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ECON 202 > Exam 2 > Flashcards

Exam 2 Flashcards

1
Q

Macroeconomics

A

concerned with both long-run economic growth and sort-run business cycles

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2
Q

World bank 2010

A

1.22 billion people live on less than $1.25 a day in 2010

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3
Q

World bank 1980

A

2 billion people live on less than $1.25 a day in 1980

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4
Q

World bank other

A

2.4 billion people live on $2 a day

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5
Q

US poverty for a family of 4

A

$23050 for a family of four

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6
Q

US poverty per person per year

A

$5762 per per person per year

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7
Q

US poverty per person per day

A

$15.79 per person per day

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8
Q

US poverty vs world bank

A

1200% of world bank standard

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9
Q

growth rate

A

small differences in the growth rate lead to large standard of living differences in a single generation

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10
Q

rule of 70

A

70 / growth rate

time required for income to double

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11
Q

Economic growth

A
  • an increase in the amount of goods that an economy can sustainable produce
  • ignoring short run fluctuations in GDP growth and unemployment
  • focus on the determinants of potential output
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12
Q

how to represent economic growth

A

we can represent potential output using a production function

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13
Q

Y/L

A

output per worker

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14
Q

K/L

A

capital per worker

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15
Q

capital

A

the stock of machines, structures, and equipment used to produce goods

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16
Q

L

A

labor

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17
Q

curve

A

the curve represents how much (Y/L) can be produced using certain amounts of (K/L)

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18
Q

increase in (K/L)

A
  • always results in higher Y/L
  • results in on the margin a smaller increase in Y/L
  • the change in K/L is the same but the change in Y/L gets smaller
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19
Q

The Prod Function

A
  • concave
  • diminishing returns
  • the marginal product of capital decreases as K/L increases
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20
Q

marginal product of capital

A

the increases in Y/L from adding one or more unit of K/L

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21
Q

(why assume diminishing returns?)

as K/L increases…

A
  • capital is spread more thinly across available workers
  • each additional unit of K/L gets put towards the most productive use available. subsequent units are put towards marginally less productive uses
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22
Q

investments

A
  • additions to the capital stock (K)
  • given diminishing returns investments are necessary for growth but not sufficient
  • are made from resources the consumption of which is foregone (sacrificed)
  • come from savings
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23
Q

production function shifts

A
  • upward over time
    why?
  • technological change
  • improvements in institutional quality
24
Q

technology

A
  • the knowledge of how to combine labor (L) and capital (K) to produce output (Y)
  • ideas and usable knowledge
25
Q

Institutions

A
  • the humanly devised constraints on how to combine labor and capital to produce output
  • can be formal, informal, or a mix of both
  • constraints on how existing technologies are put to use
26
Q

Douglas North

A
  • Won the Nobel Prize

- “institutions are the rules of the game in society”

27
Q

examples of institutions

A
  • legal codes
  • constitution
  • religions
  • norms of behavior
28
Q

effective institutions

A

facilitate exchange by decreasing transaction costs

29
Q

formal institutions

A

one written down

legal codes, constitution, religion

30
Q

informal institutions

A

one not written down

norms of behavior, religions

31
Q

transaction costs

A

the time, money, and effort used up in making mutually beneficial exchanges happen

32
Q

institutions that tend to promote economic growth

A
  • well defined and enforced property rights
  • stable, low levels of regulation
  • honest (transparent) government
  • political stability
  • dependable legal system ( presence of the “rule of laws”)
33
Q

when institutions promote economic growth..

A
  • individuals internalize the cost of their actions
  • individuals can effectively plan over significant time horizons
  • “rules of the game” are strong and stable (persistent)
34
Q

Nonrivalry good

A

one persons use of a good does not hinder another persons use of the good
- ex. a joke: you can think the same thing at the same time and it wont effect the other person

35
Q

rivalry good

A

only one person can enjoy it at a given time

- ex. coffee

36
Q

Nonrivalry of ideas

A
  • makes policy regarding technological progress tricky
37
Q

ex ante

A

before the fact

38
Q

ex post

A

after the fact

39
Q

ex ante Nonrivalry ideas

A
  • people need incetives to innovate
  • they need to expect to profit from their ideas
  • they must be able to exclude others from using their ideas
40
Q

ex post Nonrivalry ideas

A
  • once an idea exists, the marginal cost of someone else benefiting from using it is (close to) zero
  • you should not exclude others from using it
41
Q

Time consistency problem (rich and poor countries)

A

ex. patents

  • for rich countries: (with relatively good institutions) fostering technological progress is the key to economic growth
  • for poor countries: the key is getting the institutions right
42
Q

Time consistency problem ex ante

A

providing intellectual property protection provides the incentives to innovate

43
Q

Time consistency problem ex post

A

allowing others to use existing ideas when the marginal cost is close to zero seems to make sense

44
Q

poor countries

A

public good characteristics: nonrival and nonexcludable

  • a lot of nearly “free lunches” avaliable to developing economies. How to best make use of existing technologies
45
Q

to make use of new technologies

A

one needs the tools, equipment and structures in which they are embodied or with which they are produced

46
Q

positive time preference

A
  • people prefer consumption now over consumption later

- they need to be compensated for saving (interest)

47
Q

financial markets

A
  • markets where the demand for new capital (investment) meets the supply of saving
  • deal in loans that are paid back over time
48
Q

supply of savings

A
  • (supply of credit)
    1. time preference
    2. desire for smooth consumption
    3. the interest rate
49
Q

demand to invest

A
  • (looking to borrow)
    1. productivity of its investment opportunities
    2. the interest rate
50
Q

what happens when firms perceive their investments to be more productive

A
  • they anticipate higher demand for their goods
    or
  • technological improvements
51
Q

asymmetric information problems

A
  • occurs when one party to a transaction has insufficient information regarding the other party
  • online ratings helps alleviate information asymmetry problems
52
Q

Savers (lenders) may have insufficient information about…

A
  • the profitability of investments
  • what borrowers do with the funds
  • the outcome of the investments
53
Q

Asymmetric Information Problems

A
  • adverse selection problems

- moral hazard

54
Q

adverse selection problems

A

when bad credit risks (someone you do not want to lend to) are the ones what are most likely to seek out loans

55
Q

adverse selection problems occurs if borrowers..

A
  • do not plan on repaying in the first place

- do not understand the burden of repayment

ECON 202 (5 decks)

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