Econ Midterm Flashcards
1
Q
What is the study of how society manages its scarce resources called?
A
Economics
Economics examines decisions about buying, selling, saving, and investing.
2
Q
What are the three categories of the ten principles of economics?
A
- How people make decisions
- How people interact
- How the economy works as a whole
3
Q
What does the principle ‘People Face Trade-offs’ imply?
A
To get more of something we like, we have to give up something else that we like.
4
Q
Complete the saying: ‘There ain’t no such thing as a ______.’
A
free lunch
5
Q
What is the opportunity cost of an item?
A
What you give up to get that item.
6
Q
What is the definition of marginal change?
A
An incremental change to an existing plan.
7
Q
What is an incentive?
A
Something that induces a person to act.
8
Q
True or False: Trade can make everyone better off.
A
True
9
Q
What did Adam Smith refer to as the ‘invisible hand’?
A
The self-interested interactions of households and firms in markets.
10
Q
What must governments do to improve market outcomes?
A
Protect property rights and intervene when necessary.
11
Q
What is market failure?
A
When markets fail to allocate resources efficiently.
12
Q
Give an example of a negative externality.
A
Pollution
13
Q
What is the definition of productivity?
A
The amount of goods and services produced by each unit of labor input.
14
Q
What usually causes high inflation?
A
Rapid growth in the quantity of money.
15
Q
What is the short-run trade-off society faces between inflation and unemployment?
A
An increase in inflation tends to reduce unemployment.
16
Q
What is the circular-flow diagram used to illustrate?
A
The flow of goods and services, factors of production, and monetary payments between households and firms.
17
Q
What does a production possibilities frontier illustrate?
A
The combinations of output the economy can possibly produce.
18
Q
What happens to the production possibilities frontier with a technological advance?
A
It shifts outward, demonstrating economic growth.
19
Q
What is the main difference between microeconomics and macroeconomics?
A
Microeconomics focuses on individual households and firms, while macroeconomics studies economy-wide phenomena.
20
Q
What are positive statements?
A
Statements that describe the world as it is and can be confirmed or refuted with evidence.
21
Q
What are normative statements?
A
Statements that prescribe how the world ought to be, involving values and ethics.
22
Q
What is a common reason for economists to disagree?
A
Different scientific judgments or different normative views.
23
Q
What is the role of assumptions in economics?
A
To simplify the world and make it easier to understand.
24
Q
True or False: Economists can create data from experiments.
A
False
25
What is an economic model?
A simplification of economic reality composed of diagrams and equations.
26
What is the purpose of the Council of Economic Advisers?
To advise the president on economic policy.
27
What does the opportunity cost on a production possibilities frontier represent?
The amount of one good given up to produce more of another good.
28
What is the production possibilities frontier?
A curve that shows the maximum feasible amount of two goods that can be produced with available resources
29
What does a bowed outward production possibilities frontier indicate?
Opportunity costs are not constant; they increase as production shifts from one good to another
30
What happens to opportunity costs when moving from point A to point B on the production possibilities frontier?
The opportunity cost of producing pencils is lower because resources suited for pencil production are used first
31
What is the opportunity cost like when moving from point C to point D?
It is higher because resources well-suited for paper production are now being used for pencil production
32
What is the common mistake students make regarding production possibilities frontiers?
They assume a point near the middle is the best without considering the price of goods
33
How does the price of goods affect production choices according to the production possibilities frontier?
The choice of what to produce depends on the prices of each good
34
What is economic consensus?
The agreement among economists on significant economic principles, which is often more important than disagreements
35
What does comparative advantage refer to?
The ability of a producer to produce a good at a lower opportunity cost than another producer
36
What is absolute advantage?
The ability of a producer to produce more of a good with the same amount of resources than another producer
37
What determines specialization and trade between producers?
Comparative advantage, not absolute advantage
38
What is the gain from trade?
The additional production generated by specialization and trade that increases total output
39
What is the relationship between opportunity cost and comparative advantage?
Each producer should specialize in the good for which they have the lowest opportunity cost
40
What are imports?
Goods produced abroad and sold domestically
41
What are exports?
Goods produced domestically and sold abroad
42
Fill in the blank: The principle of comparative advantage applies to _______ as well as countries.
individuals
43
How does trade affect the production possibilities frontier?
Trade allows countries to consume outside their original production possibilities frontier
44
What is Gross Domestic Product (GDP)?
The market value of all final goods and services produced within a country in a given period of time
45
What does 'market value' in GDP measurement refer to?
Production is valued at the price paid for the output
46
What does 'final goods and services' mean in the context of GDP?
Only goods and services sold to the end user are counted, excluding intermediate goods
47
What does 'produced' mean regarding GDP?
Excludes the sale of used items that were produced in previous periods
48
What does 'within a country' imply when measuring GDP?
GDP measures the value of production within the geographic borders of a country
49
What does 'in a given period of time' mean for GDP?
GDP is measured per year or per quarter
50
What is the significance of seasonally adjusting GDP data?
To eliminate systematic variations caused by seasonal events
51
What does GDP include?
Tangible manufactured items and intangible services
## Footnote
Includes items such as cars, trucks, lawyers’ and doctors’ services.
52
What does 'produced' mean in the context of GDP?
Excludes the sale of used items produced in a previous period
## Footnote
This avoids double counting.
53
What does 'within a country' signify in GDP measurement?
Measures value of production within the geographic borders of a country.
54
What is the time frame for measuring GDP?
Measured per year or per quarter.
55
What is meant by 'seasonally adjusted' in GDP data?
Eliminates systematic variations caused by seasonal events.
56
What is the slight difference between GDP and GDI called?
Statistical discrepancy.
57
What does Gross National Product (GNP) measure?
Income or production of a nation’s permanent residents regardless of location.
58
What does Net National Product (NNP) account for?
Total income of residents minus depreciation.
59
Define National Income.
Total income earned by a nation’s residents.
60
What does Disposable Personal Income refer to?
Income after paying obligations to the government.
61
List the four components of GDP expenditures.
* Consumption
* Investment
* Government purchases
* Net exports
62
What is consumption in the context of GDP?
Spending by households on goods and services, excluding new housing.
63
What does investment include?
Spending on business capital, residential capital, and inventories.
64
What is excluded from government purchases in GDP?
Transfer payments such as Social Security and welfare.
65
What does net exports represent?
Value of foreign purchases of U.S. production minus U.S. purchases of foreign production.
66
What is the difference between Nominal GDP and Real GDP?
Nominal GDP is measured at current prices; Real GDP is measured at base-year prices.
67
What does the GDP deflator measure?
Level of prices in the current year relative to the base year.
68
What is a recession?
A period of decline in real GDP.
69
Is GDP a perfect measure of economic well-being?
No, it excludes leisure, environmental quality, and non-market goods.
70
What is the consumer price index (CPI)?
A measure of the overall cost of goods and services bought by a typical consumer.
71
What are the steps to calculate CPI?
* Fix the basket
* Find the prices
* Compute the basket’s cost
* Choose a base year and compute the index
* Compute inflation
72
What is substitution bias in CPI?
CPI overstates the increase in cost of living due to fixed basket not reflecting consumer substitutions.
73
What is the core CPI?
CPI excluding food and energy.
74
What are the major categories in the CPI basket?
* Housing
* Transportation
* Food and beverages
* Medical care
* Education and communication
* Recreation
* Apparel
* Other goods and services
75
What is the nominal interest rate?
Interest rate uncorrected for the effects of inflation.
76
What is the formula for correcting nominal interest rates for inflation?
Real interest rate = Nominal interest rate - Inflation rate.
77
What is indexed for inflation?
A dollar amount adjusted automatically for inflation.
78
What is a cost-of-living allowance (COLA)?
Provision in a contract for automatic adjustment for inflation.
79
What is the natural rate of unemployment?
The amount of unemployment that the economy normally experiences.
80
What does the Bureau of Labor Statistics (BLS) use to categorize surveyed adults?
The Current Population Survey.
81
What are the three categories used by the BLS to classify adults?
* Employed
* Unemployed
* Not in the labor force
82
What is the unemployment rate?
The percent of the labor force that is unemployed.
83
What is the labor-force participation rate?
The percent of the total adult population who are in the labor force.
84
What type of unemployment results from the time it takes for workers to search for jobs?
Frictional unemployment.
85
What is structural unemployment?
Unemployment that results because the number of jobs available is insufficient for everyone who wants a job.
86
What are some sources of structural unemployment?
* Minimum-wage laws
* Unions
* Efficiency wages
87
What effect do minimum-wage laws have on unemployment?
They can cause unemployment by forcing wages above the equilibrium wage.
88
What is the relationship between unions and wages?
Unions can raise wages above equilibrium, causing unemployment.
89
What are efficiency wages?
Wages that firms pay above the competitive equilibrium to increase efficiency.
90
What is a discouraged worker?
An individual who has given up looking for work and is not counted in the labor force.
91
What is the impact of unemployment insurance on job search?
It can increase frictional unemployment by reducing job search effort.
92
True or False: Frictional unemployment is always considered a social problem.
False.
93
How does job search contribute to frictional unemployment?
It takes time for job candidates and job vacancies to match.
94
What factors can influence the natural rate of unemployment?
* Changes in minimum-wage laws
* Changes in unions
* Changes in job-search processes
95
What is cyclical unemployment?
The deviation in unemployment from the natural rate.
96
What is one way to reduce frictional unemployment?
Improving information about job openings.
97
What role do government-run employment agencies play?
They help match workers and jobs.
98
What are the U1 to U6 measures calculated by the BLS?
Alternative measures of labor underutilization.
99
What is the main goal of collective bargaining?
To negotiate wages, benefits, and working conditions between unions and employers.
100
What is a common characteristic of minimum-wage workers?
They are often young, less-educated, and part-time workers.
101
What is the effect of efficiency wages on worker turnover?
It may reduce turnover by making it difficult to find alternative jobs at higher wages.
102
Fill in the blank: The unemployment rate varies widely across _______.
[demographic groups].
103
What is meant by sectoral shifts?
Changes in the composition of demand among industries or regions.
