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Economics > Week 4: FOPs, GDP and Keynesian model > Flashcards

Week 4: FOPs, GDP and Keynesian model Flashcards

1
Q

Marginal Product

A

dTP/dL

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2
Q

Backward-bending supply curve

A

Substitution effect: with higher wages, the price of leisure increases compared to working, thus one works more
Income effect: higher wages result in a higher demand for goods including leisure. More leisure means work less

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3
Q

Skill premium

A

wage difference between high-skilled and low-skilled labour

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4
Q

Difference low-skilled and high-skilled labour in economic terms

A

VMP is higher for high-skilled labour (demand is higher)

High skilled labour has higher opportunity costs (supply is lower)

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5
Q

Four consequences of minimum wage

A
  1. amount of people working falls
  2. important for low-skilled labour
  3. result in less demand and more supply
  4. welfare loss (like price floors)
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6
Q

Contrasting arguments to idea that governments strive towards maximisation of welfare

A
  1. Corruption
  2. Budget maximisation of civil servants
  3. Pressure groups have more influence than large majority
  4. no world government, competition between states
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7
Q

Gross domestic product definition

A

market value of all final goods and services produced within a country in a given time period, usually a year

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8
Q

Two approaches to measure GDP

A

Aggregate income and aggregate expenditure

GDP= AE=AI

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9
Q

GDP ‘s four parts

A
  1. market value
  2. final goods and services
  3. produced within a country
  4. in a given time period
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10
Q

Income approach

A 
to calculate GDP
W+P+M+(taxes-subsidies)
W= employee compensation
P= profit
M= mixed income
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11
Q

National income accounting identity

A

C+G+I+X-M

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12
Q

Circular flow of expenditure and income formula

A

(S-I)+(T-G)= (X-M)

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13
Q

Real GDP

A

Value of final goods and services produced in a given year when valued at the prices of a base year

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14
Q

Nominal GDP

A

value of final goods and services produced in a given year when valued at the prices of that year

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15
Q

Two main purposes of use of real GDP

A
  • compare standard of living over time

- compare standard of living across countries

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16
Q

Four limitations of real GDP

A
  • household production
  • underground economic activity
  • leisure time
  • environmental quality
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17
Q

Two problems of unemployment

A
  • lost incomes and production

- lost human capital

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18
Q

Natural employment, its definition and the subcategories

A

unemployment that arises from frictions and structural change when there is no cyclical unemployment
structural + frictional unemployment

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19
Q

Frictional unemployment

A

unemployment arising from people entering and leaving workforce and from ongoing process of job creation and destruction.

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20
Q

structural unemployment

A

unemployment arising from technology or international competition changethe skills needed to perform jobs or change the location of jobs

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21
Q

cyclical unemployment

A

higher than normal unemployment at a business cycle through and the lower than normal unemployment at a business cycle peak

22
Q

Formula multiplier

A

change in equilibrium expenditure/ change in autonomous expenditure

23
Q

Formula Marginal propensity to consume

A

dC/dYD

24
Q

Formula Marginal propensity to Save

A

MPS= dS/dYD

25
Q

Growth rate formula for real GDP

A

(GDP (t+1)-GDP(t))/ GDP(t)

26
Q

Four factors of production

A
  1. labour
  2. capital
  3. land
  4. entrepreneurship
27
Q

labour service

A

physical + mental work effort that people supply to produce goods and services

28
Q

casual labour

A

labour services traded on day-by-day basis

29
Q

rental rate

A

price in capital services market

30
Q

capital

A

tools, instruments, machines, buildings and other things used to produce goods and services

31
Q

Derived demand

A

demand for a FOP. The quantity demanded for FOP depends on a firm’s output decision

32
Q

Value of Marginal Product

A

MP/P

tells what an additional worker costs a firm

33
Q

Value of Marginal Product and wage rate

A

VMP= wage rate : maximum profit
VMP> wage rate : additional worker will increase profit
VMP< wage rate : firing one employee would give more profit

34
Q

Three factors for change in demand for labour

A
  1. Price of a firm’s output as it influences VMP > shift D for L curve
  2. Other FOP prices > shift along D for L curve
  3. Technology: decreases d for some types of labour, increases for otehrs
35
Q

Reservation wage

A

lowest wage rate at which a worker would be willing to accept a particular type of job

36
Q

Effects labour market with minimum wage

A

creates unemployment as it creates a surplus of labour
unfairness as it blocks voluntary change
minimum wage is inefficient

37
Q

Explanation of inequality by human capital differences

A

High income households tend to be better educated, middle-aged
education correlates directly with human capital
age correlates indirectly with human capital due to more experience

38
Q

effect of technological change in inequality

A

trend

39
Q

Globalisation: definition and consequences

A

entry of developing countries > lower price of manufactured goods
> lower prices for firms’ output > decrease in VMP> decrease D for their labour > wage rate falls, employment shrinks

> increase demand for high-skilled labour, VMP increase, wage rate rises, employment opportunities for high-skilled workers expand

40
Q

Three types of income taxes

A

progressive income tax: taxing income at an average rate increasing as income increases

regressive income tax: taxing income at an average rate decreasing as income increases

proportional income tax: taxing income at a constant average rate regardless of the level of income

41
Q

benefit payment, definition and three types

A

redistribute income by making direct payments to those with low incomes
Income support payments: wide range of payments to raise household incomes and reduce poverty

tax credit: method of helping low-income employed households

State pension: widely used in EU- pension payed out of current taxes

42
Q

Subsidised welfare services

A

goods and services provided by government at prices below MC

improves access to good-quality healthcare and education + reduces inequality in health status and basic human capital

43
Q

Three income redistribution types

A
  1. income taxes
  2. subsidised welfare services
  3. benefit payment
44
Q

Two key influences on demand for non-renewable resources

A
  1. VMP, the greater the quantity of resource used, the smaller is VMP of the resource
  2. expected future price of resource: speculative influence

resource used as example: oil

45
Q

Three key influences on supply of non-renewable natural resource

A
  1. known reserves of resource
  2. scale of current production facilities
  3. expected future price of resource: the higher the expected price, the lower the current supply
46
Q

hotelling principle

A

traders expect price of a non-renewable natural resource to rise at rate equal to interest rate

47
Q

Definition and formula unemployment rate

A

percentage of economically active people who’re unemployed

number of people unemployed/workforce*100

48
Q

Workforce

A

number of employed and unemployed people

49
Q

Employment rate

A

percentage of people of working age who have jobs

number of people employed/ working-age population * 100

50
Q

Full employment

A

Situation where unemployment rate equals natural employment rate

51
Q

Four factors influencing natural employment rate

A
  1. age distribution of the population
    young population: high level of frictional unemployment
  2. Scale of structural change
  3. Real wage rate: natural unemployment affected, minimum wage and efficiency wage bring unemployment
  4. unemployment benefits increase natural unemployment rate by lowering opportunity cost of job search
52
Q

Factors influencing consumption expenditure

A
  1. disposable income
  2. wealth
  3. real interest rate
  4. expected future income

Economics (8 decks)

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