Macroeconomics Midterm Flashcards
What are the three key economic ideas?
People are rational
People respond to incentives
Optimal decisions are made at the margin.
Due to ______, we sometimes have to produce less of one thing to produce more of another. This is called ______.
scarcity; trade-off.
What are the three types of markets?
Centrally planned markets (government explicity controls the who, what, how of the economy)
Market economies (households and firms answer the who, what, how)
Mixed economies (some central planning and some market control; most countries use mixed economies)
What is opportunity cost?
The value of something we must give up to engage in an activity.
What are the three fundamental questions every society must face?
What goods and services will be produced?
How will the goods and services be produced?
Who will receive the goods and services produced?
Differntiate normative and positive analysis.
Positive analysis is concerned about what is;
Normative analysis is concerned about what should be.
What is macroeconomics?
The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
A demand curve shows the relationship between the _____ and the _____.
price of a good; quantitiy of the good demanded at each price.
An increase in demand shifts the demand curve to the _____; a decrease in demand shifts the demand curve to the _____.
right; left.
What is the formula for calculating change in real GDP?
% change = [(Year 2 - Year 1)/Year 1] x 100
What is PPF?
Production Possibilities Frontier - a cruve showing the maximum attainable combination of two products that may be produced using finite resources and current technology.
Choosing the best point on the PPF is called ____ _____.
allocative efficiency
Which of the following would not be included in final consumption when calculating GDP using the expenditure approach?
a) house
b) refrigerator
c) clothing
d) automobile
A) house
How can economic growth produce a shift in the PPF?
increase of economic resources availability and technological change that increases production quantity.
What is ceteris paribus
The assumption that all other variables are constant when analyzing the relationship between two variables - such as price and quantity demanded.
When price falls, quanity demanded will rise. This is known as the ____ __ _____.
Law of Demand.
Demand curves slope _____.
downwards
When does a demand curve shift?
When there is a change in something other than price that affects demand.
When price rises, quantity supplied increases. This is known as the ___ __ ______.
Law of Supplies.
A movement along the supply curve is ______.
a change in quantity supplied
A shift in the supply curve is ______.
a change in supply
When quantity demanded equals quantity supplied, this is called _____ ______.
market equilibrium (or competitive market equilibrium if there are many buyers and sellers).
Supply curves slope _____.
upwards
In order for a successful free market, governments must provide which services?
Protection of Private Property
Enforcement of Contracts and Property Rights
