Card Set Information

2014-03-17 19:07:21
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  1. GDP per capita
    GDP/population size
  2. Rule of 70
    -shows how fast economic growth can double

    70/% growth per year
  3. What causes country's growth rate to increase
    • increasing labor productivity
    • increasing the amount of stuff
  4. 3 ways to increase labor productivity
    • increase physical capital
    • increase human capital
    • increase technological progress
  5. What do savings and investment equal?
    each other
  6. If balanced:

    GDP =
    GDP= C + G + S

    • spending part on consumer goods
    • pay part to taxes
    • save part
  7. If not balanced:

    GDP= C+S+T

    • S=private savings
    • T-G=government savings
  8. Nominal Interest Rate
    Real interest rate + inflation
  9. Fish effect
    changes in expected inflation changes nominal interest rates, but not real rates
  10. Financial markets
    places where households invest current saving and accumulated savings (wealth)
  11. Investment
    can be in financial assets or physical assets
  12. Bank loans
    • assets for the bank (they own it)
    • liabilities for the borrower (they owe it)
  13. 3 tasks of any financial system
    • Reduce:
    • transaction costs (time spent negotiating, drawing up legal documents, verifying borrower's credit)
    • risk (have to find ways to reduce risk, diversity assets)
    • illiquidity of investments (liquid-can be quickly converted into cash, illiquid-cant be converted quickly)
  14. Loans
    lending agreements between a single leader and borrower
  15. Bonds
    An I.O.U issued by a borrower- indicates a fixed rate of interest to be paid until loan repayment becomes due
  16. Loan-backed securities
    interest and principal will be paid
  17. Technicality
    I= S + (Ttotal-Gtotal)
  18. Shifts in demand for loanable funds
    • changes in business opportunities
    • changes in government spending
  19. Shifts in the supply of loanable funds
    • changes in private savings behavior
    • changes in net capital inflows
  20. Financial Intermediaries
    transform funds gathered from many individuals into financial assets like stocks and bonds
  21. 4 types of financial intermediaries
    • mutual funds
    • pension funds
    • life insurance companies
    • banks
  22. Marginal propensity to consume
    the % of any increase in disposable income you spend (rather than save)
  23. Total increase with MPC
  24. Consumption function
    what variables drive the level of consumption down 

    C= $17,594 (atonomous consumer spending)+ .52 (MPC)+ disposable income (for $1)
  25. Some people spend more than they make
    if line is above consumption function line, spending more than income
  26. Interest rates
    the lower the interest rates are, the more you can afford to borrow to finance a new home

    too cheap interest rates caused the housing boom
  27. The Accelerator
    • the effect of GDP with income growth on investment
    • most influential
    • people will build things to accommodate demand for their product
  28. Production Capacity
    the closer factories are to operating at full capacity, the more a change in income will increase investment
  29. Total expenditure model

    for this section
    consumption function
    • GDP=C+I+G+(I-M)
    • GDP=C+I
    • C=A(auntonimous-to stay alive) + MPC x disposable income/GDP
  30. Total investment
    planned + unplanned