activities and underground economy.
What method does the BEA use for calculation?
Uses monetary values to aggregate diverse products and services.
What impact does purchasing new home furniture have on GDP?
Increases consumer spending component of GDP.
How is Labor Productivity calculated?
Real GDP divided by total hours worked.
If real GDP is $10,000 and hours worked are 20,000, what is the labor productivity?
$0.50 per hour.
What increases economic growth?
- Investments in technology
- Education
- Infrastructure
- Workforce development
How is Real GDP calculated?
If labor productivity is $16 per hour and total hours worked are 800,000, real GDP is $12.8 million.
What are the government structures in modern economic growth?
Democracies and market-based economies.
What characterizes modern economic growth?
- Technological advancements
- Increased productivity
- Rising living standards
What does the Production Possibilities Curve represent?
Graphical representation of trade-offs and efficiency in resource use.
What factors reduce economic growth?
- Poor investment
- Lack of education
- Inefficient resource allocation
What has been the trend of US economic growth over the last 75 years?
Steady increase in GDP, productivity, and technological innovation.
What does a competitive market system encourage?
Innovation and efficiency, leading to economic growth.
If GDP rises from $100 billion to $106 billion and population increases from 200 million to 212 million, what happens to real GDP per capita?
Falls.
What was unique about the COVID-19 recession in 2020?
Due to government-mandated shutdowns and supply chain disruptions.
What was the average annual growth of real GDP from 1950 to 2021?
Around 3%.
What was the average annual growth of real GDP per capita from 1950 to 2021?
Around 2%.
Which agency collects unemployment data?
Bureau of Labor Statistics (BLS).
What does the Market Basket measure in the Consumer Price Index (CPI)?
A basket of about 300 goods and services.
What are the phases of the Business Cycle?
- Expansion
- Peak
- Contraction
- Trough
What does the Rule of 70 determine?
The number of years required for a price level to double by dividing 70 by the annual inflation rate.
