ECON 102 Chapter Notes - Chapter 9: Absolute Advantage, Income Distribution, Ceteris Paribus

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Rule of 70 - says the time it takes a variable to grow gradually over time to double is approximately 70 divided by the variable"s annual growth rate. Physical capital - human-made resources such as buildings and machines. Human capital - improvement in labor created by the education and knowledge embodied in the work force. Technological progress - advance in the technical means of the production of goods and services. Aggregate production function - hypothetical function that shows how productivity (real gdp per worker) depends on the quantities of physical capital per worker and human capital per worker as well as the state of technology. Growth accounting - estimates the contribution of each major factor in the aggregate production function to economic growth. Total factor productivity - amount of output that can be achieved with a given amount of factor inputs. Model - a simplified representation of a real situation that is used to better understand real-life situations.

Related Questions

Which of the following statements regarding Gross Domestic Productis not true?
It is a stock variable.
It is measured for a particular time period, usually oneyear.
It is perhaps the most effective means of viewing the same economyover time
It is a measure of the economy's performance

2. Long-term growth in production can be partially explainedby
trade surpluses that lead to accumulations of precious metals
a gradual but consistent increase in the price level
general optimism about the future and the pioneering spirit ofAmerica
improvements in technology

3. Which of the following explains why the aggregate demand curveslopes downward?
If the price level increases, we feel poorer and therefore buyless.
If the price level increases, we feel richer and therefore buymore.
If domestic prices increase, we substitute domestic goods forimported ones.
If the price of a particular good increases, we substitute awayfrom that good.

4. Adam Smith's "invisible hand" explains
why people act in their own best interests
why the government intervenes to overcome failures in privatemarkets.
how people, acting out of self-interest, unintentionally promotethe general good
how comparative advantage and specialization promote internationaltrade

5. According to Keynes, in order to get the economy out of arecession, the government should
plan for a budget deficit
encourage firms to export to other nations, thereby jump-startingthe economy
follow an expansionary monetary policy
follow a contractionary monetary policy

6. The difference between human capital and physical capital isthat
human capital is used by humans whereas physical capital isnot
only human capital increases labor productivity
human capital is not physical; an example of human capital iseducation
physical capital requires investment, whereas human capital doesnot

7. An improvement in the quality of capital would
rotate the per-worker production function upward
make the per-worker production function flatter
shift the per-worker production function downward
rotate the per-worker production function downward

8. The rules of the game refer to
any factor that facilitates production and exchange
a gradual but consistent change in the price level until a fairprice is attained
the set of election laws that ensure that all votes are counted inevery election
the requirements place on firms earning a profit

9. Which of the following best describes the impact oftechnological change on labor?
It causes unemployment in the short run and lower incomes in thelong run
It causes unemployment in the short run and higher incomes in thelong run.
It causes unemployment in the long run and higher incomes in theshort run.
It causes unemployment in the long run and lower incomes in theshort run.

10. An increase in the amount of capital per worker is called
capital deepening
marginal capital
per-worker production function
human capital

Consider an economy with the following production function:

Y = AK.5L.5
The labor force is constant. The rate of depreciation is Î´ = .1, the savings rate is s = .3.

a. Has this production function constant returns to scale? Why?

b. Write the production function in per worker variables.

c. Does the per worker production function have diminishing marginal returns to capital? Why?

d. Write the fundamental Solow equation in per worker variables.

e. Depict the steady state of this economy.

f. What are the growth rates of per worker output and capital in steady state?

g. Calculate the steady state level of capital, output, consumption and savings.

h. Redraw the initial equilibrium and show what happens when the savings rate increases. Do the growth

rates change?

i. Redraw the initial equilibrium and show what happens when there is a one time increase in population.

. Do the growth rates change?

j. Redraw the initial equilibrium and show what happens when there is a one time innovation that increases

productivity. Do the growth rates change?

k. Redraw the initial equilibrium and show what happens when there is constant productivity growth. Do

the growth rates change?

Consider an economy with the following production function:

Y = AK^0.5 L^0.5

The labor force is constant. The rate of depreciation is Î´=0.1, the savings rate is s=0.3

a) Has this production function constant returns to scale? Why?

b) Write the production function in per worker variables.

c) Does the per worker production function have diminishing marginal returns to capital? Why?

d)Write the fundamental Solow equation in per worker variables.

e) Depict the steady state of this economy.

f) What are the growth rates of per worker output and capital in steady state?

g) Calculate the steady state level of capital, output, consumption, and savings.

h) Redraw the initial equilibrium and show what happens when the savings rate increases. Do the growth rates change?

i) Redraw the initial equilibrium and show what happens when there is a one time increase in populatikon. Do the growth rates change?

j) Redraw the initial equilibrium and show what happens when there is a one time innovation that increases productivity. Do the growth rates change?

k) Redraw the initial equilibrium and show what happens when there is constant productivity growth. Do the growth rates change?

ECON 102 Chapter Notes - Chapter 9: Absolute Advantage, Income Distribution, Ceteris Paribus

ECON 102 Full Course Notes

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