We have not thoroughly completed all the chapters in class that will be covered on the unit 2 exam. It is suggested that you read all of the chapters (be sure to see the exact pages to read on our web page) and concentrate on the following sections:

Chapter 5 - Thoroughly covered in class
Chapter 11 - Thoroughly covered in class
Chapter 8 - Thoroughly covered in class

So here we'll just discuss Ch. 7, Ch. 18, and Ch. 22

Chapter 22 - Growth and the LDCs
I use the term "Less Developed Countries" or "LDCs" for the world's poor countries and "More Developed Countries" or "MDCs" for the world's richer countries. The authors of our textbook use the term "developing countries" or "DVCs" for the poor countries and "Industrially Advanced Countries" or "IACs" for the richer countries.

[Study Guide, pp. 244-5: especially questions: #1, 2, 4, 6, 7, 12, 16, 19]

Measures of Economic Development

• to be partially covered in class lectures
• for a online review of the Measures of Economic Development see:
  http://www.harpercollege.edu/mhealy/g101ilec/intro/eco/ecomea/ecomeafr.htm
• pp. 452-455 "the Rich and the Poor"

Obstacles to Economic Development (pp. 455-462)

• How does "use their existing supplies of resources more efficiently" and " expand their available supplies of resources" (p. 455) fit into our 5Es concept?
• Pay close attention to the role of population growth (pp. 456-8). How does population growth affect the growth in GDP PER CAPITA?
• "low Labor Productivity" and "Capital Accumulation" (pp. 458-461) provides good examples to reinforce these concepts also covered in chapter 18

The Vicious Circle (pp. 462-3)

• more on population growth

Role of Government (pp. 463-5)

• This would be a good place to review the role of governments in capitalist economies (Ch. 5, pp. 81-6)

Role of Advanced Nations (pp. 465-7)

• Understand the "Trade vs. Aid" issue !!!!!

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Chapter 18 - Economic Growth
[Study Guide, especially pp. 199-201: #1, 4, 5, 6, 7, 15, 24, 25]

Growth Economics (pp. 368-369)

• "Two Definitions" - We'll use 2 DIFFERENT definitions:
  • Ch. 2 definition (see pp. 30-31) - an increase in the ABILITY to produce a larger total output. [this is "Economic Growth" on our 5Es chart.] On our graphs this is shifting the PPC outwards and an increas in AS.
  • Ch. 18 definition - an increase in output (real GDP). [This is "Full Employment" and "Productive Efficiency" on our 5Es chart.] On our graphs this is going from a poin within the PPC to a point closer to the PPC or an increase in AD
  • Out textbook's "Two Definitions" on pp. 368 are different:
  1. "an increase in real GDP occurring over some time period" includes BOTH of the two definitions we use in class (see above).
  2. "an increase in real GDP per capita occurring over some time period" is an increase in real GDP PER PERSON. GDP per capita is GDP divided by the population.

Ingredients of Growth and Graphical Analysis (pp. 369-371)

• "Supply Factors" help to increase the ABILITY to produces goods and services. This shifts the AS curve to the right and SHIFTS the production possibilities curve outwards (Ch. 2 definition).
• "Demand Factors" help ACHIEVE the potential level of output. This shifts the AD to the right and does not shift the production possibilities curve (Ch. 18 definition).

The Productivity (Growth) Slowdown (pp. 378-382)

• Know the difference between production, productive efficiency, and productivity
• Note: the text discusses how productivity is STILL GROWING, but it is growing at a SLOWER RATE.
• Know why the GROWTH in labor productivity in the US declined in the 1970s and 1980s.

Growth Policies (pp. 383)

• Kow Demand-Side growth policies and Supply-Side growth policies

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Chapter 7 - Measuring Domestic Output (RDO), National Income, and the Price Level
[Study Guide, especially pp. 72-4: #2, 4, 6-13, 16-18, 23-30]

GDP (pp. 125-7)

• know the definition of GDP
  • "the total MARKET VALUE of all FINAL goods and services PRODUCED in an economy in one year"
• know why we use the "market value", or the monetary value ($$$) to measure RDO
• know why they include only "final goods and services"
  • avoiding double counting / what is double counting?
  • what are final goods?
  • what are intermediate goods? why are they NOT added to GDP?
• GDP measures PRODUCTION therefore "GDP Excludes Nonproductive Transactions"
  1. sale of second-hand items not included in GDP
  2. financial transactions not included in GDP

Expenditures Approach (p. 128-132)

• Be able to calculate GDP from a table of data like that on p. 146 (question #8a) using the expenditures approach [GDP = C + I + G + Xn] [HINT: this is important]

Income Approach (p132-4)

• Understand how summing up the income earned by the factors of production (resources) can give us a measure of GDP which is production.
  (See pp. 127-8 "Two Sides to GDP: Spending and Income.)
• Know the difference between gross investment and net investment

Other National Accounts (p134-6)

• Understand and be able to calculate NDP (question #8a)
• Know and be able to calculate NI (national income)
  NI = wages + rent + interest + profits
  (profits = corp. profits + proprietor's income)
• Know definition of NI (income EARNED by the resources)
• Know definition of PI (income RECEIVED)
• Know definition of DI (SPENDABLE income)

Nominal and Real GDP (pp. 136-141)

• You must be able to convert nominal GDP to real GDP and know the differences between these concepts
  [Be able to fill in the blanks on Table 7-7, page 140, and study guide questions # 23-28]
  
• nominal GDP = SUM (P current year x Q current year)
  
• real GDP = SUM (P base year x Q current year)
  
• Why use real GDP?
  • To measure RDO. It is possible for nominal GDP to increase even though RDO decreased. How?
  • nominal GDP a little = SUM (P alot x Q a little)
  • Q is RDO
    
• real GDP = nominal GDP / price index
  [fill in the blanks on Table 7-7, page 140]

The CPI (pp. 141)

We covered this in class when discussing inflation

GDP and Economic Well-Being (pp. 141-42)

• This is imporant
  
• Know whether each of these cause GDP to OVERSTATE or UNDERSTATE Economic Well-Being
  • 1. non-market transactions are not counted (GDP understates)

    2. leisure is not add as a positive (GDP understates)

    3. improved product quality but same price (GDP understates)

    4. the composition of output
    (eg. produce many guns and drugs: GDP but Well-Being (GDP overstates)

    6. the distribution of output (not all receive the per capita income - if income is unequally distributed the GDP overstates well-being for most people)

    7. per capita output (GDP understates in countries with small populations and overstates in countries with large populations)

    8. GDP and the environment (GDP overstates)

    9. the underground economy not included (GDP understates)

    10. resource depletion not accounted for (GDP overstates)

• We will cover some of this in the lecture on Measures of Development (LDCs)

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