Ecn 202 1st Edition Exam # 2 Study GuideChapter 9 Long Run Growth-long run growth is GDP per capita-Rule of 70 : 70/growth rate=years to double-growth comes from higher labor productivity-GDP/workers=labor productivityWays to Grow GDP per Capita1) Add to physical capital2) Add to human capital3) Adding to technology-investment (I) adds to physical capital: new houses, new buildings, new machinery, new software-labor force= unemployment + employmentStructural unemployment: anything that pushes numbers over equilibriumConditional convergence: GDP per capital converges to a similar level-Malthusian Trap: growth was impossibleProductivity: ability to produce more with same or fewer inputsPrice Signals: as supply of natural resources fall, price increasesLimited resources: farm productivity, fuel economyNegative externalities: smog in LA, lead poisoning, acid rainChapter 11 Income Expenditure ModelThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Multiplier=1/1-MPCMarginal propensity to consume (MPC) MPC= change in consumption/ change in disposable incomeMarginal propensity to save (MPS) MPS= change in savings/change in disposable incomeConsumption or Income Expenditure Model (C) C=A+MPC*Y- Can’t use law of demandEquilibrium: what we produce= what we sellTwo Effects of Changes in Overall Price Level1) Wealth levela. When price level increases, real wealth decreases, consume less2) Interest rate effectsa. Demand for moneyAggregate Demand: Y=C+I+G+X-IM-change in P: movement along AD curve-fiscal policy-increase in government spending-decrease in taxes-monetary policy-change in interest rates-interest decreases, investment increases, AD increases Aggregate supply: Profit=revenue-costs-long run aggregate supply (LRAS) is a vertical line-short run aggregate supply (SRAG) Shifts:1) input/commodity pricesNominal wage changesChanges in productivityDemand shocks:-change in wealth-change in expectations-change in investmentsSupply shocks:-change in input-change in wages-change in