DOC PREVIEW
Mizzou ECONOM 1051 - Final Exam Study Guide
Type Study Guide
Pages 11

This preview shows page 1-2-3-4 out of 11 pages.

Save
View full document
View full document
Premium Document
Do you want full access? Go Premium and unlock all 11 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 11 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 11 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 11 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 11 pages.
Access to all documents
Download any document
Ad free experience

Unformatted text preview:

ECON 1051 1st EditionExam # 3 Study Guide Chapter 21/22 – Economic Growth, Promoting Long-Run Growth, Financial Systems and Business CyclesOverview:One determinant of economic growth is the ability of firms to expand their operations, buy additional equipment, train workers and adopt new technologies. To carry out these activities firms must acquire funds from households, either directly through financial markets or indirectly through financial intermediaries. Financial markets and financial intermediaries together form the financial system Terms to Know:Long-Run Economic Growth: The process by which rising productivity increases the average standard of living. Quantified by real GDP per capita - Calculating the growth rates and the rule of 70 o One easy way to calculate approximately how many years will it take real GDP per capita to double is to use the rule of 70:o Number of years to double = 70/growth rate 1) Example:a. US real GDP: 4% b. China’s: 10% c. Ethiopia’s .5% d. Real GDP will double…i. US: 70/4=17.5 yearsii. China: 70/10=7 years iii. Ethiopia: 70/0.5 = 140 yearsIndustrial Revolution: The application of mechanical power to the production of goods- After this, countries experience long-run economic growth with sustained increases in real GDP per capita that eventually raised living standards in those countries to the high levels of todayEconomic Growth:- To Determine Economic Growth:1. Labor productivity  The quantity of goods and services that can be produced by one worker of by one hour of work 2. Increases in capital per hour worked Capital- Manufactured goods that are used to produce other goods and services- Capital stock – total amount of physical capital available in a country - Human capital – accumulated knowledge and skills workers acquire from education and training or from their life experiences 3. Technological Change Economic growth depends more on technological change, an increase in the quantity of output firms can produce, using a given quantity of inputs,than on increases in capital per hour worked. - In implementing technological change, entrepreneurs are of crucial importance, as is the government in providing secure property rights The Financial System Terms:Financial markets: Where financial securities such as stocks and bonds are soldFinancial Intermediaries: Firms such as banks, mutual funds, pension funds, and insurance companies that borrow funds from savers and lend them to borrowers - Mutual funds sell shares to savers and then use the funds to buy a portfolio of stocks, bonds, mortgages and other financial securities Three Key Services for Savers and Buyers: 1. Risk - Chance that the value of a financial security will change relative towhat you expect. The financial system provides risk sharing by allowing savers to spread their money among many financial investments 2. Liquidity - The ease with which a financial security can be exchanged for money. The financial system provides their service of liquidity by providing savers with markets in which they can sell their holdings of financial securities 3. Information - The financial system provides the collection and communication ofinformation, or facts about borrowers and expectations about returns on financial securities.Chapter 24 – Aggregate Demand and Aggregate Supply Analysis S is sloping upward and D (borrowers) sloping downward because:- At higher interest rates, firms will be discouraged to borrow- At higher interest rates, savers are more likely to put aside more money o Interest rate is determined by supply and demandFactors That Change Demand For Funds:1. Expected probability of future projects- If firms expect future projects to be more profitable then demand for funds will increasei. Expansionsii. During recessions, demand for funds to decrease 2. Expansion  interest rates go up3. Recession  interest rates go down - US Congress increasing investment tax credit, will increase desire to invest in physicalcapital and hence increase demand for funds Long-Run and Short-Run Aggregate Supply Curve:The Long-Run Aggregate Supply Curveo In the long run, the level of real GDP is determined by the number of workers, the capital stock, and the available technology, none of which are affected by changes in the price level  So in the long-run, changes in the price level do not affect the level of real GDP Remember that the level of real GDP in the long run is called potential GDP or full employment GDP The Short-Run Aggregate Supply Curve  As prices of final goods and services rise, price of inputs, such as wages of workers or theprice of natural resources, rise more slowlyo The reason for this is that some firms and workers fail to accurately predict changes in the price levelo There are three common explanations for an upward-sloping SRAS curve when worker and firms fail to accurately predict price level Contracts make some wages and prices sticky  Firms are often slow to adjust wages Menu costs make some prices sticky Ex: Suppose there is an increase in the price level in the economy. Lots of wages are fixed by contracts. So even though everything else is becoming more expensive, firm will still pay the same wages to its employees. Firm is still able to charge higher price for its output (because ofinflation) while keeping wages low. The firm will be more profitable (temporarily) and produce or supply. National output is higher. Suppose price level increase. Some firms will not increase prices because of high menu costs (cost of a price tag at Target). So they will wait. Meanwhile, their products will be very cheap to consumers Shifts vs. Movements Along The Short-Run Aggregate Supply Curve: I. Short-Run Aggregate Supply Curvea. Shifts of the Short-Run Aggregate Supply Curve versus Movements Along iti. The short-run aggregate supply curve tells us the short-run relationship between the price level and the quantity of goods and services firms are willing to supply, holding constant all other variables that affect the willingness of firms to supply goods and servicesii. If the price level changes but other variables are unchanged, the economywill move up or down a stationary aggregate supply curve; if any variable other than the price level changes, the aggregate supply curve will shift b. Variables that shift the short-run aggregate supply curvei. Increases in the Labor Force and in the Capital Stock 1.


View Full Document

Mizzou ECONOM 1051 - Final Exam Study Guide

Type: Study Guide
Pages: 11
Documents in this Course
Load more
Download Final Exam Study Guide
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Final Exam Study Guide and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Final Exam Study Guide 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?