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econ development
process that produces sustained & widely shared gains in per capita real GDP
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import substitution
strategy of blocking most imports & substituting domestic production of those goods
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economic growth (define)
- long run process that occurs as an economy's potential output increases
- increase in real GDP
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compound growth
rate of growth applied to a growing base every year
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GDP growth
future GDP =current GDP(1+r)^n
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per capita real GDP
real GDP/population
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growth rate
- (present value - past value)/past value
- multiple answer by 100
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productivity growth
- aggreated productivity function graph of real GDP to total employment
- X value is total employment
- Y value is Real GDP
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doubling time
- rule of 72 is the number of years required for an amount to double in value
- 72/annual rate of growth answer is years
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tariff
tax imposed on imported goods and services
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quota
ceiling on quantity of specific goods and services that can be imported, reducing world living standards
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balance of payments (define)
balance between spending inflowing into a country and spending flowing out of it
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open trade
trade that does not impose restrictions on it
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dumping
practice of foreign firm charging a price in other countries below the price it charges in its home country
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exchange rate
- US price = foreign currency / exchange rate
- foreign price = dollar price x exchange rate
- exchange rate = foreign price / dollar price
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exchange rate - appreciate
- buys more of foriegn goods increases imports
- increase in foreign demand of U.S. goods, services & assets; decrease in U.S. demand for foeign goods, services & assets; decrease in U.S price level relative to foreign price level; increase in U.S. interest rates relative to foreign interest rates; decrease in U.S. growth rates relative to foreign growth rate
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echange rate - depreciate
- buys less foreign goods, decreasing imports
- decrease in foreign demand of U.S. goods, services & assets; increase in U.S. demand for foeign goods, services & assets; increase in U.S price level relative to foreign price level; decrease in U.S. interest rates relative to foreign interest rates; increase in U.S. growth rates relative to foreign growth rate
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balance of payments (apply)
current account balance = - (capital account balance)
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current account
- spending flowing in - spending flowing out
- imports, exports, net investment income, net transfers
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capital account
- assets flowing in - assets flowing out
- all long term payment flows including sale of assets & securitities between countries (asset remains where it is but ownership changes hands
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currency demand & supply (apply)
quantity of currency demanding = quantity of currency supplied
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quantity of currency demanded
sum of exports + rest of world purchases of domestic assets
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quantity of currency supplied
sum of imports + domestic purchases of rest of world assets
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absolute advantage (define)
ability of country (party or firm) to produce more of a good or service using the same amount of resources
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unilateral transfers (apply)
net of balance of payments statement showing amount of money sent or received as gifts
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agg demand & phillips (relationship)
As real GDP & price level increases shifting AD to the left inflation decreases as unemployment increases in Phillips Phase
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stagflation (define)
phase where inflation remains high & unemployment increases a lack of growth in the economy
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Phillips curve - define
curve that suggests neg relationship between inflation and unemployment (unemployment increases inflation falls)
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phillips phase - define
period in which inflation rises as unemployment falls
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stagflation phase - define
period in which inflation remains high while unemployement increases
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recovery phase
period in which inflation & unemployment both decline
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inflation-unemployment cycle
pattern consisting of a phillips phase followed by a stagflation phase and then a recovery phase
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phillips curve - apply
- Y is price inflation
- X is unemployment
- long run is a vertical line
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keynes economics
- body of thought that asserts changes in AD can create gaps between actual & potential levels of output that can be prolonged
- stresses use of fiscal & monetary policy to close gaps
- AD plays dominate role in determining GDP & employment
- prices are fixed (horizontal AS) at all levels of GDP
- govt responsible for stablizing economy by managing AD
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New Keynes economics
- similar to traditional
- prices & wages sticky on short run
- disequilibrium prevails
- focus on structural impediments to adj
- recognize role of money in creating inflation
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classical theory
- body of thought associated with British economist Ricard
- focus on long run & forces that determine & produce growth in economy's potential output
- Real GDP determined by AS & equilibrium
- price level determined by money supply
- wages & prices perfectly flexible
- markets are always in equilibrium
- expectations formed rationally so only unexpected changes affect output & employment
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adaptive expectations
people form expectations about future based on what has happened in past
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monetarist
they hold changes in money supply are primary cause of changes in nominal GDP
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effect time lag
- period of time between 2 events
- stimulus & response (cause & effect)
- time period between fiscal or monetary policy change & how it effects the economy
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