FINAL EXAM Flashcards
define absolute advantage
absolute advantage means that a person, country or firm can produce more of one product or service than another person company or nation using the same amount of resources.
define comparative advantage
comparative advantage means that a person firm or nation can produce a good or service at a lower opportunity cost than other producers
how do you calculate GDP
C+I+G+NX
how do you calculate economic growth
(current year real GDP - previous year real GDP)/ previous year real GDP
then times by 100 to give you the percentage
how do you calculate CPI?
current year expenditures/ base year expenditures x 100
how do you calculate the inflation rate
current year CPI - previous year CPI / previous year cpi
then times by 100 to give the percentage
how can the RBA bring the economy back to potential GDP when it is underperforming?
in the scenario where the short run equilibrium is to the left of the LRAS curve, the economy is operating inefficiently. this means that unemployment will be higher and and firms will lower wages. this is where the RBA can implement expansionary policy. To increase the money supply, the RBA will buy bonds and securities. This will in turn, reduce interest rates. A rise in interest rates means that consumption by households increase, and investment by firms increase. This causes the AD curve to shift to the right
if ther is an increase in aggregate demand the
price level and GDP will both increase
if there is an increase in aggregate supply
the price level will decrease and GDP will increase
imcrease in nominal wages for workers
increases cost of production so shifts the aggregate supply curve to the left
more tools and factories for workers…
increases production shifting aggregate supply to the right
inflation means that costs fall and AS shifts
to the left
the currency apreciation will cause
exports to increase and imports to decrease, shifting aggregate demand to the left
