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Econ1020 > Topics 1-5 Midsemester > Flashcards

Topics 1-5 Midsemester Flashcards

1
Q

What is the formula for % change?

A

% change = (New - Old) / Old * 100

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2
Q

Investment falls from $400 million to $200 million. By what percentage has investment fallen?

A

Use % change formula. Investment has fallen by 50%.

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3
Q

Initially investment was 10% of GDP, now it is 5%. How many percentage points has investment’s share of GDP fallen by?

A

5 percentage points.

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4
Q

Initially investment was 10% of GDP, now it is 5%. Investment’s share of GDP has fallen by 50%, true or false?

A

True, [(5-10)/10]*100 = -50%

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5
Q

What factors are responsible for growth in property prices?

A
  1. Income growth
  2. Population Growth
  3. Infrastructure
  4. Speculation
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6
Q

What are the consequences of the popping of a property bubble?

A

(1) decreased household spending, especially on durable goods e.g. cars, appliances
(2) Banks’ profitability decreases - more people faulting on loans, mortgages

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7
Q

Can causation be implied by correlation?

A

Nothing is implied by mere correlation. Correlation does not imply causation.

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8
Q

A wave of private investment should follow a decrease in taxes: positive/normative?

A

Positive

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9
Q

Roger Federer was the world’s best male tennis player between 2004 and 2008: positive/normative?

A

Positive

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10
Q

Bernie Sanders would have made a better President than Donald Trump: positive/normative?

A

Normative

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11
Q

People tend to be physically healthier if they are vegetarians: positive/normative?

A

Positive

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12
Q

Some people would describe you as unattractive: positive/normative?

A

Positive

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13
Q

Y stands for

A

Real GDP

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14
Q

Y* stands for

A

Potential GDP

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15
Q

Potential GDP

A

Measurement of what a country’s GDP would be if it were operating at full employment and utilizing all of its resources.

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16
Q

Output depends on 3 inputs. What are these inputs?

A

(1) labour (2) capital (3) technology

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17
Q

Technology is… (definition)

A

anything that increases output without increasing inputs

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18
Q

Inventions/discoveries count as an increase in technology

A

False - knowledge must be put into practice in order to count as an increase in technology

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19
Q

Einstein’s revelation that e=mc**2 was an increase in technology

A

False - not applied, just a theory

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20
Q

The replacement of hand-weaving by looms in the 19th Century was an increase in technology

A

True - applied knowledge = increase in technology

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21
Q

Technology does not have diminishing returns - true/false

A

True. Technology is non-rivalrous and not excludable. One person’s use doesn’t prevent someone else from using it. Technological progress is essential for long-term growth.

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22
Q

Increase in technology equals growth in output not attributable to other sources - true/false

A

True. Growth is a function of labour, capital and technology. Economists add up labour and capital first, as they’re measurable, and whatever is left over is attributed to technology.

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23
Q

Business cycle

A

Recession, expansion, boom, slump, peak, trough

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24
Q

Boom

A

When GDP is above potential GDP: (Y > Y*)

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25
Q

Slump

A

When GDP is below potential GDP (Y < Y*)

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26
Q

Recession

A

Sustained decrease in GDP (usually for two quarters or more)

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27
Q

Expansion

A

Sustained increase in GDP after a recession

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28
Q

Peak

A

Highest point before a recession

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29
Q

Trough

A

Lowest point before an expansion

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30
Q

If a real GDP is graphed using a log scale, and the line is straight, what can you conclude about the growth rate of real GDP?

A

Real GDP has a constant growth rate if log line is straight.

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31
Q

If at a point inside the PPC, what does this indicate about the economy?

A

It is in a slump and could better combine its inputs to produce more output

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32
Q

It’s not possible to reach a point outside the PPC - true/false

A

False - short term fluctuations are possible. This is based on the notion of ‘slack’.

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33
Q

Slack

A

The idea that efficiency does not mean 100% capacity. A bit of slack is good.

34
Q

Natural unemployment rate

A

When the economy is at potential GDP

35
Q

What is the central message of Sam Harris’ TED talk?

A

Science provides some guiance on what social practices are conducive to human wellbeing.

36
Q

Sam Harris TED talk: We are more concerned aout the wellbeing of animals than of insects. This is because:

A

we believe that animals experience a greater range of potential happiness and suffering.

37
Q

Structural unemployment

A

arises from a mismatch b/w skills of workers and requirements of available jobs

38
Q

Cyclical unemployment

A

i.e. Keynesian unemployment - caused by business cycle

39
Q

Frictional unemployment

A

short-term unemployment - in between jobs

40
Q

Taxi/Uber operators losing their jobs due to driverless taxis - structural/frictional/cyclical?

A

Structural - mismatch b/w skills of workers and skills needed

41
Q

Nick has retired from his job at a call centre and is now looking for another job - structural/frictional/cyclical?

A

Frictional - in between jobs

42
Q

Alex and Richie both get laid off during a recession - structural/frictional/cyclical?

A

Cyclical - laid off due to recession, Keynesian

43
Q

What are the shortcomings of GDP?

A

Doesn’t take into account (1) home production; or (2) underground economy

44
Q

Home production

A

Mowing your lawn instead of hiring someone to mow it for you. Home production does not affect GDP, whereas hiring someone adds to GDP.

45
Q

What is the Underground economy and how large is it?

A

Buying and selling of goods and services that is concealed from govt to avoid taxes/regulations or because illegal. Size estimated to be 14% in Australia.

46
Q

Production approach

A

adds up the value added in the production of goods and services by each entity in the economy

47
Q

Spending approach

A

Y = C + I + G + NX

48
Q

Income approach

A

Labour income (wages, salaries, etc) + capital income (rentals, interest, profits) + net indirect taxes (e.g. GST)

49
Q

Events which reduce wellbeing can increase GDP - true/false

A

True - a car crash may indirectly increase GDP due to surgery required.

50
Q

A textile mill in Australia owned by a Chinese firm - is this included in GDP production approach?

A

Yes - GDP takes into account production that occurs in Australia, nationality of owner of factory irrelevant.

51
Q

A textile mill in China owned by Australians - is this included in the GDP production approach?

A

No - mill located in China, value added by it is included in China’s GDP not ours.

52
Q

Aus Business buys a final good - C, G, I, NX?

A

Investment

53
Q

Aus Household buys a final good - C, G, I, NX?

A

Consumption

54
Q

Aus Gvt buys a final good - C, G, I, NX?

A

Government spending

55
Q

Foreign household buys an Australian product - C, G, I, NX?

A

NX increase

56
Q

Aus Business manufactures a good but doesn’t sell it - C, G, I, NX?

A

Investment - inventory investment increases

57
Q

Aus Business sells a good it produced to Aus household - C, G, I, NX?

A

Consumption increase, investment decreases because inventories are run down

58
Q

Clive Palmer buys shares in a company

A

Financial investment is not a form of ‘Investment’ for this course

59
Q

What is the difference between GDP and Net Domestic Product (NDP)?

A

NDP = GDP - depreciation. Depreciation is the decrease in an asset’s value due to wear and tear (e.g. car, machinery etc.)

60
Q

Classical vs Keynesian?

A

Classical is more long-term, Keynesian is more short-term

61
Q

Neoclassical production function

A

Y = f(L, K, Te)

i.e. GDP is a function of Labour (L), capital (K) and technology (Te).

62
Q

For the USA to be richer than Indonesia, it must… (consider the production function)

A

It must have more of one/all of L/capita, K/capita, or Te

63
Q

What is the rule of 72?

A

Number of years to double = 72/annual growth rate.

64
Q

Ant economy vs Grasshopper economy

A

Investment results in more output per capita, so eventually ant economy will always overtake grasshopper economy.

65
Q

Ant economy

A

Low consumption
High Investment

Ants don’t each much and store everything.

66
Q

Grasshopper economy

A

High consumption
Low investment

Grasshoppers eat a lot and don’t store much..

67
Q

Downsides of ant economy?

A

Trade-off today is that wellbeing today/living standards today are lower.

Less money being used for consumption leads to lower living standards.

68
Q

A recession occurs when…

A

GDP falls

69
Q

A growth recession is…

A

a slowdown

70
Q

Booms are…

A

when the economy is producing above its trend level

71
Q

A typical PPC … (describe shape)

A

is downward sloping and bowed outwards

72
Q

Natural rate of unemployment = trend rate of unemployment, true/false?

A

True

73
Q

GDP fluctuations in mature economies are caused mostly by sudden changes in…

A

Private investment

74
Q

A domestic firm imports $20 worth of ground coffee beans. It re-packages it, sells it for $100 to a supermarket, which sells it to households for $300. GDP rises by…

A

$280

75
Q

In the Keynesian circular flow model, I, G and NX are…

A

injections

76
Q

Net domestic product = GDP minus…?

A

Depreciation

77
Q

A malthusian equilibrium is…

A

where output per person equals subsistence per person

78
Q

Neo-Malthusian concerns about a growing population arise because of the risk that the _____ and the ____ may collapse.

A

environment; ecology

79
Q

A country’s economic development is most positively correlated with…

A

the rule of law

80
Q

What tends to increase trend growth?

A

(1) The protection of property rights; (2) Increased education; (3) Openness to international trade

81
Q

The Human Development Index includes indicators of… (3 things)

A

(1) Material living standards; (2) Health; (3) Education

82
Q

A country’s economic development is best measured by…

A

the Human Development Index

Econ1020 (1 decks)

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