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Mizzou AG_EC 1042 - Exam 2 Study Guide
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Ag_Econ 1042 1st EditionExam # 2 Study Guide Lectures: 7 - 12Lecture 7 (February 19)What is economic growth and how can it be measured? How is GDP per capita and growth rate calculated when there are constant changes in prices and population? Describe productivity andits four components. What is the difference between a country’s level of income and rate of growth?Economic growth is the increase of the amount of goods and services produced per person in a population. Economic growth can be measured by finding the gross domestic product per capitagrowth rate, which compensates for changes in population size. This can be calculated by adding the inflation rate with the population growth rate and subtracting that sum from the nominal growth rate (all of these numbers must be in percentages). There is also the rule of seventy which determines how long it will take for an economy’s gross domestic product to double. To find this, seventy is divided by the real growth rate.Productivity is defined as the measure of output per worker, and the more that is produced the higher the standard of living is. The four components of productivity are physical capital, humancapital, natural resources and technology. First, physical capital includes things like equipment and buildings. Human capital is the experience, knowledge and talent of an individual that they can contribute to production. Thirdly, natural resources are renewable and non-renewable made by the Earth. And lastly, technology is anything that allows for a more efficient method of producing.The convergence theory states that countries that start off worse off grow faster than countries that are well off, but they both will eventually converge and reach the same growth rate. So they countries that are worse off have a high rate of growth and a low level of income. Whereas the countries that are better off have a low rate of growth, but a high level of income.Lecture 8 (February 24) What is unemployment and how can it be measured? What are the categories of unemployment and its limitations? Explain the categories. What are three main things that factor into unemployment? Unemployment is a situation where an individual does not have a job, but is actively searching for one. The three categories to unemployment are: employed, unemployed and not in the labor force. It can be measured by calculating he unemployment rate, which is the number ofunemployed individuals divided by the total labor force, all multiplied by one hundred to get a percentage. Then there’s the labor force population, which is the total labor force divided by thetotal amount of working-age individuals all multiplied by one hundred.The two limitations to unemployment are discouraged workers and discouraged workers. Discouraged works are people who were looking for a job but have not had the best of luck so they has given up. Underemployed workers are individuals who are working at a job that requires much less of their skill level.Lecture 9 (February 26)Describe how the wage rates above equilibrium level cause unemployment. What is the natural rate of unemployment? Why does it exist? What is cyclical unemployment and why does it exist?What is unemployment insurance? Describe its challenges.There are three major factors that affect wage rates; minimum wage, labor unions and efficiency wages. Minimum wage, which is set by the government, is the lowest wage an individual may be paid by a firm for working. Secondly, labor unions are groups of employees working together to bargain with their employer about their wages and working conditions. Lastly, efficiency wages are wages that are purposely set about the equilibrium rate so increase productivity of that firm.The natural rate of unemployment is stated to be the normal amount of unemployment that still exists in the long run of an economy. Its three contributors are frictional, structural and real-wage, classical, unemployment. Frictional unemployment is the unemployment that occurs when workers change jobs, locations and/or careers. IT is stated to be a natural and healthy partof life in a dynamic economy. Structural unemployment occurs when an individual is overqualified, or has a higher skillset, than the job they currently have requires. Lastly, real-wage, classical, unemployment occurs when wages are higher than the equilibrium wage rate.Cyclical unemployment is the fluctuations in the unemployment level. Which is caused by short-term economic fluctuations, or business cycles. Mainly occurring because wages are “sticky”, or slow to respond, when the economy shiftsLecture 10 (March 3)What are the components of aggregate demand? How do they effect the curve? What can cause the aggregate demand curve to shift?The components of aggregate demand are: consumption, investment, government spending and net exports. For consumption, an increase in price causes a decrease in consumption, whichis known as the wealth effect. With investment, there is a linear relationship between price and interest rates. Thirdly, there is an inverse relationship between imports and exports. So ifimports increase, then the amount of exports will decrease. Then there is government spending, which does not contribute to the downward slope of the aggregate demand curve. Anincrease in any of the four components causes the curve to shift right, and a decrease causes the curve to shift left.Lecture 11 (March 5)Describe the difference between short run and long run aggregate supply. What factors can shiftthe short run aggregate supply curve? What factors can shift the long run aggregate supply curve?The short term aggregate supply curve slopes upward. This is for a time period ranging from a few days to a few months. Here the prices of final goods increase faster than input prices, an increase in prices of final goods increases the profits of a firm, and the firms respond by increasing their production. Supply shocks, which are significant events that directly affect production and the short run aggregate supply curve.The long run aggregate supply curve is a fixed, vertical line that represents potential output, so it is not affected by price in any way. Also, there is not a set amount of time for the long run, it ishowever long the amount of time is required for the input prices to fully adjust to economic conditions. An increase, or advance in technology, capital, labor, education or natural resources can cause the curve to shift to the


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Mizzou AG_EC 1042 - Exam 2 Study Guide

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