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macroecon > - > Flashcards

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1
Q

resource

A

anything that can be used to produce something else

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2
Q

factors of production

A

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).

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3
Q

scarcity

A

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

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4
Q

recessions and expansions

A

output and employment falling, rising

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5
Q

employment

A

total number of people currently working for pay

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6
Q

unemployment

A

total

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

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7
Q

labor force

A

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.

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8
Q

aggregate output

A

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

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9
Q

Both inflation and deflation can pose problems for the economy:

A
  • 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.
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10
Q

economic growth

A

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

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11
Q

trade-off

A

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

order to have something else.

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12
Q

calculating opportunity cost

A

sacrifice / gain.

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

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13
Q

sources of economic growth

A
  1. an increase in
    the resources used to produce goods and services
  2. progress in technology
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14
Q

technology

A

the technical means for the production of goods and services

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15
Q

gains from trade

A

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.

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16
Q

causes of demand curve shifts

A

changes in PITEN

  • prices of related goods/services
  • income
  • tastes
  • expectations
  • number of consumers
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17
Q

causes of supply curve shifts

A

changes in PITEN

  • prices of related goods/services
  • input prices
  • technology
  • expectations
  • number of producers
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18
Q

four situations of demand, supply, inc, dec

A
  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
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19
Q

household

A

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.

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20
Q

firm

A

A firm is an organization that produces

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

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21
Q

product markets

A

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

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22
Q

factor markets

A

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.

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23
Q

stocks and bonds

A

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.

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24
Q

government transfers

A

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.

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25
Q

disposable income

A

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

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26
Q

sources of household income

A

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.

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27
Q

private savings

A

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.

28
Q

financial markets

A

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.

29
Q

government borrowing

A

gov borrows in financial markets

30
Q

foreign lendign vs foreign borrowing

A

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.)

31
Q

inventories

A

goods and raw materials that firms hold to facilitate their operation

32
Q

national accounts

A

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

33
Q

investment spending

A

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.

34
Q

final goods and services

A

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

35
Q

intermediate goods and services

A

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.

36
Q

3 ways to calculate GDP

A
  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
37
Q

value added

A

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.

38
Q

chain-linking

A

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.

39
Q

labor force participation rate

A

labor force / population age 16+

40
Q

unemployment RATE

A

unemployed / labor force

41
Q

discouraged workers

A

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.

42
Q

marginally attached workers

A

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.

43
Q

underemployed

A

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.

44
Q

frictional unemployment

A

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

45
Q

structural unemployment

A

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

46
Q

efficiency wages

A

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.

47
Q

natural rate of employment

A

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

48
Q

shoe leather cost

A

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.

49
Q

menu costs

A

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.

50
Q

unit of account costs

A

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

51
Q

PPI

A
  • 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.
52
Q

GDP deflator

A

GDP deflator for a given year =

nominal GDP for that year / real GDP for that year (in terns of base year) * 100

53
Q

price index formul

A

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

54
Q

MPC

A

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

55
Q

MPS

A

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

56
Q

autonomous change in aggregate spending

A

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.

57
Q

how to find total change in real GDP

A

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

58
Q

multiplier

A

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.

59
Q

autonomous consumer spending

A

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.

60
Q

consumption function

A

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

MPC is the slope.

61
Q

causes of shifts of the aggregate consumption function

A
  1. Changes in Expected Future Disposable Income

2. changes in aggregate wealth

62
Q

permanent income hypothesis

A

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

63
Q

life-cycle hypothesis

A

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.

64
Q

how does aggregate wealth affect the consumption function?

A 
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.
65
Q

planned investment spending

A

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

66
Q

factors that affect planned investment spending

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

macroecon (1 decks)

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