Economics Flashcards
Elasticity of Supply
(►Q / Avg Q)
————————
(►P / Avg P)
Economic Profit
Total Revenue - Total Costs
Both Implicit and Explicit
Marginal Propensity
to Consume
MPC
Consumption
———————
(1 - t)
(Consumption / Disposable Income)
Fiscal Multiplier
1
———————
1 - MPC(1 - t)
Unemployment Rate
Unemployed
———————
Labor Force
Current Account
of a Country
S - I + (T - G - R)
Savings - Investments + (Taxes - Gov’t Spending - Transfers)
Tools of Fiscal Policy
- Taxation
- Government Spending
Tools of Monetary Policy
- Open Market Operations
- Discount Rate
- Reserve Ratios
Consumer Price Index
CPI
ΣQc * Pc
————— * 100
ΣQb * Pb
Percent change of CPI basket relative to the base * 100.
Crowding-Out Effect
When a government budget deficit causes a decrease in private investment.
Marginal Product
MP
►Total Product
—————————
►Labor
Amount of additional output resulting from one additional unit of input.
Marginal Revenue Product
MRP
►Total Product
————————— * Price
►Labor
or
MP * P
Giffen and Veblen Goods
Giffen Goods
Inferior, Do not violate fundamental axioms
Veblen Goods
High-Status, violate fundamental axioms
Nominal GDP
Σ(P*Q)
The sum of price times quantity of goods and services. Based on current prices so inflation increases nominal GDP.
Real GDP
Σ(Pt-n*Q)
The sum of price (in year n) times quantity (current year) of goods and services. Realative to a base year. Ignores inflation.
GDP Deflator
Nominal GDP
————————
Real GDP
GDP
Expenditure Approach
C + I + G + (X - M)
C = Consumption spending I = Investment in business G = Gov't purchases X = Exports M = Imports
GDP
Income Approach
National Income
+
Captial Consumption
+
Statistical Discrepency
Neoclassical Economics
- Supply creates it’s own demand.
- Shifts in aggregate supply/demand are primarily driven by changes in technology.
- Economies have a strong tendency toward full-employment equilibrium.
- Recessions put downward pressure on the money wage rate.
- Over-full employment puts upward pressure on the money wage rate.
- Business cycles are temporary deviations from long-run equilibrium.
Keynesian Economics
- Wages and prices of productive inputs (other than labor) are “downward sticky”.
- Use monetary and fiscal policy to increase aggregate demand.
Monetarist Economics
- Variations of aggregate demand are caused by inappropriate decisions made by monetary authorities.
- Recessions can be created by inappropriate decreases in the money supply or external shocks.
- Central bank should increase the money supply steadily and predictably.
Austrian Economics
- Business cycles are caused by government intervention in the economy.
New Classical Economics
- Real Business Cycle Theory (RBC)
- Emphasizes effect of real economic variables such as changes in technology and external shocks.
- Applies Utility Theory to Macroeconomics.
- Individuals and firms maximize utility.
- Policymakers should not try to counteract business cycles.
Frictional Unemployment
The time lag necessary to match employees who seek work with employers needing their skills.
