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ECO 181: Exam 2
Productivity
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average quantity of g&s produced per unit of labor input
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Productivity Formula
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Y/L
Y=real GDP
L=quantity of labor
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Productivity Depends on
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level of tech
physical capital per worker
human capital per worker
natural resources per worker
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What Govt can do to promote long term Eco growth
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education
health and nutrition
political stability
research and development
free trade
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Diminishing Returns
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As K increases output increases at a smaller and smaller rtate
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Financial Institutions
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group of institutions that match a persons savings with the borrowing of another
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Financial Market
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institutions through which savers can directly provide funds to borrowers (stocks and bonds)
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Financial Intermediaries
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institutions through which savers can indirectly provide funds to borrowers (banks and mutual funds)
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mutual funds
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sell shares to public and use proceeds to buy portfolios of stocks and bonds
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bond
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certificate of indebtedness
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stock
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claim to ownership
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Face value
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value lender receives at maturity
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coupon rate
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fixed or variable rate paid to lender
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Rate is determined by
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credit risk
maturity of bond
municipal bonds
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national Savings
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portion of national income not used for consumption or govt purchases
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National savings equation
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Sn=y-c-g
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Investment spending= national spending in a
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closed economy
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supply of loanable funds comes from
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savings
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sg>0
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govt surplus
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sg<0
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govt deficit
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demand for loanable funds
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come from investment spending, home and firms borrow funds they need
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Savings Incentives
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lower taxes on savings
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investment incentives
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tax breaks for businesses
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Govt budget deficits
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govt borrowing reduces funds for businesses
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