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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
What is GDP (Gross Domestic Product)?
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
26
What is included under the i**ncome approach** for calculating GDP?
* Sole Proprietor and Corp Income * Passive Income * Taxes * Employee Salaries * Foreign Income Adjustments * Depreciation
27
What is included under the **Expenditure Approach** for calculating GDP?
* Individual Consumption * Private Investment * Govt Purchases * Net Exports
28
What is Nominal GDP?
Measures goods/services in current prices.
29
For what is a GDP Deflator used?
Convert GDP to Real GDP
30
What is Real GDP?
_Nominal GDP_ GDP Deflator x 100
31
What is Gross National Product (GNP)?
* Like GDP; Swaps foreign production. * US Firms overseas are included * Foreign firms domestically are not included
32
What is the Consumer Price Index (CPI)? How is it applied?
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
How is **disposable income** calculated?
Personal Income - Personal Taxes
34
How is **Return to Scale** calculated?
_% Increase in Output_ % Increase in Input \> 1 : Increasing returns to scale \< 1 : Decreasing returns to scale
35
When is the economy in Recession?
When GDP growth is negative for 2 consecutive quarters.
36
What is a Depression?
A prolonged-severe recession w/ high unemployment rates No requisite period of time for the economy to officially be in a depression
37
What are the stages of the Economic Cycle?
1. Peak (highest) 2. Recession (decreasing) 3. Trough (lowest) 4. Recovery (increasing) 5. Expansion (higher again)
38
What are leading indicators?
Conditions that occur before a recession/recovery Ex: Stock Market New Housing Starts
39
What are lagging indicators?
Conditions that occur after a recession/recovery Ex: Prime Interest Rates Unemployment
40
What are coincident indicators?
Conditions that occur during a recession/recovery Ex: Manufacturing output
41
Which people are included in the calculation of unemployment?
Only people **looking** for jobs
42
What is Cyclical Unemployment?
GDP doesn't grow fast enough to employ all ppl looking for work Ex: Ppl unemployed in 2010 because not enough jobs
43
What is **Frictional Unemployment**?
People changing jobs or entering the work force. Normal aspect of full employment. Ex: Recent college grad looking for a job
44
What is Structural Unemployment?
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
How does inflation relate to unemployment?
(Vice Versa) High Unemployment : Low Inflation
46
What is the Discount Rate?
The rate a bank pays to borrow from the Fed.
47
What is the Prime Rate?
The rate a bank charges their best customers on **short-term borrowings**.
48
What is the Real Interest Rate?
Inflation-adjusted interest rate
49
What is the Nominal Rate?
Rate that uses current prices
50
What is the Risk-Free Rate?
Rate for a loan with 100% certainty of payback. Usually results in a lower rate. Ex: US Treasuries
51
What is included in the M1 money supply?
* Currency * Coins * Deposits
52
What is included in the M2 money supply?
Highly liquid assets other than M1 currency- coins or deposits
53
What is Deficit Spending?
* 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
How can the Fed control the money supply?
By buying and selling the govt securities.
55
How does the Fed control economy-wide interest rates?
By **adjusting the discount rate** charged to banks
56
What is a Tariff?
A tax on imported goods
57
What is a quota?
A limit on the number of goods that can be imported
58
How do international trade restrictions affect domestic producers?
* Good for domestic producers. * Demand curve shifts right * Fewer substitutes * They can charge higher prices
59
How to international trade restrictions affect foreign producers?
* They are bad for foreign producers * Demand curve shifts left * Fewer buyers * They must charge lower prices
60
How do international trade restrictions affect foreign consumers?
They are good for foreign consumers Supply curve shifts right Goods purchased at lower prices in the foreign markets
61
How do international trade restrictions affect domestic consumers?
They are bad for domestic consumers Supply curve shifts left Fewer goods bought due to higher prices
62
What is Accounting Cost?
**Explicit** (Actual) cost of operating a business **Implicit** costs are opportunity costs
63
What is Accounting Profit?
Revenue - Acctg Cost
64
What is Economic Cost?
Explicit _+ Implicit Cost_ Economic Cost
65
What is Economic Profit?
Revenue _- Economic Cost_ Economic Profit

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