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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
What is nominal GDP?
Unadjusted for inflation measured in dollars (prices) from that year; current prices
26
What is the domestic Econ?
Output of factories, offices, and stores within the U.S.; is a measure of what resources are being produced
27
What are some of the limitations of GDP?
Not a measure of economic well being; only measures activities that is conducted through organized markets; ecological costs not included
28
What is green GDP?
Subtracts the cost of resources depletion and spoilage as well as poll unctions from GDP
29
What's are the four components of total spending?
- personal consumption - gross private domestic investment - gov expenditures - net exports
30
What are durable goods?
Appliances, autos, furniture
31
What are non-durable goods?
Food, gas, clothings
32
What do C, I, G, X, and M stand for?
``` C= personal consumption of goods and services I= gross private domestic investment G= gov spending X= export M= import ```
33
What does it mean if someone is out of labor force?
Not actively seeking work
34
What are the causes of unemployment?
Cyclical, structural, frictional, and seasonal
35
What is cyclical unemployment?
Linked to fluctuations in GDP; rises in recession
36
What is structural unemployment?
Skills are obsolete
37
What is frictional unemployment?
Due to normal activities such as moving or changing jobs
38
What is seasonal unemployment?
Related to the time of year
39
What is inflation?
The increase in the overall average price level over a period of time
40
What is deflation?
The decrease in the overall avg price level over a period of time
41
How do we measure inflation?
Consumer price index (CPI)
42
What does the CPI do?
Tells us how the rising prices affect the income of consumers
43
What is the intention of the CPI index?
To measure the purchasing power of the dollar
44
What is the inflation rate and how do you find it?
Percent of change in the CPI; %= CPI2 - CPI1 / CPI 1
45
How do you find real wages (includes inflation)?
Nominal wage / CPI * 100
46
How do you find real interest rate?
Nominal rate- inflation rate
47
How do you find real GDP?
Nominal GDP/ GDP price index * 100
48
Who benefits from inflation?
Borrowers bc of fixed rate thing like mortgages
49
Who is harmed by inflation?
People on fixed incomes ( prices rise, income does not); lenders bc of fixed rates
50
How are GDP, unemployment, and inflation related?
If GDP rises, unemployment decreases, inflation rises and vice versa
51
What is a stagflation?
Falling output with rising prices; basically recession with inflation; explained by decreasing supply, change in AS
52
What is a recession?
Falling output and prices; explained by decreasing demand; some component of AD changed
53
What is aggregate demand and how do you find it?
All spending in the Econ; AD= C + I + G + (X-M)
54
What is aggregate supply?
Sum of all suppliers in the Econ
55
What is the most unstable in recessions?
Investment spending by firms;
56
Who are investment decisions made by and what is it based on?
Made by private individuals and based on profit expectations
57
What is a capitalist Econ?
Resources are privately owned; land, labor, and capital are owned by individuals
58
What is a socialist Econ?
Some resources are owned by the state; land and capital ; labor owned by individuals
59
What typed of Econ is the U.S.?
A mixed Econ
60
What are the 2 significant historical periods for macro Econ?
Great Depression and stagflation of 1970s
61
What were the results of the Great Depression?
A new theory by Keynes; markets don't adjust, gov intervention necessary; influenced FDR's new deal
62
What influence did the stagflation of 1970's have?
Re-birth of supply side theory; too much gov; influenced Reagan's tax policies; influence central bank policy
63
What is the circular flow diagram?
A simplification of the economy
64
What are the two sectors in the circular flow diagram?
- Households ( own all resources) | - firms ( buy resources to produce goods)
65
What is savings in the circular flow diagram?
Leakage out of the flow, recession
66
What is investment in the circular flow diagram?
Re-injection of the leakage out
67
How does the market for loan able funds work?
Supply of savings by households, demand for savings by firms
68
What is Say's law?
Production generates the income (demand) needed to buy what is produced; supply is what matters
69
What is Keynes' law?
Demand creates its own supply
70
What is the supply side view on correcting recessions?
Through the product and labor marker; unemployment rises so wages go down which corrects recession through AS increase
71
What is the supply side view of correcting inflation?
Starts with increase in demand; correction is that firms increase wages to attract workers ( decrease in AS)
72
Supply side answer to correcting things?
- growth occurs through increase in AS - increase productivity and reduce input costs - increase number of firms
73
What does supply side believe the government should do?
(Conservative) restricted role for gov; gov should set the stGe for markets to function
74
What does fiscal policy generally effect?
Aggregate demand; lower taxes means more spending by consumers C and I
75
Overall supply side on political policies?
Lower taxes, more savings, more investment more output
76
What are some problems with supply side tax cut?
Trickle down theory( start at top and trickle down to those at bottom)
77
Explain demand side theory.
Markets don't cure recessions; level of demand determines the level of Econ activity; want gov intervention
78
What is the marginal propensity to consume?
Change in consumption as income changes
79
What is the spending multiplier equation?
1/ 1- mpc
80
What is the expenditure model?
Level of Econ activity depends on the level of spending; high spending= high GDP; spending better than saving for Econ
81
What is the paradox of thrift?
If all try to save not all will be able to

Econ 201 (2 decks)

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