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Economics Flashcards

1
Q

How does a P increase affect S?

A

Supply increases

  • more sellers are willing to sell.
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2
Q

What is a S curve shift?

A

Supply changes due to

something other than P.

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3
Q

What are the characteristics of a

positive S curve shift (shift right)? Causes?

A

S increases at each P pt

Higher Equilibrium GDP

More Sellers, market can get flooded

Govt subsidies, tech improvements

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4
Q

What are the characteristics of a

negative S curve shift (shift left)?

Causes?

A
  • S decreases at each P pt
  • Equilibrium GDP down

Causes: Cost of production up

Shortage of gold => less gold watches made

Wars/crises in <=Asia => less rice on the market

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5
Q

How does P affect D for an item?

A

opposites

P up , D down

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6
Q

What is a D Curve Shift?

A

D changes due to something

other than price.

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7
Q

What is a positive D Curve Shift (Shift Right)?

Causes?

A
  • D up at each P pt

equilibrium GDP up

Psubstitutes up

Future P increase expected War in MiddleEast => ppl buy more gas

Market Expansion, Free Obamacare => Dclinic up

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8
Q

What is a negative D Curve Shift (Shift Left)?

Causes?

A
  • D decreases at each P pt
  • Pcomplement up
  • Consumer tastes change
  • Market Contraction - less spending decreases equilibrium GDP
  • Boycott, Company commits social blunder
  • Consumer income rises, Dinferior goods drops
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9
Q

What is the Marginal Propensity to Consume?

A

How much you spend when your income increases

Change in Spending

Change in Income

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10
Q

What is the Marginal Propensity to Save?

A

How much you save when income increases

(1 - MPC) or Change in Savings

Change in Income

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11
Q

How is the multiplier effect calculated?

A

Change in Spending

1 - MPC

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12
Q

How does increased spending

by consumers and the govt

affect the D curve?

A

D curve shifts right

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13
Q

How does spending change

due to the Multiplier Effect?

A

The increase in D ends up being larger than the amount of addit’l income spent in economy

One consumer spends money, which increases

  • income of a business
  • income of a vendor
  • income of employees
  • tax revenue
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14
Q

How is Price Elasticity of D calculated?

A

% Change in QD

% Change in P

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15
Q

What conditions indicate Elastic Demand?

A
  • Many substitutes (luxury items)
  • Considered elastic if elasticity > 1
  • P up => Rev down
  • P down => Rev up
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16
Q

What conditions indicate Inelastic Demand?

A
  • Few substitutes (groceries, gasoline)
  • Considered inelastic if coefficient of elasticity < 1
  • P up => Rev up
  • P down => Rev down
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17
Q

What is Unitary Demand?

A

Total Revenue remains same if P is increased

coefficient of elasticity = 1

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18
Q

How is Income Elasticity of Demand calculated?

A

% Change QuantityD

% Change in Income

Normal goods > 1 (D increases more than Income)

Inferior goods < 1 (D increases less than Income)

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19
Q

What conditions occur under periods of inflation?

A
  • i rates up => Dloans<span>, </span>houses, autos, etc down
  • Value of bonds & fixed income securities down
  • Dinferior good up
  • Ddomestic goods down, Dforeign goods up
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20
Q

What happens under Demand-Pull inflation?

A

Overall spending increases

Demand increases (shifts right)

Market equilibrium price increases

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21
Q

What happens under Cost-Push inflation?

A
  • Overall production costs increase
  • Supply decreases (shifts left)
  • Market equilibrium price increases

Note: Demand-Pull & Cost-Push Inflation BOTH

result in market equilibrium price to increase

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22
Q

What is the Equilibrium Price?

A

The price where Q S = Q D

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23
Q

What is Optimal Production?

A

When Marginal Revenue = Marginal Cost

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24
Q

What is the result of a Price Floor?

A

Surplus if above equilibrium price.

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25
Q

What is GDP (Gross Domestic Product)?

A

Annual value of all goods and services produced domestically at current prices by consumers, businesses, the government, and foreign companies with domestic interests

Included: Foreign company has US Factory

Not included: US company has foreign factory

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26
Q

What is included under

the income approach

for calculating GDP?

A
  • Sole Proprietor and Corp Income
  • Passive Income
  • Taxes
  • Employee Salaries
  • Foreign Income Adjustments
  • Depreciation
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27
Q

What is included under

the Expenditure Approach

for calculating GDP?

A
  • Individual Consumption
  • Private Investment
  • Govt Purchases
  • Net Exports
28
Q

What is Nominal GDP?

A

Measures goods/services in current prices.

29
Q

For what is a GDP Deflator used?

A

Convert GDP to Real GDP

30
Q

What is Real GDP?

A

Nominal GDP

GDP Deflator x 100

31
Q

What is Gross National Product (GNP)?

A
  • Like GDP; Swaps foreign production.
  • US Firms overseas are included
  • Foreign firms domestically are not included
32
Q

What is the Consumer Price Index (CPI)?

How is it applied?

A

Price of goods relative to an earlier period of time, which is the benchmark.

Year 1 : 1.0( CPI Current - CPI Last ) * 100

CPI Last

33
Q

How is disposable income calculated?

A

Personal Income - Personal Taxes

34
Q

How is Return to Scale calculated?

A

% Increase in Output

% Increase in Input

> 1 : Increasing returns to scale

< 1 : Decreasing returns to scale

35
Q

When is the economy in Recession?

A

When GDP growth is negative

for 2 consecutive quarters.

36
Q

What is a Depression?

A

A prolonged-severe recession

w/ high unemployment rates

No requisite period of time

for the economy to officially be in a depression

37
Q

What are the stages of the Economic Cycle?

A
  1. Peak (highest)
  2. Recession (decreasing)
  3. Trough (lowest)
  4. Recovery (increasing)
  5. Expansion (higher again)
38
Q

What are leading indicators?

A

Conditions that occur before a recession/recovery

Ex: Stock Market

New Housing Starts

39
Q

What are lagging indicators?

A

Conditions that occur after a recession/recovery

Ex: Prime Interest Rates

Unemployment

40
Q

What are coincident indicators?

A

Conditions that occur during a recession/recovery

Ex: Manufacturing output

41
Q

Which people are included in the calculation of unemployment?

A

Only people looking for jobs

42
Q

What is Cyclical Unemployment?

A

GDP doesn’t grow fast enough to employ all ppl looking for work

Ex: Ppl unemployed in 2010 because not enough jobs

43
Q

What is Frictional Unemployment?

A

People changing jobs or entering the work force.

Normal aspect of full employment.

Ex: Recent college grad looking for a job

44
Q

What is Structural Unemployment?

A

Job skills do not match job so worker needs education/training

Ex: Construction worker wants to work in office- so quit and get computer training

45
Q

How does inflation relate to unemployment?

A

(Vice Versa)

High Unemployment : Low Inflation

46
Q

What is the Discount Rate?

A

The rate a bank pays to borrow from the Fed.

47
Q

What is the Prime Rate?

A

The rate a bank charges their best customers

on short-term borrowings.

48
Q

What is the Real Interest Rate?

A

Inflation-adjusted interest rate

49
Q

What is the Nominal Rate?

A

Rate that uses current prices

50
Q

What is the Risk-Free Rate?

A

Rate for a loan with 100% certainty of payback.

Usually results in a lower rate.

Ex: US Treasuries

51
Q

What is included in the M1 money supply?

A
  • Currency
  • Coins
  • Deposits
52
Q

What is included in the M2 money supply?

A

Highly liquid assets

other than M1 currency- coins or deposits

53
Q

What is Deficit Spending?

A
  • Increased spending lvls w/out increased tax revenue.
  • Lower taxes w/out decrease in spending
  • Gamble that the multiplier effect will take over and boost economy
54
Q

How can the Fed control the money supply?

A

By buying and selling the govt securities.

55
Q

How does the Fed control economy-wide interest rates?

A

By adjusting the discount rate

charged to banks

56
Q

What is a Tariff?

A

A tax on imported goods

57
Q

What is a quota?

A

A limit on the number of goods that can be imported

58
Q

How do international trade restrictions

affect domestic producers?

A
  • Good for domestic producers.
  • Demand curve shifts right
  • Fewer substitutes
  • They can charge higher prices
59
Q

How to international trade restrictions

affect foreign producers?

A
  • They are bad for foreign producers
  • Demand curve shifts left
  • Fewer buyers
  • They must charge lower prices
60
Q

How do international trade restrictions affect foreign consumers?

A

They are good for foreign consumers

Supply curve shifts right

Goods purchased at lower prices in the foreign markets

61
Q

How do international trade restrictions affect domestic consumers?

A

They are bad for domestic consumers

Supply curve shifts left

Fewer goods bought due to higher prices

62
Q

What is Accounting Cost?

A

Explicit (Actual) cost of operating a business

Implicit costs are opportunity costs

63
Q

What is Accounting Profit?

A

Revenue

  • Acctg Cost
64
Q

What is Economic Cost?

A

Explicit

+ Implicit Cost

Economic Cost

65
Q

What is Economic Profit?

A

Revenue

- Economic Cost

Economic Profit

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