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macroeconomics > MACRO FINAL > Flashcards

MACRO FINAL Flashcards

1
Q

resources are…

A

scarce

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2
Q

how do scarce resources affect society?

A
  1. how people make decisions
  2. how people interact
  3. how the economy works as a whole
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3
Q

social trade-off between efficiency and equality

A

getting the most from scarce resources vs. distributing benefits uniformly

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4
Q

pie analogy

A

when the government cuts the pie into more equal pieces, the pie gets smaller

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5
Q

opportunity cost

A

the highest benefit obtained from opportunities forgone

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6
Q

what would be the opportunity cost of going to college?

A

payment of tuition and the value of your time

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7
Q

rational decision-makers only proceed if…

A

the marginal benefit exceeds the marginal cost

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8
Q

incentive

A

induces a person to act

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9
Q

rational decision-makers will respond to an incentive when…

A

the marginal cost or benefit changes

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10
Q

how can trade make everyone better off?

A

trade allows each person to specialize in what they do best and trade their input for the output of other efficient procedures

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11
Q

market power

A

when a single person/group can influence the price of a good/service

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12
Q

how can the government sometimes improve market outcomes?

A

the government can intervene and improve economic efficiency, but well-intentioned policy intervention can have unintended consequences

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13
Q

fundamentally, economics deals with…

A

scarcity

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14
Q

efficiency means that…

A

society is getting the most it can from its scarce resources

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15
Q

specialization does what to total production?

A

increases total production available to share - total outputs rise when producers specialize in what they do best

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16
Q

how does trade make us interdependent?

A

people produce because they wish to trade and get something in return

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17
Q

absolute advantage

A

compares quantity of inputs required to produce a good

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18
Q

what gives someone the absolute advantage?

A

if it takes fewer resources to produce their good (higher productivity and efficiency)

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19
Q

comparative advantage

A

compares opportunity cost of productive

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20
Q

what gives someone the absolute advantage?

A

if the production of their good has a lower opportunity cost

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21
Q

should you specialize in the item in which you have the absolute or comparative advantage?

A

comparative advantage, it increases total production and makes the economic pie larger (everyone benefits)

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22
Q

4 barriers to specialization

A
  1. population density
  2. market connectivity
  3. infrastructure: legal and financial system
  4. culture
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23
Q

quantity demanded

A

amount of a good buyers are willing to purchase

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24
Q

what plays a central role in quantity demanded and quantity supplied

A

price

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25
Q

law of demand

A

all things equal, an increase in the price of a good reduces quantity demanded and a decrease in the price of a good increases quantity demanded

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26
Q

demand schedule

A

table that shows the relationship b/w the price of a good and the quantity demanded

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27
Q

which way does the demand curve slope?

A

downward sloping due to the law of demand; as price increases, QD decreases

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28
Q

what five factors shift demand curves?

A
  1. income
  2. prices of related goods
  3. taste
  4. expectations
  5. number of buyers
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29
Q

how does income shift a demand curve?

A

normal goods (income increases, QD increases) & inferior goods (income increases, QD decreases)

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30
Q

how do the prices of related goods shift a demand curve?

A

substitutes (price of one good increases and the QD of it’s substitute increases) & compliments (price of one good increases and the QD of it’s compliment increases)

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31
Q

substitutes

A

buyers choose either or

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32
Q

compliments

A

buyers buy them together

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33
Q

how does taste shift a demand curve?

A

if preferences shift, demand shifts

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34
Q

how do expectations shift a demand curve?

A

expectations about future income or prices will affect demand for a good

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35
Q

how do the number of buyers shift a demand curve?

A

if the number of buyers increases, demand increases

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36
Q

which way does the demand curve shift if there is an increase in demand?

A

curve shifts right, buyers increase the QD at each price

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37
Q

which way does the demand curve shift if there is a decrease in demand?

A

curve shifts left, buyers decrease the QD at each price

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38
Q

quantity supplied

A

amount of a good sellers are willing and able to sell

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39
Q

law of supply

A

all things equal, an increase in the price of a good increases the QS, a decrease in the price of a good decreases the QS

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40
Q

why does an increase in price affect the law of supply?

A

an increase in price of a good makes production more profitable for sellers

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41
Q

supply schedule

A

table that shows the relationship b/w the price of a good and the QS

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42
Q

which way does the supply curve slope?

A

upward sloping due to the law of supply; as the price of a good increases, the QS also increases

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43
Q

which way does the supply curve shift if the QS increases?

A

curve shifts right, increase in supply

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44
Q

which way does the supply curve shift if the QS decreases?

A

curve shifts left, decrease in supply

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45
Q

what four factors shift supply curves?

A
  1. input prices
  2. technology
  3. expectation
  4. number of sellers
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46
Q

how do input prices shift a supply curve?

A

a decrease in the price of an input makes production more profitable and increases QS

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47
Q

how does technology shift a supply curve?

A

improvements in technology reduces costs, making production more profitable and increases QS

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48
Q

how do expectations shift a supply curve?

A

expectations about the future will affect the QS of a good today (if prices are expected to increases, QS will decrease)

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49
Q

how do the number of sellers shift a supply curve?

A

an increase in the number of sellers will increase QS

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50
Q

market’s equilibrium

A

the intersection of supply and demand

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51
Q

equilibrium

A

the level at which QS equals QD

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52
Q

market-clearing price/equilibrium price

A

the price that balances the QD and the QS (people can purchase all they want and sellers sell all they are willing and able at that price)

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53
Q

surplus

A

if the price is above equilibrium price, QS exceeds QD

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54
Q

shortage

A

if the price is below equilibrium price, QD exceeds QS

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55
Q

what do sellers do when there is a surplus?

A

sellers lower prices to sell their surplus of supply, the price falls until equilibrium is reached

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56
Q

what do sellers do when there is a shortage?

A

sellers raise prices until equilibrium is reached where quantity supplied equals quantity demanded

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57
Q

how do you find the size of a surplus/shortage?

A

find the difference between quantity demanded and quantity supplied (is always a positive number)

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58
Q

gross domestic product (GDP)

A

the MARKET VALUE of all FINAL GOODS produced IN A COUNTRY in a PERIOD OF TIME

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59
Q

market value

A

production is valued at the price paid for the output (cost of production of all durable and non-durable goods/services)`

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60
Q

market value calculation

A

price x quantity (PxQ)

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61
Q

what is included in GDP?

A

final goods and services, produced within a country’s borders, produced in a measured period

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62
Q

what is not included in GDP?

A

intermediate goods, used goods (resales), financial transactions (stocks & bonds), illegal activities, unpaid household chores

63
Q

final goods and services

A

sold to end consumers, calculated in GDP

64
Q

intermediate goods

A

used up in production, not calculated in GDP

65
Q

durable goods

A

last more than a year

66
Q

non-durable goods

A

last less than one year

67
Q

nominal GDP

A

measured in CURRENT PRICES, reflects DOLLAR VALUE of all goods and services produced (transaction value)

68
Q

real GDP

A

measured in CONSTANT PRICES (base yr.), reflects PHYSICAL QUANTITY of goods and services produced (purchasing power)

69
Q

real GDP calculation

A

price (base yr.) x quantity (current)

70
Q

four components of total spending

A

consumption, investment, gov. spending, net exports

(C + I + G + NX)

71
Q

consumption (C)

A

spending by household of final goods and services, except the purchase of new housing (which is an investment)

72
Q

investment (I)

A

business spending on equipment, investments, and structures (includes new housing)

73
Q

government purchases (G)

A

government spending on goods and services (defense, salaries, etc.)

74
Q

what is not included in gov’t purchases?

A

transfer and investment payments (social security, medicare, national debt interest)

75
Q

net exports (NX)

A

exports minus imports

76
Q

consumer price index (CPI)

A

measures overall price level for goods/services bought by a typical consumer (baskets)

77
Q

three measurement biases of CPI

A
  1. substitution bias
  2. new goods
  3. quality improvement/changes
78
Q

substitution bias

A

ignores consumer switching to cheaper alternatives

79
Q

new goods bias

A

increases choices, but CPI doesn’t account for them immediately

80
Q

inflation calculation given CPI

A

(new CPI - prev CPI) / (prev CPI) x 100

81
Q

expenditure calculation

A

price x FIXED quantity

82
Q

CPI calculation

A

expenditure current / expenditure base

83
Q

deflating

A

convert nominal to real values to account for inflation

84
Q

calculation for deflating an interest rate

A

real rate = nominal - inflation rate

85
Q

indexing

A

adjusting payments according to CPI to maintain purchasing power

86
Q

bonds

A

debt instrument where the issuer (borrower) promises to pay interest and principal

87
Q

stocks

A

ownership of a company, enlisting the holder to a share of profits (dividends)

88
Q

saving

A

income NOT SPENT on consumption; provides funds for investment

S = current income (Y) - consumption (C) - gov’t spending (G)

89
Q

saving calculation

A

current income - spending for current need

90
Q

what is included in private saving?

A

personal/household, corporate

91
Q

private saving calculation

A

(Y - T) - C

(production - tax) - consumption

92
Q

what is included in personal/household saving?

A

life cycle, precautionary, bequest

93
Q

what is included in corporate saving?

A

profit, retained earnings, for future investment

94
Q

public saving calculation

A

T - G
tax revenue - gov’t spending

95
Q

tax revenue > gov’t spending

A

surplus

96
Q

tax revenue < gov’t spending

A

defecit

97
Q

four factors affecting bond interest rate

A
  1. credit risk
  2. term to maturity
  3. tax treatment
  4. inflation protection
98
Q

credit risk

A

higher the risk, higher the interest rate

99
Q

term to maturity

A

long-term bonds, higher interest rate

100
Q

tax treatment

A

tax-exempt bonds (municipals), lower interest rate

101
Q

inflation protection

A

if prices increase, payments increase proportionally

102
Q

when do saving curves shift?

A

when household or gov’t funds change

103
Q

what happens to saving when government spending decreases?

A

saving also decreases

104
Q

when do investment curves shift?

A

when firms change investment plans

105
Q

taxes of net transfers (T) calculation

A

T = taxes - transfer payments

106
Q

what is the measure of the standard of living?

A

real GDP per capita (ability of a country to produce goods and services)

107
Q

main drivers of economic growth

A

increase in working population and improvement of worker productivity

108
Q

four factors that enhance productivity

A
  1. physical capital
  2. human capital
  3. technology
  4. natural recourses
109
Q

examples of physical capital

A

equipment, tools, machines, materials

110
Q

examples of human capital

A

training, skills, education

111
Q

technology

A

process to convert inputs to outputs (research, development)

112
Q

decomposition of population (16+)

A

employed, unemployed, not in labor force

113
Q

employed

A

employee, self employed, non-paid in family business, part and full time

114
Q

unemployed

A

doesn’t have current job but has actively searched in the last four weeks

115
Q

not in labor force

A

not working and has not searched in the last four weeks (student, retired, disabled)

116
Q

unemployment rate calculation

A

(unemployed/labor force) x 100

117
Q

labor force

A

total number of workers, including employed and unemployed

118
Q

labor participation rate calculation

A

(labor force/population 16+) x 100

119
Q

cyclical unemployment

A

deviation of unemployment from its natural rate, associated with short-run fluctuations in economic activity

120
Q

frictional unemployment

A

results because it takes time for workers to search for the jobs that best suit their tastes and skills, short-term for most workers (transition b/w jobs)

121
Q

structural unemployment

A

results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one, usually long-term

122
Q

three functions of money

A
  1. medium of exchange
  2. a unit of account
  3. a store of value
123
Q

medium of exchange

A

item that buyers give to sellers when they want to purchase goods and services (e.g., cash at a store)

124
Q

unit of account

A

yardstick people use to post prices and record debt (e.g., price tags in dollars)

125
Q

store of value

A

item that people can use to transfer purchasing power from the present to the future (e.g., saving money in a bank)

126
Q

M1 includes…

A

currency, demand deposits at banks, checking and saving accounts (most liquid assets)

127
Q

M2 includes…

A

everything in M1, time deposits, money market funds

128
Q

what determines money supply?

A

federal reserve
bank lending
private cash

129
Q

reserves

A

deposits that banks have received but not cashed out

130
Q

federal reserve

A

board of governors & 12 regional banks

131
Q

open market operations

A

purchase and sale of U.S. government bonds by the fed

132
Q

open market purchase

A

to increase money supply, the FED buys government bonds (securities)

133
Q

open market sell

A

to decrease money supply, FED sells gov. bonds to public

134
Q

100-percent-reserve banking

A

holds 100% of deposits as reserves, does not influence the supply of money

135
Q

money supply =

A

currency + deposits

136
Q

fractional-reserve banking

A

banking system in which banks hold only a fraction of deposits as reserves (has a reserve ratio)

137
Q

reserve ratio

A

fraction of deposits that banks hold as reserves

138
Q

discount rate

A

interest rate on loans that the fed makes out to banks

139
Q

the higher the discount rate…

A

the smaller the money supply

140
Q

price of money calculation

A

1/P

141
Q

when price level increases what happens to the price of money?

A

decreases

142
Q

price level and price of money has what kind of relationship (inverse or proportional?)

A

inverse

143
Q

classical dichotomy

A

the separation between real and nominal values

144
Q

monetary neutrality

A
145
Q

calculation of the quantity theory of money

A

MV = PY

146
Q

quantity theory of money

A

money supply (M*V) = money demand

MV = PY

147
Q

what is recession?

A
148
Q

what will typically happen during a recession?

A

decreased economic activity, increased unemployment, decreased business profits, decreased consumer spending

149
Q

business cycle

A

the ups and downs of the economy

150
Q

aggregate supply

A

total production

151
Q

aggregate demand

A

total spending (C+I+G+NX)

152
Q

what will shift aggregate supply?

A

changes in input prices, productivity levels, tech advancements, supply shocks

153
Q

what will shift aggregate demand?

A

changes in consumer spending, investment spending, government spending, net exports

154
Q

what are the consequences if there is a shift of aggregate demand/supply?

A

changes in the equilibrium price level and real GDP

macroeconomics (5 decks)

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