Econ 203 Exam 2 \\2026 Update with complete
solutions\\Pass 100% || graded A+
4 Economic Agents - ANSWER-1. Households
2. Firms
3. Government
4. Central Bank
Production Function of the Economy - ANSWER-Y=AK^aL^(1-a)
A: tech
K: capital inputs
L: labor inputs
a: capital share of income
(1-a): labor share of income
Growth rate of GDP/capita - ANSWER-real GDP per capita = nominal GDP growth -
inflation rate - pop growth rate
Compounding and The Rule of 70 - ANSWER-Savings (year) (*or GDP*) = savings
(now) x (1+ growth rate)^(year-now)
The Rule of 70 - ANSWER-years until a # doubles = 70/annual growth rate
Components of Productivity - ANSWER-1. physical capital
2. human capital
3. natural resources
4. technology
Physical Capital (K) - ANSWER-stock of equipment that allows for production
, If physical capital increase, productivity ______ - ANSWER-increases
where do savings for physical capital come from? - ANSWER-2 ways: in a country or
abroad
In a country-- investment trade-off (less consumption)
Abroad--foreign direct investment (other companies abroad) or foreign portfolio
investment (investment funded by foreigners)
2 kinds of policies for Physical Capital: - ANSWER-1. policies that encourage saving
2. policies that encourage foreign investment
Human Capital - ANSWER-set of skills and knowledge that determine productvity
If human capital increases, productivity ______ - ANSWER-increases
2 kinds of policies for increase in human capital: - ANSWER-1. health
2. education
Natural Resources - ANSWER-production inputs that come from earth
renewable vs non-renewable - ANSWER-renewable: can be replenished (ex: rivers,
tress, electricity)
non-renewable: can't be replenished (ex: coal, oil, gold)
Technology - ANSWER-immunities that cause inputs to produce more outputs
policies for technology increase - ANSWER-1. creation of tech
2. research grants
3. patents
4. gov research programs
Growth accounting - ANSWER-....
Convergence Theory - ANSWER-countries that start poor will grow faster than rich ones
and converge top same growth rate (aka catch up affect)
Things that affect consumption - ANSWER-current income, wealth, expected income,
interest rates
Marginal Propensity to Consume (MPC) - ANSWER-amt that consumption increases
when after tax income increases. by $1
Hand to Mouth Households - ANSWER-households that spend all paychecks w/ nothing
leftover
- wealthy hand to mouth: have assets tied up so they spend whole paycheck still
solutions\\Pass 100% || graded A+
4 Economic Agents - ANSWER-1. Households
2. Firms
3. Government
4. Central Bank
Production Function of the Economy - ANSWER-Y=AK^aL^(1-a)
A: tech
K: capital inputs
L: labor inputs
a: capital share of income
(1-a): labor share of income
Growth rate of GDP/capita - ANSWER-real GDP per capita = nominal GDP growth -
inflation rate - pop growth rate
Compounding and The Rule of 70 - ANSWER-Savings (year) (*or GDP*) = savings
(now) x (1+ growth rate)^(year-now)
The Rule of 70 - ANSWER-years until a # doubles = 70/annual growth rate
Components of Productivity - ANSWER-1. physical capital
2. human capital
3. natural resources
4. technology
Physical Capital (K) - ANSWER-stock of equipment that allows for production
, If physical capital increase, productivity ______ - ANSWER-increases
where do savings for physical capital come from? - ANSWER-2 ways: in a country or
abroad
In a country-- investment trade-off (less consumption)
Abroad--foreign direct investment (other companies abroad) or foreign portfolio
investment (investment funded by foreigners)
2 kinds of policies for Physical Capital: - ANSWER-1. policies that encourage saving
2. policies that encourage foreign investment
Human Capital - ANSWER-set of skills and knowledge that determine productvity
If human capital increases, productivity ______ - ANSWER-increases
2 kinds of policies for increase in human capital: - ANSWER-1. health
2. education
Natural Resources - ANSWER-production inputs that come from earth
renewable vs non-renewable - ANSWER-renewable: can be replenished (ex: rivers,
tress, electricity)
non-renewable: can't be replenished (ex: coal, oil, gold)
Technology - ANSWER-immunities that cause inputs to produce more outputs
policies for technology increase - ANSWER-1. creation of tech
2. research grants
3. patents
4. gov research programs
Growth accounting - ANSWER-....
Convergence Theory - ANSWER-countries that start poor will grow faster than rich ones
and converge top same growth rate (aka catch up affect)
Things that affect consumption - ANSWER-current income, wealth, expected income,
interest rates
Marginal Propensity to Consume (MPC) - ANSWER-amt that consumption increases
when after tax income increases. by $1
Hand to Mouth Households - ANSWER-households that spend all paychecks w/ nothing
leftover
- wealthy hand to mouth: have assets tied up so they spend whole paycheck still
