Economics Flashcards
own price elasticity formula
= %changeQ / %changeP
if cross price elasticity is positive…
they are substitutes
if absolute value of own price elasticity is less than 1…
it is inelastic
if income elasticity is positive…
its a normal good
X-M trade balance. an increase in domestic income leads to…
an increase in imports and lower net exports. Trade balance will increase.
perfect competition and economic profits
all producers are price takers, economic profits do not exist. advertising/product differentiation has no impact
monopoly and economic profits
advertising/product differentiation have no impact on economic profits
profit maximizing output
MR=MC
unemployment rate formula
“unemployed” only / “labor force” only.
“frictionally unemployed” are already included in “unemployed”
demand function. Py indicates…
cross price elasticity. negative= complements. positive= substitutes
demand function. I indicates…
income elasticity. positive=normal. negative=inferior
demand function. shift in the demand curve results from…
a change in any variable other than Px or Qd. Qd refers to movement along the curve.
Real GDP formula
= (nominal GDP * 100) / GDP Deflator
GDP Deflator formula
= [(CYQCYP) / (BYQBYP)] * 100
effect of demand-pull inflation is an…
increase in aggregate demand, which leads to an increase in commodity prices (short run)
export subsidies
interfere with free market function, result in deadweight loss. causes inefficient producers to remain in market due to subsidy, and shuts out demand due to the higher price
Real exchange rate formula
= %changeSpot + %changePbase - %changePforeign
elasticities approach
changes in exchange rate policy will be more effective if a country imports and exports products that trade in competitive markets, have good substitutes, and luxury products rather than necessities
crowded out effect…
associated with increased government borrowing
quantitative easing
reserves are used to buy any assets. used for environments with declining bank reserves and declining economic activity
fiscal multiplier formula
= 1 / (1-c (1-T))
c is marginal propensity to consume= consumption/ disposable income. t is tax rate.
gives effect on total income/spending due to change in government expenditure
money neutrality implies that…
an increase in the money supply will leave real variables, like output and employment, unchanged. The real rate of interest will be unaffected. inflation and inflation expectations will be affected
increased unexpected inflation results in…
an increase in the real wealth of borrowers
liquidity trap arises when…
the demand for money is infinitely elastic. closely associated with deflation
structural deficit
the deficit that would exist if the economy was at full employment (or full potential output). indicator of fiscal policy stance.
stable inflation, tight fiscal policy, easy monetary policy
increase private sector share of GDP
