Anything occurring in nature that is used to produce or create other things

1. Natural
2. Human
3. Physical

Anything man-made that is used to produce or create other things

1. Human- experience, talent, creativity, mental/physical
2. Physical- machinery/ tools 

Additional

• i.e. people make decisions additionally, or at the margin. You don't buy 5 cars in expectation of 5 kids, you buy as you need

Justifying decisions witout explaining opportunity cost.

i.e. Spending an amount of money to save 50 people when you could spend the same amount of money and save 100 people 

Soemone/ something who facilitates trade; brings together buyers and sellers instead of buyers and sellers working directly

i.e. Ebay

Total output of a goup of people, an entire economy, or a group of nations will be greatest when output of each good is produced by the person/firm of the lowest opportunity cost for producing that good

Producing a good with the lowest opportunity cost

Graph showing all possible allocations of the most output that can be prodcued from limited resources of an economy

Assumes resource base and technology are fixed and resources are used efficiently

Someone who brings together the other 3 resources and produces something, a good or service

i..e Bill Gates hired land, labor, and capital to produce software

Economic system in which the basic means of production are owned/ controlled by the government and goods/ resources are allocated through government central planning

(basic means of production= utilities, railroads, etc)

Goods that are normally consumed together

i.e. peanut butter and Jelly 

Difference between the maximum price consumers are willing and able to pay and the price they actually pay

i.e. $50 max you're willing to pay for an item, however they are on sale for $20. You make $30 in consumer surplus

When consumers buy a different amount than before BECAUSE OF ANYTHING BUY A CHANGE IN PRICE

i.e. you're income goes up, you buy more; it goes down, you buy less

When sales revenue is GREATER than the cost of production

Total value of a resource is now MORE than what you originally paid for them

When sales revenue is LES THAN the cost of production.

Combining a set of resources when you buy them in a way that destroys some of the value of the resource when compared to how much you originally paid for them

State in which forces of supply and demand are in balance

Quantity supplied = Quantity demanded

State in which all potential gains from trade have been realized

Market equilibrium results in economic efficiency

GROSS DOMESTIC PRODUCT 

(GDP)

Market value of all final goods and services produced within a country during a specific period (WHERE it's produced)

1. Expenditures approach- C+I+G+(X-M)
2. Income approach- Rent + wages + interest + profit

GROSS NATIONAL PRODUCT 

(GNP)

Number used to compare the costs of purchasing a list of goods that a typical consumer might buy in one period to the same list of goods in a subsequent period

GDP Deflator- similar index but covers consumers, businesses, and governments

NOMINAL GDP

(money GDP)

NON-MARKET PRODUCTION

Production that doesn't involve a market transaction

i.e. painting your own house instead of paying someone to do it

part/ whole

The 'part'= difference between last year's inflation rate and this years. 

The 'whole' would be last year's inflation rate

Inflation rate= [(CPIp-CPIl)/ last years CPI] *100

Peak- highest point of cycle

Trough- lowest point of cycle

Expansionary phase (boom)- when GDP is growing

Contractionary phase (bust)- when GDP is declining

Trend Line- PGDP and Average growth rate of US GDP

Actual GDP- line that snakes around the trend line

Percentage change in inflation, how much it changes from year to year

Change in inflation

__________________

Inflation in base year

What percent is in the labor force, employed or unemployed

(Out of total population, 16+, non-institutionalized, and civialian)

Number employed

____________________

Total population

16+, non-institutionalized, civilian 

Unemployment existing in a healthy economy (~5%)

• Frictional Unemployment- resulting from lack of information in the labor force; skills match job you just haven't found job that matches skills

• Structural UnemploymenT- resulting from changes in supply/ demand conditions in particular industries; skills don't match jobs in market

• Policy induced (public sector)- caused by changes in govt. policy
• Technological- results from technology changes
• Seasonal- results from change in season
• Regional- Unemployment geographically specific

Market for the 4 major resources

Graphs show rent, wages, interest, and profit

AGGREGATE SUPPLY 

(SHORT RUN)

AGGREGATE SUPPLY 

(LONG RUN)

• Price that borrowers pay for impatience (needing to buy NOW instead of saving and buying later)

• Reward that savers earn for patience (not buying now, saving to earn money and spending later)

An index that looks at many macro variables to determine whether consumers are optimistic or pessimistic about new future

Increase in CSI- optimistic

Decline in CSI- pessimistic 

Unexpected event that temporarily increases/ decreases aggregate supply

i.e. bad weather conditions 

Economics focus on agregate supply than on aggrgate demand, alternative to Keynesian economics

Focuses on tax cuts instead of increasing government spending

Government programs that already exist and tend to create deficits in times of recession and surpluses during times of inflation. 

i.e. progressive income tax, corporate income tax and unemployment compensation

Leaving market to its own devices, recessions, and inflationary times will self-correct with no government interventions

Group of economists who believe:

1. Monetary instability is the major cause of fluctuation in RGDP
2. Rapid growth of the money supply is the major cause of inflation

Graph indicating relationship between the interest rate and quantity of money that people want to hold to buy things or for liquidity 

Inversely related to interest rate

Decreases in money supply designed to stifle aggregate demand, causes short term interest rates to rise

Also called restrictive monetary policy or tight money

Average numbr of times a dollar is spent during a year 

Equals GDP/ money supply (stock of money)

MV= PQ

M= money supply

V= velocity of money 

P= average price level 

Q= real output of goods/ services produced in an economy 

MV= total spending

PQ= NGDP and Total Revenue 

Money without intrinsic value or the backing of a commodity with intrinsic value; only has value because government says it does

i.e. paper money

UNIT OF ACCOUNT 

(STANDARD OF VALUE)

UNIT OF ACCOUNT 

(STANDARD VALUE)

Unit of measurement used by people to post prices and keep track of revenue and costs

Allows cost benefits analysis 

MONEY SUPPLY

(M1 MONEY)

Sum of:

1. Curerncy in circulation
2. Checkable deposit institutions
3. Travelors checks

MONEY SUPPLY

(M2 MONEY)

Everything thats in M1 plus: 

1. Savings deposits
2. Time deposits (accounts w/ less than $100, 000 in depository institutions
3. Money market mutual fund shares

minimum amount of reserves that a bank is required by law to keep on hand to back up its deposits

FEDERAL DEPOSIT INSURANCE CORP

(FDIC) 

DEPOSIT EXPANSION MULTIPLIER 

(DEM)

Multiple by which an increase in reserves will increase the money suppply

Inversely related to the required reserve ratio

FEDERAL OPEN MARKET COMMITTEE

(FOMC)

Sum of currency in circulation plus bank resrves

(vault cash and reserves held at the Fed)