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Ch 1: Introduction
Unit 1 - Foundations of Macroeconomics
53
Economics
Undergraduate 1
01/21/2008

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Term
Scarcity
Definition
The condition that arises because the available resources are insufficient to satisfy wants
Term
Incentive
Definition
A reward or penalty - a "carrot" or a "stick" - that encourages or discourages an action
Term
Economics
Definition
The social science that studies the choices that we make as we cope with scarcity & the incentives that influence & reconcile our choices
Term
Microeconomics
Definition
The study of the choices that individuals & businesses make & the way these choices respond to incentives, interact & are influenced by governments
Term
Macroeconomics
Definition
The study of the aggregate (or total) effects on the national & global economy of the choices that individuals, businesses and governments make
Term
Standard of Living
Definition
  • The quantity of consumption of goods & services that people enjoy, on the average.
  • It's measured by average income per person

 

Term
Goods & Services
Definition

The objects that people value & produce to satisfy wants

Term
Goods
Definition
Goods are physical objects
Term
Services
Definition

Are tasks performed for people

Term
Unemployment
Definition
The state of being available & willing to work but unable to find an acceptable job
Term
Cost of Living
Definition
Is the number of dollars it takes to buy the goods and services that achieve a given standard of living
Term
Marginal Cost
Definition
  • The opportunity cost that arises from one-unit increase in an activity
Term
Marginal Benefit
Definition
  • The benefit that arises from a one - unit increase in an activity
Term
Productivity
Definition
  • Total production per person employed
  • Only an increase in productivity brings a higher standard of living
  • Only an increase in productivity per person brings an increase in standard of living
Term
Inflation
Definition
  • Is the rising cost of living w/c means a shrinking value of the dollar
  • Is caused by an increase in the quantity of money that is not matched by an increase in the quantity of goods and services
  • Is measured by the percentage change in the cost of living
Term
Deflation
Definition
A falling cost of living w/c means a rising value of the dollar
Term
Business Cycle
Definition
A periodic but irregular up and down movements in production & jobs
Term

Expansion

Definition
  • Is the business cycle where production & jobs increase
  • It begins at a trough and ends at a peak
Term
Recession
Definition
  • Is a business cycle where production & jobs shrink
  • It begins at a peak and ends at a trough
Term
The Great Depression
Definition
  • Occurred during the 1930's
  • Is the worst ever recession that the economy experienced
  • 20% of Canadian labour can't find work
  • 28% of Canadian production shrank

 

Term
Positive Statements
Definition
  • Is a statement of "what is"
  • Can be tested by checking against the data
Term
Normative Statements
Definition
  • Statements about "what ought to be"
  • Can not be tested & depends on opinion

 

Term

Economic Model

Definition
  • Is a description of some aspect of the economic world that includes only those features of the world that are needed for the purpose at hand
  • Is simpler than the reality it describes
  • What a model includes and what it leaves oyt results from assumptions about what are essential and inessential details
Term
Philipps Economic Hydraulic Computer
Definition
  1. Created by Bill Phillips
  2. Created w/ plastic & plexiglas tanks at the London School of Economics in 1949. This model still works in London Museum today
Term
Economic Theory
Definition
  • A model that has repeatedly passed the test of corresponding well with the real-world data.
  • Is a generalization that summarizes what we understand about the economic choices that people make & the economic performance of the industries & nations

 

Term
Adam Smith
Definition
  • Born in 1723
  • In Kirkcaldy, Scotland
  • Wrote the "An Inquiry into the nature and Causes of the Wealth of Nation w/c was published in 1776
Term
Ceteris Paribus
Definition

Other things remaining the same

Term
Natural Experiments
Definition
Is a situation that arises in ordinary course of economic life in w/c one factor of interest is different & other things are equal
Term
Econometric Investigations
Definition
Uses statistical tools, the most common of w/c is correlation
Term
Correlation
Definition
  • Is the tendency for the values of two variables to move in a predictable & related way
  • Would sometimes show the strenght of a causal influence of one variable on the other
Term
Post Hoc Fallacy
Definition
The error of reasoning that a first event causes a second event because the first occured before the second
Term
Economic Experiments
Definition
Is a new approach w/c put real subjects in a decision-making situation & vary the influence of interest to discover how the subjects respond to one factor at a time
Term
Rational Choice
Definition
  • A choice that uses available resources to nost effectively satisfy the wants of the person making the choice
  • Only the wants & preferences of the person making the choice are relevant to determine its rationality
Term
Opportunity Cost
Definition
  • Is the best alternative given up
  • The best thing that you must give up to get something
Term
Benefit
Definition
  • Is the gain or pleasure that it brings
  • Is how a person feels about something
  • Is measured by what a person is willing to give up to get it

 

Term
Margin
Definition
A choice on the margin is the choice that is made by comparing all the relavant alternative systematically & incrementally
Term
Expenditure Fluctuations
Definition
Is an economic fluctuations wherein it brings fluctuations in jobs & production & are one of the sources of business cycle
Term

What are the 2 groups of economic fluctuation or business cycle?

Definition

The 2 grps. of economic fluctuation or business cycle are:

  1. Expenditure
  2. Productivity
Term
What are the 4 core ideas of macroeconomics?
Definition

The 4 core ideas of Macroeconomics are:

  1. Macroeconomic performance results from rational choices that responds to incentives people face
  2. The standard of living improves when production per person increases
  3. The cost of living rises when quantity of money increases faster than production
  4. Economic fluctuations results from expenditure and productivity fluctuations
Term
What are the 3 steps that scientis take to catalogue positive statements?
Definition

The 3 steps that scientist take to catalogue positive statements are:

  1. Observing & Measuring
  2. Model Building
  3. Testing
Term
What are the 3 big issues in Macroeconomics?
Definition

The 3 big issues in Macroeconomics are:

  1. Standard of Living
  2. Cost of Living
  3. Economic Fluctuations - Expansions & Recessions
Term
When was the last recession in Canada?
Definition

1990-1991

Term
Explain the 4 core ideas that define the way economist think about Macroeconomic questions
Definition
Term
Describe what Economist do & some of the problems that they encounter
Definition
Term

Define Economics, distinguish bet. Microeconomics & Macroeconomics & Explain the questions of Macroeconomics

Definition
Term
Scatter Diagram
Definition

A graph of the value of one variable against the value of another variable

[image]

Term
Cross Section Graph
Definition

A graph that shows the values of an economic variable for different groups in a population at a point in time

 

Term
Time Series Graph
Definition

A graph that measures time on the x-axis & variable or variables in w/c we are interested  in the y-axis

[image]

Term
Trend
Definition
A general tendency for the value of a variable to rise or fall
Term
Direct Relationship
Definition
A relationship between two variables that move in the same direction
Term
Inverse Relationship
Definition
A relationship between two variables that move in the opposite direction
Term
Linear Relationship
Definition
A relationship that graphs as a straight line
Term
Slope
Definition

The change in the value of the variable on the y-axis divided by the change in the value of the variable measured on the x-axis

 

Slope = Δy ÷Δx

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