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macroecon > final exam > Flashcards

final exam Flashcards

1
Q

What is the total output (GDP) demanded at different price levels by different groups

A

Aggregate demand

GDP= C + I + G + (X-M)

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2
Q

Why might the aggregate demand curve slopes down because higher prices

A

Lower consumption by household
lower investment by firms
lower net exports

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3
Q

What are the AD curve shift factors or ‘shocks’

A

Consumer confidence
business cycles in foreign countries
government policy responds to shocks

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4
Q

How can government policies effect AD curve

A

Monetary policy
Fiscal policy

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5
Q

What is monetary policy

A

Money supply
interest rates

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6
Q

What is fiscal policy

A

Government spending
Taxes

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7
Q

What is the total output produced at different price levels by different groups

A

Aggregate supply

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8
Q

Aggregate supply slopes upwards (short-run)

A

Upwards in the short-run
(As the price level for outputs rises, with the price of inputs remaining fixed, firms have an incentive to produce more to earn higher profits)

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9
Q

Aggregate supply slopes vertical (long run)

A

Vertical at potential GDP or full-employment output
Determined by the economy’s stocks of labor, capital, and natural resources, and on the level of technology

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10
Q

LRAS Curve

A

Policy does not shift LRAS
Real shocks can shift LRAS
-Tech
-weather
-war
-disease

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11
Q

Aggregate supply slopes which way in the short run?

A

Upwards, firms have an incentive to produce more to earn higher profits

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12
Q

T/F economics is the study of how society allocates its plentiful resources.

A

True

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13
Q

T/F economic growth causes a production possibilities frontier to shift upwards or outward to the right

A

True

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14
Q

T/F If a country can make more of a product per hour than another, then they cannot gain from trading with the other country.

A

False, countries can always gain from trade

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15
Q

T/F consumer surplus measures the benefit to buyers from participating in a market

A

True

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16
Q

T/F a legal minimum on the price of a good is a price ceiling

A

False

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17
Q

T/F Prices controls are inefficient because they result in lost gains from trade

A

True

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18
Q

What is the limited nature of society’s resources?

A

Scarcity

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19
Q

What is incentive?

A

Something that induces a person to act

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20
Q

What is opportunity cost

A

whatever must be given up in order to obtain some item

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21
Q

What is efficiency?

A

The property of society getting the most it can from its scare resources

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22
Q

What is a visual model of the economy that shows how dollars flow through markets among households and firms?

A

Circular-flow diagram

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23
Q

What is a graph that shows the combinations of output that the economy can possibly produce given the available resources and technology?

A

Production possibilities frontier (PPI)

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24
Q

What does the PPI illustrate

A

Efficiency
Trade- offs
opportunity cost
unemployment of resources

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25
Q

What is the ability to produce a good using fewer inputs than another producer does

A

absolute advantage

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26
Q

what is comparative advantage

A

the ability to produce a good at a lower opportunity cost than another producer

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27
Q

Are gains from trade based on comparative advantage or aboslute?

A

Comparative

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28
Q

What is the principle of comparative advantage?

A

each good should be produced by the country/person with a comparative advantage in producing that good

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29
Q

What is a market in which there are so many buyers and so many sellers that each has a negligible impact on the market

A

Competitive market

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30
Q

What is a demand curve?

A

a graph that shows how the quantity of a good demanded depends on the price

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31
Q

What is the amount of good that buyers are willing and able to purchase?

A

Quantity demanded

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32
Q

What is the Law of demand

A

Other things equal, as the price of the good falls, the quantity demanded rises and vice versa. Therefore the demand curve slopes downwards

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33
Q

Which way does a demand curve increase on a graph

A

Right

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34
Q

Which way does a demand curve decrease on a graph

A

Left

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35
Q

What are the determinants of demand?

A

income
the price of substitutes and complements
tastes
expectations
and the number of buyers

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36
Q

What shows how the quantity of a good supplied depends on the price

A

Supply curve

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37
Q

What is quantity supplied

A

the amount of a good that producers are willing and able to sell

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38
Q

What is the law of supply?

A

As the price of a good falls, the quantity supplied falls and vice versa. Therefore the supply curve slopes upward.

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39
Q

Determinants of supply

A

Input prices
technology
expectations
the number of sellers

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40
Q

What is the intersection of supply and demand curves called

A

Market equilivrium

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41
Q

What is surplus

A

When the market price is above the equilibrium price.

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42
Q

What is a shortage

A

When the market price is below the equilibrium price

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43
Q

What three steps are used to analyze how any event influences a market

A

Decide whether the event shifts the supply or demand curve
Decide which direction the curve shifts
compare the new equilibrium with the initial equilibrium

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44
Q

What is willingness to pay (consumer)

A

the maximum amount that a buyer will pay for a good

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45
Q

What equals buyers willingness to pay for a good minus the amount they actually pay? (consumer)

A

Consumer surplus

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46
Q

How can consumer surplus be computed?

A

By finding the area below the demand curve and above the price

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47
Q

What is willingness to sell (producer)

A

The minimum amount that a seller will accept for their goods

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48
Q

What is producer surplus

A

equals the amount sellers receive for their goods minus their willingness to accept.

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49
Q

How can producer surplus be computed?

A

by finding the area below the price and above the supply curve

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50
Q

Is the allocation of resources that maximizes a total surplus (sum of consumer and producer)

A

Efficient

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51
Q

What is price ceiling?

A

A legal maximum on the price at which a good can be sold

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52
Q

If the price ceiling is below the equilibrium price is it binding?

A

Yes, and if the quantity demanded exceeds the quantity supplied

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53
Q

What is a price floor?

A

A legal minimum on the price at which a good can be sold

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54
Q

if the price floor is above the equilibrium price is the price floor binding?

A

Yes

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55
Q

T/F price controls on goods reduce the welfare of buyers and sellers of the goods.

A

True

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56
Q

T/F price controls have deadweight losses because they decrease the quantity traded and shrink the size of the market below the level that maximizes total surplus

A

True

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57
Q

What is GDP?

A

The market value of all final goods/ services produced withing country in a given period of time

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58
Q

What is GNP

A

The market value of all final goods/ services produced by U.S residents no matter where they live

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59
Q

What does GDP per capita measure

A

The wealth of population

60
Q

What does GDP growth measure

A

the direction of an economy

61
Q

T/F GDP is a perfect measurement of the average persons standard of living.

A

False

62
Q

How do you calculate nominal GDP?

A

quantity * price (year 1) + quantity * price (year 2)

63
Q

how do you calculate growth rate (nominal)

A

100(year 2 - year 1)/ year 1

64
Q

GDP = C + I + G + (X - M)

A

The equation for spending

65
Q

GDP= S(P*Q)

A

The equation for production

66
Q

GDP= W + i + R + Pr

A

the equation for income

67
Q

What is nominal GDP

A

Values output using current prices at the time of sale (not corrected for inflation)

68
Q

What is real GDP

A

Values output using the prices of a base year (is corrected for inflation)

69
Q

What does the GDP deflator measure?

A

the overall level of prices

70
Q

100 (Nominal/real)

A

GDP Deflator

71
Q

How can an economys inflation rate be measured?

A

by computing the percentage increase in the GDP deflator from one year to the next

72
Q

T/F A country’s standard of living depends on its ability to produce goods and services

A

True, it depends on productivity (the avg quantity of good/ services produced per unit of labor input

73
Q

T/F the determinants of productivity are physical capital, human capital, technological knowledge, and natural resources

A

True

74
Q

What public policies encourage economic growth

A

Promote savings and investment
promote investment from abroad
invest in education
invest in health and nutrition
enhance property rights and political stability
free trade
research and development
population growth

75
Q

T/F a economy’s rate of productivity growth is closely linked to the growth rate of GDP per capita

A

True

76
Q

T/F inflation is the avg change in prices or in the price level (some prices go up while others go down)

A

True

77
Q

How do you calculate inflation rate

A

(P2-P1/P1)100

78
Q

Are price indexes used to measure inflation?

A

Yes, Consumer price index (CPI), GDP deflator, and Producer price index (PPI)

79
Q

How do you calculate the inflation rate using the GDP deflator

A

(GDP D Y2- GDP D Y1/ GDP D Y1) * 100

80
Q

How is CPI calculated?

A

Fix the basket
Find the prices
compute the baskets cost
choose a base year and compute the index

81
Q

What are the problems with CPI?

A

Substitution bias
introduction of new goods
unmeasured quality change

82
Q

What is included in CPI but excluded from GDP Deflator?

A

Imported consumer goods

83
Q

What is included in GDP deflator but excluded from CPI

A

Capital goods

84
Q

T/F CPI uses fixed basket while GDP Deflator uses basket of currently produced goods and services

A

True

85
Q

What is the cost of inflation

A

Confuses price signals
redistributes wealth across income groups
interacts with taxes
makes long-term planning difficult
unbalances the financial sector

86
Q

T/F real interest rate is corrected for inflation but nominal is not

A

True

87
Q

Real interest rate =

A

Nominal interest rate- inflation rate

88
Q

What is the unemployment rate of a labor force?

A

the % of the labor force without a job

89
Q

How do you find unemployment rate?

A

Un/ LF *100

90
Q

What is the Labor force participation rate?

A

the % of the adult non institutionalized civilian population either working or looking for work

91
Q

how do you find the labor force participation rate

A

LF/ Pop * 100

92
Q

T/F the unemployment rate measures the ‘hidden unemployment (underemployment, part-time, discouraged workers)

A

False

93
Q

What are the three types of unemployment?

A

Frictional, structural, cyclical

94
Q

A student who just graduated from college but hasnt found a job yet is considered to be

A

frictionally unemployed

95
Q

a freightliner employee that got laid off because of the recession of 2007-2009 is considered

A

Cyclically unemployed

96
Q

People who lost their jobs as hand-drawn animators because of the popularity of computer generated 3D animation are considered

A

structurally unemployed

97
Q

What is the normal rate of unemployment around which the actually unemployment rate fluctuates

A

Natural unemployment rate

98
Q

What does the natural unemployment equal

A

structural unemployment + frictional unemployment

99
Q

What are three public policies to address unemployment

A

Government employment agencies
public training programs
unemployment insurance

100
Q

Aggregate supply slopes which way in the long run?

A

Vertical, at potential GDP of full-employment output

101
Q

What does LRAS stand for?

A

Long Run Aggregate Supply

102
Q

What does SRAS stand for?

A

Short Run Aggregate Supply

103
Q

What ways might SRAS shift as a result of change?

A

Price of inputs/ factors of production, regulations

104
Q

T/F countries specialize based on absolute advantage

A

false

105
Q

T/F economic growth means that a country can produce more of all the goods

A

True

106
Q

T/F as income goes up people buy more of an inferior good, therefore increasing its demand

A

False

107
Q

T/F a binding price floor causes a surplus and is inefficient

A

true

108
Q

Name four things that can cause shifts in the AD

A

Consumption, investment, govt spending, net exports (x-m)

109
Q

Name four things that cause shifts in SRAS

A

Productivity, input prices, nominal wages, expectations about prices or inflation

110
Q

Name four things that can shift LRAS

A

Capital changes, labor changes, technological changes, changes in natural resources

111
Q

What is any asset that people are generally willing to accept in exchange for goods and services

A

Money

111
Q

T/F the existence of money makes trading much easier and allows specialization

A

True

112
Q

T/F without money you would have to barter

A

True

113
Q

What is medium of exchange?

A

Money is acceptable to a wide variety of parties as a form of payment for goods and services

114
Q

What is unit of account?

A

Money is the yardstick people use to post prices and record debts

115
Q

What is store of value?

A

Money allows people to defer consumption till a later date by storing value

116
Q

What are the two different kinds of money?

A

Commodity and Fiat money

117
Q

What is commodity money?

A

The form of a commodity with intrinsic value. Ex; gold coins, cigarettes in POW camps

118
Q

What is Fiat money?

A

Money without intrinsic value, used a money because of gov’t decree

119
Q

T/F the quantity of money available in the economy is called the money supply

A

True

120
Q

Paper bills and coins in the hands of the public is known as

A

Currency

121
Q

Balances in bank accounts that depositors can access on demand is

A

Demand desposits

122
Q

What are the three categories of money supply in the US?

A

Monetary base, M1, and M2

123
Q

Currency and reserves at the central bank (federal reserve) is?

A

Monetary base

124
Q

Banks are only required to hold only a portion of the money deposited with them as reserves is?

A

Frictional Banking

125
Q

What is the reserve ratio?

A

Fraction of deposits held on reserve (how liquid banks want to be)
Reserve ratio = bank reserves/total deposits

126
Q

What is money multiplier?

A

how much money supply changes as reserves change (lowering the reserve ratio increases the money multiplier)
mm = 1/reserve ratio

127
Q

What is the difference between M1 and M2

A

M1 is MB + checking and savings accounts, while M2 is all of M1 + other savings deposits

128
Q

Suppose $100 is added to the monetary system and the reserve ratio is 10%

A

= 100* 1/0.10
= 100* 10
= 1,000

129
Q

Suppose $100 is added to the monetary system and the reserve ratio is 20%

A

= 100 * 1/0.20
= 100 * 5
= 500

130
Q

T/F when banks gain reserves, they make new loans, and the money supply expands

A

True, same is said when the banks lose reserves

131
Q

Deposite $5,000, RRR is 15%

A

= 5000 * 1/.15

132
Q

What is the required reserve formula

A

initial deposit/ Required reserve ratio

133
Q

What is the loanable amount formula

A

Initial deposit - required reserve amount

134
Q

how do you find the total change in money supply?

A

Initial deposit * money multiplier

135
Q

What is the central bank?

A

An institution that oversees the banking system and regulates the money supply

136
Q

The central bank of the US is known as?

A

The Federal Reserve (Fed)

137
Q

What is monetary policy?

A

The setting of the money supply by policymakers in the central bank.

138
Q

What does the central bank of the US include?

A

District banks
Federal Reserve Board of Governors
Federal Open Market Committee (FOMC)

139
Q

T/F the Fed maintains the bank account of the US treasury and manages govt borrowing

A

True

140
Q

T/F Large private banks do not keep accounts at the Fed, nor can they borrow from the Fed

A

False

141
Q

T/F The Fed controls the money supply, keeps inflation/ unemployment low and stable, and encourages growth

A

True

142
Q

What 3 policy tools can the Fed use to change the money supply

A

Reserve requirements
Discount rate
Open market operations (quantitative easing)

143
Q

What is reserve requirements?

A

The amount that banks must hold when they receive a deposit

144
Q
A

macroecon (1 decks)

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