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Economics > 3203 Unit 1 Intro > Flashcards

3203 Unit 1 Intro Flashcards

1
Q

What is Macroeconomics?

A

The study of economic activity and prices in the overall economy. Things such as full employment, control of inflation, and economic growth. Doesn’t worry about the well-being or behavior of specific individuals or groups.

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2
Q

What is an economic theory?

A

a logical framework to explain a particular economic phenomenon involves developing an economic model.

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3
Q

What is an economic model?

A

a simplified representation of the economic phenomenon that takes a mathematical or graphical form.

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4
Q

What are the steps of developing an economic model?

A
  1. Identify an interesting economic question.
  2. Specify the variables to be explained by the model, as well as the variables
    that explain them.
  3. Posit a set of equations or graphical analysis to connect movements in the exogenous variables to the endogenous variables.
  4. Compare the conclusions of the model with what actually happens.
    5.If the data are well explained, use the model to make further predictions,”
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5
Q

What is an endogenous variable?

A

the variable that a macroeconomist wants to explain.

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6
Q

What is an exogenous variable?

A

outside factor/s used to explain the endognous variable

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7
Q

Which 3 particular data series does Macroeconomics focus on?

A

Focuses on real GDP, the unemployment rate, and inflation.

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8
Q

What is Real Gross Domestic Product (GDP)?

A

the output of actual goods and services produced in an economy over a fixed period, usually a year.

-U.S. GDP is currently around $15 trillion, that is GDP per capita of nearly $50,000 per person.

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9
Q

What is a business(economic) cycle?

A

Fluctuations in real GDP with recurring up and down movements in economic activity (expansion and contraction) that differ in length.

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10
Q

What is a recession?

A

economic decline during which economic activity declines and real GDP per person falls.

-When the decline in real GDP is severe, a recession is classified as a depression.

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11
Q

What is an unemployment rate?

A

measures the percentage of workers looking for work, but who do not have jobs, at a particular point in time.

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12
Q

What is inflation rate?

A

tells us how rapidly the overall level of

prices is rising compared to previous years.

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13
Q

What is deflation?

A

when the inflation rate falls below 0%.

-not to be confused with disinflation which is when inflation levels are low(1%)

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14
Q

What is the goal of building economic models?

A

the underlying goal is to determine and understand what policies can produce better macroeconomic outcomes.

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15
Q

What are Government budget deficits?

A

an excess of government spending relative to revenue.

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16
Q

What is Fiscal Policy?

A

policymaker’s decision to raise taxes, cut government spending, or both.

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17
Q

What are central banks?

A

the government agencies that oversee banking systems.

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18
Q

What is monetary policy?

A

the management of the amount of

money in the economy and interest rates.

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19
Q

What is stabilization policy?

A

goal is to minimize business cycle fluctuations and stabilize economic activity,

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20
Q

Who calculates GDP?

A

The U.S. Bureau of Economic Analysis (part of the U.S. Commerce Department) calculates it on a quarterly basis with data provided by other government agencies such as the Census Bureau and the Bureau of Labor Statistics.

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21
Q

What is the relationship between GDP, total income, and total expenditure.

A

GPD(Total Production)=Total Income=Total Expenditure

*This is the fundamental identity of national income accounting.

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22
Q

What is National income accounting?

A

an accounting system to measure economic activity and its components,

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23
Q

What are the 3 approaches of National Income accounting?

A
  1. The production approach
  2. The expenditure approach
  3. The income approach
24
Q

What is the production approach to National Income Accounting??

A

the current MARKET VALUE of all final goods and services newly produced in the economy during a fixed period of time.

GDP = (price of apples * quantity of apples)
+ (price of oranges * quantity of oranges) + etc.

25
Q

What is underground economy?

A

goods and services produced that are not recorded by the government, either because they are illegal (drugs or prostitution) or because they are not reported.

26
Q

What is an imputed value?

A

an estimate of what the price of the good or service would be if it were traded in a market for which actual values are not available.

27
Q

How is the value of goods and services provided by the government (national defense, police protection, firefighting, etc) calculated?

A

The standard practice is to value these services at the cost of providing them. The imputed value of a police officer, for example, is the wages he or she is paid.

28
Q

What is the difference between intermediate goods and final goods?

A

intermediate goods and services are used up entirely in the stages of production, whereas final goods and services are the end goods in the production process.

ex: A car is produced. The battery is an intermediate good, the cost of shipping it is an intermediate service, the car is the final good.

29
Q

What is the value added technique of accounting?

A

the value of a firm’s output minus the cost of the intermediate goods and services purchased by the firm.

30
Q

What is a capital good?

A

a good that is produced in the current period to be used in the production of other goods and that is not used up inthe stages of production. This is counted in GDP.

31
Q

What are Inventories?

A

firms’ holdings of raw materials, unfinished goods, and unsold finished goods that is not used up in the current period also counted in GDP.

-The change in the inventory year to year is called inventory investment.

32
Q

Stock vs Flow

A

A stock is a quantity at a given point in time while a stock is an amount changed per a given unit of time,

ex:saving, a flow, which accumulates into a person’s wealth.

33
Q

What is the expenditure approach?

A

It is the National Income Identity. GDP is the total spending on currently produced final goods and services in the economy.

Y = C + I + G + NX

34
Q

What does Y = C + I + G + NX stand for?

A 
Y = GDP = total production (output)
C = consumption expenditure
I = investment
G = government purchases of goods and services
NX = net exports = exports - imports (aka trade balance)
35
Q

What is Consumption expenditure?

A

the total spending for currently produced consumer goods and services.

-made up of consumer durable, nondurable goods, and services

36
Q

What is Investment expenditure?

A

spending on currently produced capital goods that are used to produce goods and services over an extended period of time.

-Composed of Fixed investment, Inventory investment, and Residential Investment.

37
Q

What is the income approach?

A

involves adding up all the incomes received by households and firms in the economy, including profits and tax revenue to the government.

38
Q

What are the categories of income added up in the income approach?

A
  1. employee income
    2.Self-employed income
  2. Interest corporate profits
    (=National income)
    • depreciation
      (=Gross National Product)
  4. income income paid to Americans by foreigners
    • Income to foreigners from Americans
      (Total=Gross Domestic Product)
39
Q

What is Private disposable income?

A

the amount of income the private sector has available to spend:

PDI= + net factor income + transfer payments received from the government + interest payments on government debt - taxes

40
Q

What is net government income?

A

Net Government Income = taxes - transfers

- interest payments on government debt

41
Q

Nominal GDP vs Real GDP?

A

Nominal means at its current price, not adjusted to inflation.

Real GDP is adjusted to inflation. To calculate, use prices from base year but quantities for year calculating.

42
Q

What does it mean for economic statistics to be seasonally adjusted?

A

To get a clearer assessment economists adjust the data to subtract out the usual seasonal fluctuations using advanced statistical techniques.

43
Q

What is Chain-Weighted measures of GDP?

A

it is where the base year is allowed to change continuously meaning percentage change in real GDP is calculated with average prices over multiple average years.

44
Q

What are price indexes?

A

different measures of the price

level that can measure inflation.

45
Q

What is the GDP Deflator?

A

GDP deflator for year y = (Nominal GDP in year y / Real GDP in year x) X 100

*see GDP deflator handout

46
Q

What is the PCE Deflator?

A

Same concept as GDP deflator except you use PCE instead of GDP. (personal consumption expenditure)

47
Q

What is consumer price index (CPI)?

A

a measure of the average prices of consumer goods and services. Think of it as a cost of living index.

-The Bureau of Labor Statistics (part of
the U.S. Department of Labor) calculates the CPI monthly. In contrast, the GDP deflator
is calculated quarterly by the Bureau of Economic Analysis, while the PCE deflator is
calculated monthly by the same organization.

48
Q

How do you calculate CPI?

A

CPI Numerator/CPI Denomiator x 100

*see CPI handout on how to get numerator and denominator.

49
Q

How do you calculate inflation rate?

A

Inflation Rate:
%^P(ii) = Pnew-Pold/Pold x100

P=price index
*

50
Q

What are discouraged workers?

A

Those who would like to work but have

given up looking.

51
Q

How do you calculate the labor force (civilian)?

A

= Number of Employed + Number of Unemployed

52
Q

How do you calculate the unemployment rate?

A

= Number of Unemployed / Labor Force

53
Q

What is the labor-force participation rate?

A

the percentage of the adult civilian population in the labor force.

Formula: LBPR=Labor Force/Adult Population

54
Q

What is interest rate?

A

the cost of borrowing, or the price paid for the rental of funds

55
Q

What is the difference between nominal interest rate and real interest rate?

A

Nominal interest rate makes no allowance for inflation. The real interest rate is the interest rate that is adjusted by subtracting expected changes in the price level (inflation) to accurately reflect the real cost of borrowing.

-When the real interest rate is low, there are greater incentives to borrow and invest, but fewer incentives to lend.

56
Q

How do you calculate real interest rate?

A

if Fisher equation: i= r + ii^e

*Therefore: r= i - ii^e

[i= interest rate r=real interest rate ii^e=expected inflation rate]

57
Q

What is constant returns to scale?

A

if you increase ALL the factor inputs((K,L) by the same percentage, then output increases by exactly the same percentage. Put simply, doubling the inputs doubles the output.

Economics (16 decks)

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