ECON 2010 Study Guide - Midterm Guide: Excess Reserves, Output Gap, Potential Output
Document Summary
Significance of productivity: raising the standards of living. What contributes to productivity: skills/motivation of workers, legal and social environment in which they work. This relates to economic growth/standards of living because high real gdp per person leads to high standards of living. Savings: current income spending on current needs. Private savings: after tax income (private sector) consumption. Public savings: net tax payments government purchases. It is hard to save because of a lack of self-control, increased availability of credit cards, and demonstration effects (additional spending by some consumers causes additional spending in others) Higher real interest rates lead to a modest increase on savings, it positively increases the reward for savings, it also negatively effects savings because it reduces the amount you need to save each year to reach a target. The higher interest rates get, the higher bond payments get. Increases in interest rates decrease stock prices and bond prices. Financial markets make it easier for savers to diversify.