midterm 2 review - Midterm#2 Review CH 6 Productivity ratio...

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Midterm #2 Review CH 6 Productivity – ratio of total output to a specific measure of input Economy grows because of greater availability of resources, an improvement in the quality of resources, technological change that makes better use of resources, or improvements in the rules of the game that enhance production Per-worker production function – relationship between amount of capital per worker, measured along the horizontal axis, and average output per worker, or labor productivity, measured along the vertical axis Law of diminishing marginal returns from capital – as the quantity of capital per worker increases, output per worker increases but at a diminishing rate; reflects the downward slope of per-capital production function curve Capital deepening – increase in amount of capital per worker; source of rising labor productivity CH 7 GDP – final production of all goods and services in an economy Expenditure approach method of calculating GDP by adding spending on all final goods and services produced during the year C+I+G+(X-M) = Aggregate Expenditure = GDP Consumption + investment + government spending + net imports Income approach – method of calculating GDP by adding all payments for resources used to produce output during the year Aggregate expenditure = GDP = aggregate income Process of adding the value added at each new stage of production Value added at each stage sums up to the market value of the final good, and the value added for all final goods sums to GDP based on this approach Disposable income – aggregate income – taxes + transfers = C+S Leakages = Injections
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