macro mock Flashcards
what kind of economy does the usa have?
mixed economy
what are the four factors of production?
land, labor, capital, and entraperneurship
define positive economics
objective, verifiable statements that describe the economy as it really is
define normative economics
subjective statements that attempt to make prescriptions about how the economy should work
define an economic depression
deep and prolonged economic downturn
define an economic recession
falling output and rising unemployment
define an economic expansion
rising output and falling unemployment
what does the labor force consist of
employment + unemployment
what is inflation
a rise in the overall price level
define deflation
a fall in the overall price level
what does a bowled shape ppc model mean
increasing opportunity cost
what does a linear shape ppc model mean
constant opportunity cost
what are on the x and y axises of a ppc model
on the y-axis, capital goods
on the x-axis, consumer goods
define comparative advantage
opportunity cost for producing g & s is lower than it is for other people
define absolute advantage
can produce more of a good or service than others
what are on the x and y axises of a supply/demand model
on the y-axis, price (p)
on the x-axis, quantity (q)
demand’s downward sloping
supply’s upward sloping btw!!
when will there be a movement along the demand curve
when there is a change in the price of that g or s
when will there be a shift of the demand curve
change in related goods or services change in income change in taste change in the number of consumers change of expectations
define substitutes
two goods for which an increase in the price of one leads to an increase in the demand for the other
define complements
two goods for which an increase in the price of one leads to a decrease in the demand for the other
define normal goods
a good for which an increase in income leads to an increase in demand
define inferior goods
a good for which an increase in income leads to a decrease in demand
law of supply
when the price of a good or service increases, the quantity supplied increases
when will there be a movement of the supply curve
a change in the price of that g or s
when will there be a shift of the supply curve
change in input prices (labor, oil, used to produce g/s) change in technology change in expectations change in the number of producers changes in the taxes and subsidies change in the price of related g & s
substitutes in production
when the price of one good increases, the supply of the other decreases
complements in production
when the price of one good increases, the supply of the other increases
look at image of circular flow diagram of the economy
thanks sweetie pls continue
what does disposable income (yd) consist of
income + government transfers - taxes
what does gross domestic product (gdp) consist of
y = consumption/consumer spending + investment spending + government spending + net exports (exports - imports)
what does gdp include
domestically produced final g & s including capital goods, new construction, and changes to inventories
what does gdp not include
intermediate g & s, inputs, used goods, financial assets (stocks, bonds, etc.), and foreign produced g & s
what does total factor income consist of
wages + interest payments + rent + profits
define real gdp and its weaknesses
total value of final g & s produced in an economy during a given year, calculated by adjusting prices to those of a baseline year and it doesn’t include things that cause happiness or unhappiness
define nominal gdp
total value of final g & s produced in an economy during a given year, calculated with prices of the current year ouput
what is gdp per capita
real gdp / population
what does private savings consist of
disposable income - consumer spending
what does the labor force participation rate consist of
labor force / population aged 16+
what does the unemployment rate consist of
unemployed / labor force
define discouraged workers
non-working people who have given up (like me ha)
define marginally attached workers
would like to work but are not currently looking
define underemployed workers
people who work part-time
the above groups are not counted as unemployed
this be me in one year i tell ya
relationship between gdp and unemployment
when gdp rises, unemployment falls
when gdp falls, unemployment rises
define frictional unemployment
unemployment due to time spent in job search trying to match yo skills to le job
define structural unemployment
more people searching for jobs than there are jobs available HOLLA
what is the natural rate of unemployment
frictional + structural
define cyclical unemployment
deviation of actual unemployment rate from natural rate of unemployment due to business cycle
what causes changes in the natural rate of unemployment
changes in labor force characteristics
changes in labor market institutions
changes in government policies
how to calculate real wage and real income
real wage: wage rate / price level
real income: income / price level
how to calculate inflation rate
price level year 2 - price level year 1 / price level year 1 x 100
define shoe leather costs
increased costs of transactions caused by inflation
define menu costs
real costs of changing listed prices
define unit-of-account costs
arise from the way inflation makes money a less reliable measurement
define disinflation
process of bringing inflation rate down
how to calculate price index
comb in a given year / comb in base year x 100
how to calculate gdp deflator
nominal gdp / real gdp x 100
what does real interest rate consist of
nominal IR - inflation rate
what does the mpc consist of
change in consumption / change in disposable income
what does the mps consist of
1 - MPC
what do we assume when using the multiplier
that producers are willing to supply additional output at fixed prices, interest rates are as given, and that government spending doesn’t happen along with no taxes and zero exports and imports
what is the multiplier equation
1/MPS or 1/(1-MPC)
what is the consumption equation
consumer spending = autonomous consumer spending + mpc x disposable income
what causes shifts in the aggregate demand curve
changes in expectations changes in wealth size of existing stock of physical capital fiscal policy monetary policy
relationship between unemployment and wages
as unemployment increases, wages decrease &&&& vice versa
what causes shifts in the aggregate supply curve
commodity prices (oil & gas) nominal wages (if increase, shifts left & vice versa)
how are wages in the long run
fully flexible
define stagflation
inflation + stagnant/falling output (rising unemployment)
how to calculate the output gap
actual output - potential output /potential output x 100
what is fiscal policy
government tax and spending
what does expansionary fiscal policy consist of
increase in government purchases of g & s
cut in taxes
increase in government transfers
what does contractionary fiscal policy consist of
decrease in government purchases of g & s
increase in taxes
decrease in government transfers
what is the tax multiplier
mpc / mps
what is the spending multiplier
1 / mps
