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Question 1

resource

Answer 1

anything that can be used to produce something else

Question 2

factors of production

Answer 2

The economy’s
resources, sometimes called factors of production, can be classified into four categories:
land (including timber, water, minerals, and all other resources that come from
nature), labor (the effort of workers), capital (machinery, buildings, tools, and all
other manufactured goods used to make other goods and services), and entrepreneurship
(risk taking, innovation, and the organization of resources for production).

Question 3

scarcity

Answer 3

A resource
is scarce when there is not enough of it available to satisfy the various ways a
society wants to use it.

Question 4

recessions and expansions

Answer 4

output and employment falling, rising

Question 5

employment

Answer 5

total number of people currently working for pay

Question 6

unemployment

Answer 6

total

number of people who are actively looking for work but aren’t currently employed

Question 7

labor force

Answer 7

The labor force is the number of people who are employed plus the unemployed who are looking for work. To be considered part of the labor force, you must be available, willing to work, and have looked for a job recently.

Question 8

aggregate output

Answer 8

the economy’s total production of final goods and services for a given time period, usually a year

Question 9

Both inflation and deflation can pose problems for the economy:

Answer 9

• Inflation discourages
  people from holding on to cash, because if the price level is rising, cash loses value. ppl will trade goods for goods
• de: it can be more attractive for
  people with cash to hold on to it than to invest in new factories and other productive
  assets. This can deepen a recession.

Question 10

economic growth

Answer 10

an increase in what the economy CAN produce – an expansion of
the economy’s production possibilities – SUSTAINED rise in aggregate output

Question 11

trade-off

Answer 11

You make a trade-off when you give up something in

order to have something else.

Question 12

calculating opportunity cost

Answer 12

sacrifice / gain.

ex: 8 more fish, 6 fewer coconuts. OC of 1 fish is 6/8 = 3/4 coconut

Question 13

sources of economic growth

Answer 13

1. an increase in
   the resources used to produce goods and services
2. progress in technology

Question 14

technology

Answer 14

the technical means for the production of goods and services

Question 15

gains from trade

Answer 15

by dividing tasks and trading, two people (or 7 billion people)
can each get more of what they want than they could get by being self-sufficient. arise from specialization.

Question 16

causes of demand curve shifts

Answer 16

changes in PITEN

• prices of related goods/services
• income
• tastes
• expectations
• number of consumers

Question 17

causes of supply curve shifts

Answer 17

changes in PITEN

• prices of related goods/services
• input prices
• technology
• expectations
• number of producers

Question 18

four situations of demand, supply, inc, dec

Answer 18

1. demand inc, supply dec: EP rises, EQ ambiguous
2. demand dec, supply inc: EP falls, EQ ambiguous
3. demand and supply inc: EQ rises, EP ambiguous
4. demand and supply dec: EQ falls, EP ambiguous

Question 19

household

Answer 19

A household consists of either an individual
or a group of people who share their income.
- Households also own factors of production—land, labor, and capital.

Question 20

firm

Answer 20

A firm is an organization that produces

goods and services for sale—and that employs members of households.

Question 21

product markets

Answer 21

there are markets for goods and services (also known as
product markets) in which households buy the goods and services they want from
firms.

Question 22

factor markets

Answer 22

there are factor markets in which firms buy the resources they
need to produce goods and services. The best known factor market is the labor market,
in which workers are paid for their time.
- Besides labor, we can think of households as
owning and selling the other factors of production to firms.

Question 23

stocks and bonds

Answer 23

Some households derive additional income from their indirect ownership of the physical
capital used by firms, mainly in the form of stocks—shares in the ownership of a
company—and bonds—loans to firms in the form of an IOU that pays interest.

Question 24

government transfers

Answer 24

some households receive government transfers—payments that the
government makes to individuals without expecting a good or service in return. Unemployment
insurance payments are one example of a government transfer.

Question 25

disposable income

Answer 25

The total income households have left after paying taxes and receiving government transfers is disposable income.

Question 26

sources of household income

Answer 26

in factor markets, households receive income in the form of wages, profit (stocks), interest (bonds), and rent (firms pay rent for land/structures owned by households) via factor markets.

Question 27

private savings

Answer 27

The second reason that the markets for goods and services do not absorb all household income is that many households set aside a portion of their income for private savings.

Question 28

financial markets

Answer 28

private savings go into financial markets where individuals, banks, and other institutions buy and sell stocks and bonds as well as make loans. They also receive funds from the rest of the world and provide funds to the government, to firms, and to the rest of the world.

Question 29

government borrowing

Answer 29

gov borrows in financial markets

Question 30

foreign lendign vs foreign borrowing

Answer 30

lending: lending by foreigners to borrowers in the United States and purchases by foreigners of shares of stock in American companies (FUNDS INTO U.S.) borrowing: borrowing by foreigners from U.S. lenders and purchases by Americans of stock in foreign companies (FUNDS OUT OF U.S.)

Question 31

inventories

Answer 31

goods and raw materials that firms hold to facilitate their operation

Question 32

national accounts

Answer 32

keep track of the flows of money between different sectors of the economy

Question 33

investment spending

Answer 33

spending on new productive physical capital, such as machinery and buildings, and on changes in inventories. the national accounts count this as part of total spending on goods and services.

Question 34

final goods and services

Answer 34

goods and services sold to the final, or end, user

Question 35

intermediate goods and services

Answer 35

goods and services that are inputs into the production of final goods and services. In the case of intermediate goods and services, the purchaser—another firm—is not the final user.

Question 36

3 ways to calculate GDP

Answer 36

1. survey firms and add up the total value of their production of final goods and services (value added of each sector) 2. add up aggregate spending (C+I+G+NX) 3. sum the total factor income earned by households from firms in the economy

Question 37

value added

Answer 37

To avoid double-counting, we count only each producer’s value added in the calculation of GDP: the difference between the value of its sales and the value of the inputs it purchases from other businesses.

Question 38

chain-linking

Answer 38

the government economists who put together the U.S. national accounts have adopted a method to measure the change in real GDP known as chain -linking, which uses the average between the GDP growth rate calculated using an early base year and the GDP growth rate calculated using a late base year.

Question 39

labor force participation rate

Answer 39

labor force / population age 16+

Question 40

unemployment RATE

Answer 40

unemployed / labor force

Question 41

discouraged workers

Answer 41

Individuals who want to work but aren’t currently searching because they see little prospect of finding a job given the state of the job market are known as discouraged workers.

Question 42

marginally attached workers

Answer 42

Discouraged workers are part of a larger group known as marginally attached workers. These are people who say they would like to have a job and have looked for work in the recent past but are not currently looking for work.

Question 43

underemployed

Answer 43

workers who would like to find full -time jobs but are currently working part time “for economic reasons”— that is, they can’t find a full -time job.

Question 44

frictional unemployment

Answer 44

Frictional unemployment is unemployment due to the time workers spend in job search.

Question 45

structural unemployment

Answer 45

Structural unemployment is unemployment that results when there are more people seeking jobs in a labor market than there are jobs available at the current wage rate. - wage rate is persistently above equilibrium wage rate

Question 46

efficiency wages

Answer 46

Actions by firms may also contribute to structural unemployment. Firms may choose to pay efficiency wages—wages that employers set above the equilibrium wage rate as an incentive for their workers to deliver better performance.

Question 47

natural rate of employment

Answer 47

frictional + structural. Actual unemployment fluctuates around this normal level.

Question 48

shoe leather cost

Answer 48

Shoe leather cost refers to the cost of time and effort that people spend trying to counter-act the effects of inflation, such as holding less cash and having to make additional trips to the bank.

Question 49

menu costs

Answer 49

Changing a listed price has a real cost, called a menu cost. For example, to change a price in a supermarket may require a clerk to change the price listed under the item on the shelf and an office worker to change the price associated with the item’s UPC code in the store’s computer.

Question 50

unit of account costs

Answer 50

The unit -of- account costs of inflation are the costs arising from the way inflation makes money a less reliable unit of measurement.

Question 51

PPI

Answer 51

- measures the cost of a typical basket of goods and services—containing raw commodities such as steel, electricity, coal, and so on—purchased by producers. - Because commodity producers are relatively quick to raise prices when they perceive a change in overall demand for their goods, the PPI often responds to inflationary or deflationary pressures more quickly than the CPI. As a result, the PPI is often regarded as an “early warning signal” of changes in the inflation rate.

Question 52

GDP deflator

Answer 52

GDP deflator for a given year = | nominal GDP for that year / real GDP for that year (in terns of base year) * 100

Question 53

price index formul

Answer 53

market basket in given year / market basket in base year * 100

Question 54

MPC

Answer 54

marginal propensity to consume: the increase in consumer spending when disposable income rises by $1. is equal to change in consumer spending / change in disposable income

Question 55

MPS

Answer 55

the fraction of an additional dollar of income that is saved. = 1 - MPC

Question 56

autonomous change in aggregate spending

Answer 56

An initial rise or fall in aggregate spending at a given level of real GDP is called an autonomous change in aggregate spending. It’s autonomous because it’s the cause, not the result, of the chain reaction.

Question 57

how to find total change in real GDP

Answer 57

1/(1-MPC) * autonomous change in aggregate spending

Question 58

multiplier

Answer 58

delta Y / delta AAS = 1/(1-MPC) total change in real GDP / autonomous change in aggregate spending the higher the MPC, the higher the multiplier.

Question 59

autonomous consumer spending

Answer 59

the amount a household would spend if it had no disposable income. We assume that a is greater than zero because a household with no disposable income is able to fund some consumption by borrowing or using its savings.

Question 60

consumption function

Answer 60

c = a + MPC*y.sub.d individual household consumer spending = autonomous consumer spending + MPC * disposable income MPC is the slope.

Question 61

causes of shifts of the aggregate consumption function

Answer 61

1. Changes in Expected Future Disposable Income | 2. changes in aggregate wealth

Question 62

permanent income hypothesis

Answer 62

consumer spending ultimately depends mainly on the income people expect to have over the long term rather than on their current income

Question 63

life-cycle hypothesis

Answer 63

According to this hypothesis, consumers plan their spending over their lifetime, not just in response to their current disposable income. As a result, people try to smooth their consumption over their lifetimes—they save some of their current disposable income during their years of peak earnings (typically occurring during a worker’s 40s and 50s) and during their retirement live off the wealth they accumulated while working.

Question 64

how does aggregate wealth affect the consumption function?

Answer 64

``` A rise in aggregate wealth— say, because of a booming stock market—increases the vertical intercept A, aggregate autonomous consumer spending. This, in turn, shifts the aggregate consumption function up in the same way as does an expected increase in future disposable income. ```

Question 65

planned investment spending

Answer 65

Planned investment spending is the investment spending that firms INTEND to undertake during a given period.

Question 66

factors that affect planned investment spending

Answer 66

1. interest rate 2. expected future real GDP 3. inventories