Econ 1020 Mid Sem

Front 1

What does GDP actually measure.

Back 1

GDP measures market value of all final goods and services produced in a particular place over a particular time. GDP also measures total spending by consumers, businesses, governments and foreigners on domestically produced goods. Because every dollar spent becomes someones income, GDP is also measure of income earned from production of domestic goods and services.

Front 2

How are living standards(or wealth) compared between two countries?

Back 2

Wealth or living standards is a measure of how much of the GDP is distributed to a single person.It is theefore appropriate to divide total GDP by population

Front 3

What is the value added proposition.

Back 3

At each stage of production the sale price - minus the purchase price from the previous step will give how much has been contributed to the GDP at each step, adding them all up will give the total GDP produced from the process.

Front 4

What is Nominal GDP

Back 4

Nominal GDP is GDP calculated with no regard for inflation. Also know as current price GDP.

Front 5

How is percentage growth of GDP calculated

Back 5

(new-old)/old*100.

Front 6

What can be concluded from nominal figures.

Back 6

Nothing, an increase in nominal GDP can be caused by increase in prices or in quantities.

Front 7

What is the concept of Real GDP.

Back 7

Real GDP is calculated based on the prices in a base year.

Front 8

How is the GDP deflator calculated.

Back 8

GDP Deflator = Nominal GDP/Real GDP *100.

Front 9

What is the GDP Deflator

Back 9

GDP deflator is a measure of the price level of the new year compared to a base year. If deflator = 200 then prices have doubled.

Front 10

What is an example of investment.

Back 10

Some business buying a product an Australian made product.

Front 11

What is an example of consumption.

Back 11

Someone buying an Australian good or service.

Front 12

What is an example of government consumption.

Back 12

Some government department buying an Australian good or service.

Front 13

What is an example of an Export.

Back 13

An export would be someone or consuming an Australian good overseas.

Front 14

What is an example of something that would increase consumption but decrease an investment.

Back 14

Some business selling a good it produced previously to someone.

Front 15

What is labor productivity

Back 15

Labor productivity is the quantity of goods and services that can be produced by one worker in one hour of work. For whole economy = GDP(Y)/L(hours worker )

Front 16

Can economic growth be boosted by labor productivity.

Back 16

Increase in labor productivity are main cause of increase in GDP per capita. Which is usual measure of of economic growth.

Y/L and GDP per capita is Y/Population. Only other possible source of economic growth is increase in hours worked per person. Thus may be some growth from people working longer but cant go on forever.

Front 17

What is the economic growth model

Back 17

L(Labor)+K(Capital)+T=Y.

Front 18

Why does increasing labor productivity increase economic growth.

Back 18

Y/L increases hence Y Increases so Y/Pop increase GDP PER CAPITA INCREASES

Front 19

What is Capital(K)

Back 19

Capital are manufactured goods and services that are used to produce other goods and services. Excludes raw materials.

Front 20

What is the concept of diminishing returns on capital

Back 20

If a small number of workers is given many units of capital to work with they wont be as efficient as possible as they will have to manage all the units which will take longer. Increasing capital with workers will give more efficient results.

Front 21

What does Saving Rate Measure.

Back 21

Saving rate is the product of both Private Spending and Government Spending.

S=Spriv + Sgov = Y- C - T + T - G = Y - C - G

And because Y= C + I + G + NX

S = I + NX

Saving rate measures this proportion of income not spent on consumption or government spending.

Front 22

What is the formula for private saving.

Back 22

Private savings is household saving and for households income is GDP. Houses spend some of that on consumption and paying taxes so private saving is:

Sprivate = Y-(C+T) = Y-C -T

Front 23

What is the formula for government saving

Back 23

Government income is tax , spends some on goods and services so...

Spublic = T - G

Front 24

What does GDP equal.

Back 24

Y= C + I + G + NX

Front 25

What does saving have to do with capital

Back 25

Part on investment spending is business fixed investment. Which is spending by forms on new capital. Becuase S = I + NX in absence of changes to export, changing in saving rate mean changes in investment.

Front 26

If two countries have same saving rate, invest a similar amount and have no net exports why might one grow more than the other.

Back 26

In Economic growth model, investment and resulting increase in capital per worker are importing cause of economic growth.

If One Country has an initially higher gdp per capita than the other. Than there will be diminishing returns for further investment into capital(deminishing returns of capital) of the already well developed economy.

So the answer is simply that saving andinvestment in places with a lot of capital per labour (like Canada) increaseslabour productivity and GDP per capita by less than saving and investment inplaces with a small amount of capital per labour (like Egypt)��������@�Z��

Front 27

What impact would re-organisation of workers in production lines have on GDP/Capita

Back 27

This would be an example of techonological change(Workers will be more productive)(Push up of function line)

Front 28

What impact would the deployment of robots with sophisticated ai to replace cleaners have on GDP/Capita

Back 28

The robots are embodiment of technological change. With a similar level of capital per worker, more output per worker can be created. Purchase is also increase in capital per worker. Shift up in production function and shift to the right.

Front 29

What impact would a) The enforcement of propertyrights after a period of lawlessness have on GDP/Capita

Back 29

Property is right of the owner of something to exclusively posses, use, buy, or sell that thing. When property rights poorly enforced firms fear their capital might be stolen or destoryed which hurts incentive to invest. They will start to invest and get more capital, shift to the right in production function.

Front 30

How are employed persons described.

Back 30

People who have worked for at least 1 hour in week before.

Front 31

What is the labour force

Back 31

Total of employed and unemployed people

Front 32

What is the working age population

Back 32

People who are both not in the labour force and in the labour force and who are of working age (15-68)

Front 33

How is an unemployed described.

Back 33

Worked less than one hour, actively looking for work in previous four weeks, Currently available to start work

Front 34

How is unemployment rate calculated.

Back 34

Unemplyed/Labour force * 100

Front 35

How is labour force participation rate calculated

Back 35

Labour Force/Working age population *100

Front 36

How is employment to population ratio calculated.

Back 36

Employed/Working age population * 100

Front 37

How is natural rate of unemployment calculated.

Back 37

Natural rate of unemployment is whatever the rate of unemployment would be if GDP was equal to Potential GDP.

Front 38

What is the cyclical rate of unemployment.

Back 38

Cyclical unemployment is unemployment caused by the part of the business cycle an economy is presently in.

=Unemployment-Natural Rate of Unemployment

Front 39

Could advances in Ai lead to mass unemployment

Back 39

Historic evidence, everyone used to be farmers now only takes 5% of population to feed entire population, Technology replaced all workers.

Argument is a commission of the lump of labor fallacy - Idea that there is fixed amount of work to do and if someone else does your share then you will be unemployed. This is called a fallacy because it ignores that the person ( or owner of the robot) who is now producing more will be able to buy more and extra demand will create opportunity for you to work in some new job.

Front 40

What type of unemployment would new Ai introduce.

Back 40

Structural unemployment.

Front 41

What are the different types of Unemployment and what are there description

Back 41

1. Structural Unemployment - A fundamental mismatch between the requirements of the jobs available and the skills of workers. And just a fundamental mismatch between what companies need and what workers offer

2. Cyclical Unemployment - Relates to cyclical trends in growth and production that occur within the business cycle.

3. Frictional Unemployment - Time period in between jobs where a person is searching for work.

Front 42

What effect does inflation have on money.

Back 42

Inflation decreases the purchasing power(i.e. that is for the same amount of money across two years you will be able to buy less.)

Front 43

How do you calculate the value of a future payment in today's dollars.

Back 43

Value Today=Nominal Value * Price Value Today/Price Level at Repayment

PLr = Plt(1+Inflation%)

Take Plt as 100.

Front 44

What are two ways of finding the real value of a repayment.

Back 44

Vt = NV * Plt/Plr

NV = Starting Amount+Interest

= Starting Value (1+ i(interest))

Plt = 100

Plr = 100 (1 + Inflation)

Another Way:

Fisher Equation

(1+r) = (1+i(interest))/(1+ Inflation)

Principal * (1+i(interest))/(1+ Inflation)

Front 45

What is the approximate equation for real interest rate.

Back 45

r == i-inflation

Front 46

What effect does unexpectedly high inflation have on the wealth of borrowers and lenders?

Back 46

Borrowers Gain Lenders Lose, When inflation higher than interest the borrower will pay less than principle.

When inflation lower borrowers lose and lenders gain. If inflation lower than interest, borrower will pay more than principle.

Both are transfers of wealth

Front 47

How is CPI Calculated.

Back 47

CPI is caluclated keeping the same quantity as the base year.

Qb * Pa/ Qb * Pb * 100

Front 48

How is inflation rate calculated

Back 48

CPI After - CPI Base/ CPI Base *100