Term
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Definition
| Unlimited wants, limited resources |
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Term
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Definition
| Giving up one thing for another because of limited resources |
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Term
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Definition
| What you can no longer get |
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Term
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Definition
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Term
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Definition
| Prescribes how world should be |
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Term
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Definition
| Command (communism), Market system (capitalist) |
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Term
| Problems with Command economies: |
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Definition
| Coordination (Central planning), Poor output mix |
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Term
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Definition
| table that shows QD of an item at different P levels |
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Term
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Definition
| Amount of a good a consumer is willing and able to purchase given a certain price and time. |
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Term
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Definition
Price increases, QD decreases
Inverse relationship, downward sloping curve |
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Term
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Definition
| Good you purchase more of when you can afford it --> Steak |
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Term
| What are the Demand Shifters? |
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Definition
| Income, P of related good, Taste and Preference & number of buyers |
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Term
| What happens when a consumer's income increases re: normal and inferior goods? |
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Definition
normal goods: QD increases, rightward shift
inferior goods: QD decreases, leftward shift |
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Term
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Definition
| The amount of the good the producer is willing and able to sell at a certain point in time |
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Term
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Definition
| Table which shows the QS of a good for different prices |
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Term
| What does the Supply Schedule show? |
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Definition
As the P increases, so does the QS
Direct relationship, upward sloping curve |
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Term
| What are the Supply Shifters? |
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Definition
| Input prices, technology, number of sellers and acts of nature |
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Term
| What is Market equilibrium |
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Definition
| Price-quantity pair, where at P you can determine QD and QS |
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Term
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Definition
| Responsiveness of D to the change in different factors |
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Term
| Price Elasticity of Demand (PED) |
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Definition
% change in Q / % change in P
or
([Q2-Q1]/Q1) / ([P2-P1]/P1) |
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Term
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Definition
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Term
| When is Demand INELASTIC? |
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Definition
| Less than 0, but more than -1 |
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Term
| When is Demand UNIT ELASTIC? |
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Definition
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Term
| In the circular flow model, who are the agents? |
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Definition
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Term
| What is the output market? |
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Definition
| Market for goods and services |
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Term
| What is the factor market? |
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Definition
| Market for factors of production -->Household sell Land , labor and machinery, firms buy |
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Term
| In the circular flow diagram, what is a Transfer? |
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Definition
| Government transferring wealth to the consumers --> SS, welfare |
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Term
| What is Aggregate Demand? |
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Definition
| Nationwide consumption as whole |
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Term
| What are the factors of AD? |
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Definition
C [consumption], G [gov't expenditure], I [econ investment] & NX [net exports]
AD=C+G+I+NX |
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Term
| Is the AD slope subject to the Law of Demand? |
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Definition
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Term
| What are the "effects" of AD? |
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Definition
Wealth effect
Interest rate effect
Exchange rate effect |
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Term
| What is the Wealth effect? |
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Definition
Higher prices mean:
-less "real" wealth
-lower consumer spending |
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Term
| What is the Interest rate effect? |
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Definition
Higher prices mean:
-Higher interest rate
-lower investment spending (I) |
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Term
| What is the Exchange rate effect? |
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Definition
Higher prices mean:
-more imports, less exports
-lower net export spending (NX) |
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Term
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Definition
| Used any situation where there is a new injection into an economy |
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Term
| What is the equation for the AD Multiplier? |
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Definition
| Change in AD= $ amount x (1/1-MPC) |
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Term
| What is MPC? Marginal propensity to consume |
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Definition
| Fraction of income that a household consumes rather than spends |
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Term
| What is the most direct way to shift the AD curve? |
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Definition
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Term
| What causes changes in NX? |
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Definition
Change in exchange rates:
-exchange rates up, NX down
-tariffs up, NX up
-wealth abroad up, NX up |
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Term
| What causes changes in consumer spending? |
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Definition
Change in consumer spending:
-consumer wealth up, C up
-consumer expectations up,C up
-household borrowing up, C up
-taxes high, C down |
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Term
| What causes changes in investment spending? |
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Definition
Change in investment spending:
-interest rates up, I down
-expected return up, I up
-think money supply: money supply decreases, this makes interest rates go up, that decreases investment spending. |
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Term
| How do you calculate MPC? |
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Definition
| change in consumption / change in income |
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Term
| Change in initial spending output market (CISOM) |
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Definition
| Change in AD after multiplier has been used |
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Term
| Aggregate Supply functions on Time Horizons which are: |
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Definition
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Term
Re: AS what are the differences in short run vs long run:
1.Normal prices
2.Input prices |
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Definition
AD-SR:
1.Normal prices are "not correct"
2.Input prices are fixed
3.Output prices are fixed
AS-LR
1.Normal Prices (including input) are fully flexible
2.Output (REAL variable) does not depend on level of prices (nominal variable) |
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Term
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Definition
| Production quantity of a good that an economy achieves in the LR |
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Term
| Long run Aggregate Supply Shifters: |
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Definition
Change in labor supply
Changes in capital
Changes in natural resources
Changes in technological knowledge |
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Term
| Why do prices matter in the SR? |
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Definition
Sticky wages
Sticky prices
Misperceptions |
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Term
| What are the only ways to shift the LRAS to the right? |
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Definition
| Increase in resource or increase in technology |
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Term
| What is cost-push inflation? |
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Definition
| When costs of inputs increase it increased the overall price in the SR |
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Term
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Definition
| amount of products times their prices |
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Term
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Definition
| amount of products times their prices in the base year |
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Term
| What does nominal GDP show us? |
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Definition
| Changes in production and prices |
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Term
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Definition
| Changes in production relative to a certain year |
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Term
| What is the GDP deflator formula? |
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Definition
| (nominal GDP / RGDP) x 100 |
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Term
| When using the GDP deflator, what does a negative answer mean? |
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Definition
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Term
| What is used to measure economic health of a nation? |
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Definition
| GDP used to measure quality of life |
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Term
| Who are included in the labor force? |
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Definition
| People 16+ willing and able to work |
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Term
| How do you calculate the participation rate in an economy? |
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Definition
| (labor force / population) x 100 |
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Term
| What is the unemployment rate formula? |
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Definition
| (unemployed / labor force) x 100 |
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Term
| During recessions what happens to the unemployment rate? |
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Definition
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Term
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Definition
| deviation of unemployment from the natural rate |
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Term
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Definition
| unemployment by workers who's skills are not in demand by employers, who lack skill to obtain employment, who cannot easily move to find work |
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Term
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Definition
| "search and wait"; type caused by workers taking their time searching for a job that matches their skills and abilities |
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Term
| Is it possible for a nation to have 0% unemployment? |
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Definition
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Term
| What factors can contribute to unemployment? |
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Definition
Unemployment insurance
Minimum wage laws
Unions |
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Term
| Formula for RGDP per capita |
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Definition
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Term
| RGDP per capita does not take into consideration |
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Definition
improved products/services
added leisure
environment
other impacts |
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Term
| Calculate time it will take for GDP to double |
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Definition
| 70 / growth rate of the variable |
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Term
| What will encourage RGDP per capita growth? |
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Definition
Production factors
-increase in quality/quantity of natural resources per worker
-increase in skill per worker
-increase in machines per worker
Production technology
-improvement in technology
-productive efficiency
Demand
-increased purchasing of goods |
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Term
| Calculate capital per worker: |
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Definition
| # of machines / # of workers |
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Term
| Labor productivity per worker: |
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Definition
| total output / total hours |
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Term
| What 3 factors can shift the PPF curve right? |
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Definition
Land (capital)
Labor
Technology |
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Term
| What are the 6 polices which promote economic growth? |
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Definition
1. Human capital
2. Savings & investing
3. Property rights & political stability
4. Free trade
5. Patents and copyrights
6. Population and growth |
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Term
| What factors of high RGDP growth leads to low population growth? |
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Definition
Demographic transition: an increase in income leads to slower population growth
Children are expensive |
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Term
| What roles do the government play in economics? |
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Definition
| regulator [legal structure, stability] and equalizer [reallocating resources and income] |
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Term
| What is the formula for future value? |
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Definition
| present value x (1 + rate)^years |
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Term
| What is the formula for present value? |
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Definition
| principle + (principle/[1+rate]) + (principle/[1+rate]^2) |
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Term
What is the Rule of 70?
What is it used for? |
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Definition
| Years to double = 70 / rate % [not decimal] |
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Term
| What is the Law of Diminishing Marginal Utility? |
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Definition
| Consumption of the 1st unit gives you more utility than the 2rd and 3rd |
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Term
| What does Risk neutral mean? |
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Definition
Indifferent to expect value of $0
Accepts positive amount
Rejects negative amount |
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Term
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Definition
[Payoff win = winning amount - how much you paid]
(Payoff x Probability A) + (Payoff x probability) |
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Term
| Business cycles according to New Keynesians: |
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Definition
-Sticky prices and wages is SRAS
-Changes in AD/AS from expansions and contractions |
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Term
| Business cycles according to Monetarists: |
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Definition
-Markets can regulate themselves
-Fluctuations in AS/AD impact P not Q |
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Term
| Business cycles according to Real Business Cycle View: |
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Definition
-Macro econ changes are caused by "real things" --> factors of production
-Attributes all fluctuations to outpu |
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Term
| What's the problem with coordination failure? |
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Definition
| We have an event that occurs from someone's expectations rather than anything fundamental to the economy |
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