Econ Final Exam Flashcards
Memorization
What are the key sources of productivity growth?
Physical capital, human capital, and technological progress.
What is diminishing returns to physical capital?
Increasing physical capital leads to smaller productivity gains when other factors are fixed.
What is the aggregate production function?
Relationship between input factors (capital, labour, human capital) and output.
What is growth accounting?
Method to estimate contributions of inputs and technology to growth.
What is total factor productivity?
Output produced with a given quantity of inputs, influenced by technology.
What is the convergence hypothesis?
Countries with lower GDP per capita grow faster, narrowing income gaps over time.
What factors explain differences in growth rates?
Savings, investment, education, and research & development (R&D).
How do governments promote growth?
Subsidies (infrastructure, education, R&D), financial stability, property rights, and good governance.
What is the savings-investment spending identity?
Savings = Investment spending.
What are national savings?
Private savings + public savings (budget surplus or deficit).
What is net foreign investment (NFI)?
Domestic funds invested abroad - foreign funds invested domestically.
What is the loanable funds market?
A market matching savers with borrowers.
What shifts the demand for loanable funds?
Changes in business opportunities and government policies.
What shifts the supply of loanable funds?
Changes in savings behavior and government budget balance.
What is crowding out?
Government borrowing increases interest rates, reducing private investment.
What is the Fisher Effect?
Higher expected inflation raises nominal interest rates, leaving real rates unchanged.
What are the three tasks of a financial system?
Reduce transaction costs, reduce risk, and provide liquidity.
What are the main types of financial assets?
Loans, bonds, stocks, and loan-backed securities.
What are financial intermediaries?
Institutions that transform funds from savers into financial assets (e.g., banks, mutual funds).
What are the roles of money?
Medium of exchange, store of value, and unit of account.
What is a bank run?
Mass withdrawal of deposits due to fears of bank failure.
What is the money supply?
Total value of liquid financial assets (e.g., currency and chequable deposits).
What are monetary aggregates?
Measures of money supply, e.g., M1+ (most liquid assets) and M2 (near-moneys).
What is deposit insurance?
Guarantees deposits (e.g., up to $100,000 in Canada) to protect against bank failure.
How do banks create money?
By lending out deposits, keeping only a fraction as reserves.
What is the money multiplier?
Ratio of the money supply to the monetary base.
What are the Bank of Canada’s tools of monetary control?
Open-market operations, reserve requirements, and the bank rate.
What is the overnight rate?
Interest rate for interbank borrowing of reserves.
What is the money demand curve?
Shows inverse relationship between interest rates and money demand.
What shifts the money demand curve?
Changes in price level, GDP, credit technology, and institutions.
What is the liquidity preference model?
Interest rate is determined by money supply and demand.
What is expansionary monetary policy?
Increases aggregate demand by lowering interest rates.
What is contractionary monetary policy?
Reduces aggregate demand by raising interest rates.
What is monetary neutrality?
In the long run, money supply changes affect prices, not real GDP or interest rates.
What is the quantity equation?
M × V = P × Y, where M = money supply, V = velocity, P = price level, Y = real GDP.
What is the role of the Bank of Canada?
Oversees banking, controls the monetary base, and implements monetary policy.
