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systems > ECS 1601 MACROECONOMICS CHAPTER 1 > Flashcards

ECS 1601 MACROECONOMICS CHAPTER 1 Flashcards

chapter 1

1
Q

Define the word economics ?

A

-Greek words oikos-“house”
nemein, meaning “manage”. ——Economics is thus the science of household management,
-an individual to the
economy of a country or the world as a
whole.

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2
Q

What is the essence of economics?

A

-wants are unlimited

-means that are available to satisfy those wants are limited. -

-The basic fact of economic life is scarcity, and anyone confronted with scarcity has to make choices. When a choice is made something is sacrificed

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3
Q

Opportunity cost

A

-the loss of other alternatives when one alternative is chosen

-The cost of using a resource is measured by determining how it could have been used
alternatively, not necessarily what it cost to purchase.

-Whereas scarcity is the basic fact of economic life, opportunity cost is the essence of the economic way of thinking.

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4
Q

in each country a solution must be found to three central questions:

.

A

-What goods and services must be produced and in what quantities?

-How should each of the goods and services be produced?

-For whom should the goods and services be produced?

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5
Q

three mechanisms that may be used to solve the 3 central
questions in economics:

A

tradition, command, and the market.

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6
Q

three major flows in the economy are
total?

A

total production
total income
total spending

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7
Q

What is considered the essence of economic activity??

A

production

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8
Q

What is the aim of production??

A

is to use or consume the products to satisfy human wants.

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9
Q

What is the logical sequence of the 3 major flows?

A

production creates income which is then used to purchase the products.

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10
Q

Where does production originate?

A

production is generated by the factors of production

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11
Q

what are the factors of production?

A

-natural resources (also called land)
-labor
-capital
-entrepreneurship.

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12
Q

-what are the factors of production -natural resources

A

consist of all the gifts of nature
including mineral deposits, water, arable land, vegetation, natural forests, marine
resources, other animal life, the atmosphere
and even sunshine.

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13
Q

-what are the factors of production -labour

A

-Is the exercise of human mental and physical effort in the production of goods and services.
-It includes all human effort exerted to get income.

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14
Q

factors of production -labour -Quantity of Labour

A

depends on the size of the population and the proportion of the population that is willing and able to
work.

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15
Q

factors of production -labour-human capital

A

refers to the
skill, knowledge and health of the
workers, is usually used to describe the quality of labour.

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16
Q

factors of production -Capital

A

-machines, tools and buildings, which are used in the production of other goods and services.
-Capital goods are not produced for their own sake but to produce other goods.

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17
Q

factors of production-Entrepreneurship

A

-other factors is not enough for success alone
-they need to be combined and organized by people who see opportunities and take risk

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18
Q

factors of production -Technology

A

sometimes identified as a fifth factor of production. But new technology has to be embodied in other factors of production, particularly capital. not alone

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19
Q

is money a factor of production.

A

NO, Goods and services cannot be produced with
money. To produce goods and services we
need factors of production

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20
Q

Income

A

-Income is created in the process of production.
-For the economy as a whole there is no other source of income.
-To increase the total income in the economy we have to produce more.
-The total income in the economy is thus the total remuneration earned by the factors of production
-The total value of income earned is always equal to the total value of production.

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21
Q

remuneration earned by the factors of
production. The different basic types of income are?

A

-Rent (natural resources)
-wages, salaries (labour),
-interest (capital)
-profit (entrepreneurship).

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22
Q

The different basic types of income - (natural resources)

A

Rent

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23
Q

The different basic types of income- (labour)

A

wages, salaries

24
Q

The different basic types of income- (capital)

A

interest

25
Q

The different basic types of income- entrepreneurship).

A

profit

26
Q

Spending -Who does the spending in the economy?

A

four different components or sectors of the economy: households, firms,
government and the foreign sector

27
Q

Households

A

-are the basic decision-making units in the economy
-Every person in the economy belongs to a household.

28
Q

The total spending of all households on consumer goods and services is called by households.

A

total or aggregate consumption expenditure

29
Q

Firms

A

-may be defined as the units that employ factors of production to produce goods and services that are sold in the goods markets.
-firms are engaged primarily in production
-Firms are therefore the buyers in the factor markets and the sellers in the goods markets.

30
Q

The act of purchasing capital goods is called.

A

investment or capital formation,

31
Q

Government

A
  • local, regional ( or provincial) and national government.
    -refer to the public sector, everything that is owned by government
32
Q

Government’s economic activity involves.
three important flows:

A

-Government expenditure on goods and services - denoted by the symbol G;
-taxes levied on (and paid by) households and firms - represented by the symbol T;
- and transfer payments

33
Q

foreign sector

A

Many of the goods produced in South Africa are sold.
to other countries, while many of the consumer and capital goods consumed and used in South Africa are produced in the rest of the world.

34
Q

The net effect of trade in
goods and services is referred to as …………… (X - Z) and represents the difference between the injection through export earnings and the leakage through import payments.

A

net exports

35
Q

Total production in the economy is often referred to as ?

A

gross domestic product (GDP) C + I + G + X - Z

36
Q

……………….refers to total expenditure in the domestic economy by consumers, firms and the government?

A

Gross domestic expenditure (GDE)= C + I + G

37
Q

what are injections in the circular flow?

A

Investment (firms0
government spending
exports

38
Q

what are leakages in the flow

A

taxes
imports

39
Q

what gvnt spending is not a leakage

A

transfer payments -social grants pensions etc.

40
Q

The circular flow of goods and
services

A

-Households sell their factors of production to firms in
the factor markets.
-The firms transform these factors into goods and services which are then sold to households in the goods market

41
Q

The circular flow of goods and services is
also referred to as the ………..?

A

real sector
of the economy,

42
Q

the institutions that facilitate the circular flow of income and spending are referred to as the …………..?

A

financial sector

43
Q

what is Real production?

A

Real production refers to the production of goods and
services in the economy

44
Q

nominal values.

A

The nominal value of something refers to the value that you can see. R200 is R200

45
Q

real values

A

Real means “actual” or “essential”. The real value
of a salary refers to the actual value in terms of
what you can buy with it, or the purchasing power
of your salary.

46
Q

The circular flow of income and
spending

A

-Firms purchase factors of production in the factor
market.

-Their spending represents the income of the households (ie the sellers of the factors of production).

-Households spend their income in the goods market on purchasing goods and services. Their spending represents the income of the firms

47
Q

The government in the circular
flow of production, income and spending

A

The government purchases factors of production
(mainly labour) from households in the factor
market, and goods from firms in the goods
market.
-Government provides public goods and
services to households and firms.

Government spending is financed by taxes paid by households and firm.

48
Q

Economic theory
has three main purposes:

A
  • To explain or understand how different things are related in the complex real economic world
  • To predict what will happen if something
    changes
  • To serve as a basis for the formulation and analysis of decisions on economic policy
49
Q

Economists usually distinguish five objectives of macroeconomic policy?

which can also be used to appraise the performance of the economy:

A
  • Economic growth
  • Full employment
  • Price stability
  • Balance of payments stability
  • Equitable distribution of income
50
Q
  • Economic growth
A

-The first and arguably the most important

-Total production of goods and services must grow.

-If the population is growing and no economic growth, average living standards cannot increase, no new job creation

51
Q

Full employment

A

-All the country’s factors of production, particularly labor, should be fully employed.

-Every country experience unemployment.

-serious costs, people and for society serious threat to social and political stability.

52
Q

Price stability

A

-Price stability does not mean that all prices should always stay constant

-In a market-based mixed economy individual prices should respond to changes in supply and demand. The process of increases in the general level of prices is called inflation.

-price stability is keeping inflation as low as possible. economic performance based.

-yardstick is the consumer price index.

53
Q

Balance of payments stability

A

-Aka external stability.

-South Africa, exports metals and minerals, imports machinery, equipment

-has to earn the necessary foreign currency (dollars, pounds, euros, yen, etc) by exporting goods and services. Some balance between exports and imports is therefore required.

  • In technical terms we say that the balance of payments and exchange rates should be fairly stable.
54
Q

Equitable distribution of income

A

-equitable ( or socially acceptable) distribution of income.

-is partly a subjective or normative issue.

-not everyone will agree that the distribution of income should be meddled with

-Government uses various types of economic policy and an arsenal of policy instruments in its pursuit of these objectives
In this book we focus on monetary policy (which relates to money and interest) and fiscal policy (which relates to government spending, taxes and other aspects of government finance)

55
Q

fallacy of composition

A

-A common mistake in reasoning about economic issues is to assume that the whole is always equal to the sum of the parts.
-Likewise, one person can withdraw money from a bank without causing any problems. But if most of the bank’s clients withdraw their deposits, the bank could collapse.
occurs in
-reasoning about macroeconomic issues because people tend to generalize from their own perspective or experience when trying to explain the operation of the economy as a whole.

56
Q

Correlation and causation

A

Correlation does not imply causation. In other
words, if two events tend to occur together, or
if the one tends to follow the other, it does
not necessarily follow that the one is the cause of the other.

57
Q

percentages and percentage changes

A

systems (7 decks)

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