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Econ 201 > Midterm > Flashcards

Midterm Flashcards

1
Q

What is macro econ?

A

study of overall national econ

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2
Q

what are markets?

A

an act of exchange with a buyer (demand) and seller (supply)

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3
Q

What is demand?

A

consumers willingness and ability to buy

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4
Q

What is the law of demand?

A

consumers buy more of a good as the price falls

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5
Q

Relationship between price and quantity in law of demanded?

A

As price increases, quantity demanded falls

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6
Q

What are the non-price determinants of demand?

A

taste and preference, income, prices of related goods, expected price in the future, number of consumers

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7
Q

What is supply?

A

a willingness and ability to offer the good

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8
Q

What do we assume with supply?

A

the producer sells the good to the final buyer, forget the middle man; all plants are at full capacity

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9
Q

What is the law of supply?

A

producers will offer more of a good as the price increases

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10
Q

What happens if a plant is at less than full capacity?

A
  • workers produce more and productivity increases
  • labor costs per unit do not rise as more is produced
  • firm can produce more and not increase price
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11
Q

What happens if firms are operating at near full capacity?

A

prices will rise as more is produced

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12
Q

What happens if firms are operating at less than full capacity?

A

more can be produced without high price increase

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13
Q

What are the Non-price determinants of supply?

A
  • cost of inputs
  • productivity of inputs
  • number of suppliers
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14
Q

What is a surplus of inventory?

A

quantity supplied is greater than the quantity demanded and is a signal to lower the price

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15
Q

What can firms do if they don’t change price in surplus?

A

change employment and output; fire employees until run out of surplus

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16
Q

What is a shortage of inventory?

A

quantity demanded is greater than the quantity supplied; signal to raise the price

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17
Q

What are sticky prices?

A

lower demand and dont go to equilibrium; Q absorbs impact

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18
Q

How do liberals view the economy?

A

markets dont work well and often fail; gov must intervene

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19
Q

How do conservatives view the economy

A

Markets work well and adjust quickly; no gov influence

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20
Q

What are price floors?

A

prices above equilibrium that benefit the producers

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21
Q

What are price ceilings?

A

prices below equilibrium that benefit consumers

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22
Q

What is GDP?

A

Gross domestic products; sum of money values of all final goods and services produced in the domestic econ in one yr

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23
Q

What does GDP do?

A

measure the output of the econ

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24
Q

What is real GDP?

A

Adjusted for changes in prices (inflation, deflation)

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25
Q

What is nominal GDP?

A

Unadjusted for inflation measured in dollars (prices) from that year; current prices

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26
Q

What is the domestic Econ?

A

Output of factories, offices, and stores within the U.S.; is a measure of what resources are being produced

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27
Q

What are some of the limitations of GDP?

A

Not a measure of economic well being; only measures activities that is conducted through organized markets; ecological costs not included

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28
Q

What is green GDP?

A

Subtracts the cost of resources depletion and spoilage as well as poll unctions from GDP

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29
Q

What’s are the four components of total spending?

A
  • personal consumption
  • gross private domestic investment
  • gov expenditures
  • net exports
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30
Q

What are durable goods?

A

Appliances, autos, furniture

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31
Q

What are non-durable goods?

A

Food, gas, clothings

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32
Q

What do C, I, G, X, and M stand for?

A 
C= personal consumption of goods and services
I= gross private domestic investment
G= gov spending
X= export
M= import
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33
Q

What does it mean if someone is out of labor force?

A

Not actively seeking work

34
Q

What are the causes of unemployment?

A

Cyclical, structural, frictional, and seasonal

35
Q

What is cyclical unemployment?

A

Linked to fluctuations in GDP; rises in recession

36
Q

What is structural unemployment?

A

Skills are obsolete

37
Q

What is frictional unemployment?

A

Due to normal activities such as moving or changing jobs

38
Q

What is seasonal unemployment?

A

Related to the time of year

39
Q

What is inflation?

A

The increase in the overall average price level over a period of time

40
Q

What is deflation?

A

The decrease in the overall avg price level over a period of time

41
Q

How do we measure inflation?

A

Consumer price index (CPI)

42
Q

What does the CPI do?

A

Tells us how the rising prices affect the income of consumers

43
Q

What is the intention of the CPI index?

A

To measure the purchasing power of the dollar

44
Q

What is the inflation rate and how do you find it?

A

Percent of change in the CPI; %= CPI2 - CPI1 / CPI 1

45
Q

How do you find real wages (includes inflation)?

A

Nominal wage / CPI * 100

46
Q

How do you find real interest rate?

A

Nominal rate- inflation rate

47
Q

How do you find real GDP?

A

Nominal GDP/ GDP price index * 100

48
Q

Who benefits from inflation?

A

Borrowers bc of fixed rate thing like mortgages

49
Q

Who is harmed by inflation?

A

People on fixed incomes ( prices rise, income does not); lenders bc of fixed rates

50
Q

How are GDP, unemployment, and inflation related?

A

If GDP rises, unemployment decreases, inflation rises and vice versa

51
Q

What is a stagflation?

A

Falling output with rising prices; basically recession with inflation; explained by decreasing supply, change in AS

52
Q

What is a recession?

A

Falling output and prices; explained by decreasing demand; some component of AD changed

53
Q

What is aggregate demand and how do you find it?

A

All spending in the Econ; AD= C + I + G + (X-M)

54
Q

What is aggregate supply?

A

Sum of all suppliers in the Econ

55
Q

What is the most unstable in recessions?

A

Investment spending by firms;

56
Q

Who are investment decisions made by and what is it based on?

A

Made by private individuals and based on profit expectations

57
Q

What is a capitalist Econ?

A

Resources are privately owned; land, labor, and capital are owned by individuals

58
Q

What is a socialist Econ?

A

Some resources are owned by the state; land and capital ; labor owned by individuals

59
Q

What typed of Econ is the U.S.?

A

A mixed Econ

60
Q

What are the 2 significant historical periods for macro Econ?

A

Great Depression and stagflation of 1970s

61
Q

What were the results of the Great Depression?

A

A new theory by Keynes; markets don’t adjust, gov intervention necessary; influenced FDR’s new deal

62
Q

What influence did the stagflation of 1970’s have?

A

Re-birth of supply side theory; too much gov; influenced Reagan’s tax policies; influence central bank policy

63
Q

What is the circular flow diagram?

A

A simplification of the economy

64
Q

What are the two sectors in the circular flow diagram?

A
  • Households ( own all resources)

- firms ( buy resources to produce goods)

65
Q

What is savings in the circular flow diagram?

A

Leakage out of the flow, recession

66
Q

What is investment in the circular flow diagram?

A

Re-injection of the leakage out

67
Q

How does the market for loan able funds work?

A

Supply of savings by households, demand for savings by firms

68
Q

What is Say’s law?

A

Production generates the income (demand) needed to buy what is produced; supply is what matters

69
Q

What is Keynes’ law?

A

Demand creates its own supply

70
Q

What is the supply side view on correcting recessions?

A

Through the product and labor marker; unemployment rises so wages go down which corrects recession through AS increase

71
Q

What is the supply side view of correcting inflation?

A

Starts with increase in demand; correction is that firms increase wages to attract workers ( decrease in AS)

72
Q

Supply side answer to correcting things?

A
  • growth occurs through increase in AS
  • increase productivity and reduce input costs
  • increase number of firms
73
Q

What does supply side believe the government should do?

A

(Conservative) restricted role for gov; gov should set the stGe for markets to function

74
Q

What does fiscal policy generally effect?

A

Aggregate demand; lower taxes means more spending by consumers C and I

75
Q

Overall supply side on political policies?

A

Lower taxes, more savings, more investment more output

76
Q

What are some problems with supply side tax cut?

A

Trickle down theory( start at top and trickle down to those at bottom)

77
Q

Explain demand side theory.

A

Markets don’t cure recessions; level of demand determines the level of Econ activity; want gov intervention

78
Q

What is the marginal propensity to consume?

A

Change in consumption as income changes

79
Q

What is the spending multiplier equation?

A

1/ 1- mpc

80
Q

What is the expenditure model?

A

Level of Econ activity depends on the level of spending; high spending= high GDP; spending better than saving for Econ

81
Q

What is the paradox of thrift?

A

If all try to save not all will be able to

Econ 201 (2 decks)

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