Econ Week 2

Question 1

GDP calculate

Answer 1

Total Sales- cost of intermediate inputs

Measures your contribution toward the item

Question 2

Total Income

Answer 2

Total wages + Total profits

(capital gains and losses are not counted as new income)

Question 3

Limitations of GDP

Answer 3

Prices are not values
Non-MKT activites including household prod are excluded
The shadow economy is missing
Environmental Degradation is not counted
Leisure doesn’t count
GDP ignores Distribution

Question 4

Nominal GDP

Answer 4

It only measures price changing and doesn’t show how the economy is really doing.

Not useful for showing GDP overtime
Useful fro analyzing what GDP is right now

Adds up the mkt value of total prod. in a year using the current prices prevailing in that year

Question 5

Real GDP

Answer 5

GDP is measured in constant prices. Excludes effects of price changes
-Its called real GDP because it measures real change in production

Allows us to isolate growth

Question 6

Nominal calc

Answer 6

P x Q

Question 7

Real calc

Answer 7

Pt + Pt-1/ 2 == P x Q

Question 8

Relation of nominal to real

Answer 8

change in nominal= change in real _ change in prices

Question 9

Strategy 1

Answer 9

Evaluate what it means per person
Reduce the number into more human terms

Question 10

Strategy 2

Answer 10

Compare big numbers to the size of the economy

Scale big numbers by comparing them to the size of the total economy

Question 11

Strategy 3

Answer 11

Compare big #’s to their own history

Question 12

Strategy 4

Answer 12

Use the rule of 70 to evaluate long-run growth rates

Years it takes to dbl= 70/ annual growth rate

Question 13

Early human history economic growth

Answer 13

-Nothing was being produced cause we were just trying to survive. This led to little innovate and economic growth

Question 14

Economic boom

Answer 14

With the agricultural and industrial revolution, the economy boomed due to new innovations and ideas.

Question 15

Production function

Answer 15

The methods by which inputs are transformed into output, which determines the total production that’s possible with a given set of ingredients

Question 16

Labor

Answer 16

The sum of all hours worked across the economy

Question 17

Human Capital

Answer 17

The accumulated knowledge and skills make a worker more productive.

Question 18

Physical capital

Answer 18

The tools, machinery and structures that are input in the production process

Question 19

A country’s output depends on

Answer 19

Labor input (L)
Human capital (H)
Physical Capital (K)

Y= F(L,H, K)

Question 20

Labor factors

Answer 20

size of pop
working age fraction
share of people who choose to work
How many hours each puts in

Question 21

Capital Stock

Answer 21

The total quantity of physical capital that can be used in the production of goods and services

Question 22

Technological Progress

Answer 22

New Methods for using existing resources

Question 23

Constant returns to scale

Answer 23

Increasing all inputs by some proportion will cause output to rise by the same proportion

Question 24

Replication Argument

Answer 24

If you want to double to the output of your factory, double all inputs.

Insight 2: There are diminishing returns to capital

Question 25

Law of Diminishing returns

Answer 25

As you add more and more workers you will at some point stop producing as much.

Question 26

Catch up growth

Answer 26

The rapid growth that occurs when a relatively poor country invests in its physical capital

Question 27

Solow Model

Answer 27

Is used to analyze economic growth

Question 28

Depreciation

Answer 28

The decline in the capital due to wear and tear, obsolescence, accidental damage, and aging

Insight 4: The capital stock will grow as long as investment outpaces depreciation.

Question 29

Rising Depreciation

Answer 29

If the fraction of machines that fail each year is fixed, then more machines will mean more breakdowns— Total Depreciation grows

Question 30

Tech process is driven by

Answer 30

The speed at which new ideas are created
How many resources are devoted to generating new ideas