Notes for Economics Test

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Caneia Taylor
Eco 2610
Test # 2

1. Production function- a function that specifies the output of a firm, an industry, or an entire economy for all combinations of inputs. This function is an assumed technological relationship, based on the current state of engineering knowledge 2. Rule of 70- Used to determine how many years it takes for a value to double, given a particular annual growth rate. For example, if you put $20,000 in the bank and it earns yearly interest of 7%, then it will take 10 years (70/7) for your income to double. 70/x = # years to double where x equals growth rate. 3. Spending multiplier and money multiplier- The money multiplier is the mathematical relationship between the monetary base and money supply of an economy. It explains the increase in the amount of cash in circulation generated by the banks' ability to lend money out of their depositors' funds. 4. Average tax rate and marginal tax rate (for individual income taxes)- average tax rate is a tax rate that is the percentage of the total tax base paid in taxes. Comparable to any average, this is the total taxes collected or paid divided by the total value of the tax base. Marginal tax rate is the rate on the last dollar of income earned 5. Aggregate demand-T he demands for all individual goods and services combined. 6. Moral hazard- It is the idea that individual can alter their behavior if they know they are insured against some outcomes. 7. Present value and net present value- Present value is the amount of money today that, after interest is added, would have the same value as an amount sometime in the future. Net present value is the difference between the present value of cash inflows and the present value of cash outflows. 8. Capital deepening- An increase in country's capital-to-labor ratio; the process whereby capital increases but the number of employed people falls or remains constant 9. Aggregate supply (short run and long run)- Short run...
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