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Econ 102 > Midterm THE ONE AND ONLY > Flashcards

Midterm THE ONE AND ONLY Flashcards

become economics.

1
Q

define

Microeconomics

A

analyzes the behavior of individual actions

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2
Q

define

Macroeconomics

A

analyzes the overall functioning of the economy, all variables are aggregate by natue

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3
Q

define

Fallacy of Composition

A

just because something is true for the individual, that doesn’t mean it’s true for the whole

the whole is greater than the sum of its parts

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4
Q

define

Multiplier Effect

A

One initial action can cause a waterfall that leads to much bigger changes and problems

kinda like butterfly effect

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5
Q

define

Paradox of Thrift

A

reducing expenditure can be rational for individuals, but can lead to a bad outcome for the economy

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6
Q

define

Classical Theories of Economics

A

assumes economies are sef regulating

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7
Q

Define and discuss

Keynesian Economics

A

Problems will be solved on their own… in the long run. When spending falls, production cuts can lead to recession, but government policies can help fix this

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8
Q

define

Monetary Policy

indirect!

A

Changes the key interest rate which is controlled by the central bank
(this determines the cost of borrowing, which influences spending)

changing the amount of money in the economy does the same thing

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9
Q

define

Fiscal Policy

direct!

A

Direct government involvement in the market and adopting appropriate tax policies
- inc/dec in gov spending
- deciding ncome and sales tax
- paying subsidies to households
- theres another one but i dont understand my notes so it’s a cliffhanger

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10
Q

define

The Business Cycle

A

economies will trend upward and downward overtime

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11
Q

When was the Great Recession?

A

2008, housing crisis related

solved by reducing taxes and increasing spending

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12
Q

What year was the Great Depression?

and (canadian) unemployment rate…

A

1929, 20%

solution: let it run its course

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13
Q

define

Expansion/Recovery

A

economic activities showing signs of growth

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14
Q

define

contraction/recession

A

economic activities showing signs of downfall

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15
Q

now a task…

Draw and label a business cycle graph!

A

should include: peaks, troughs, expansion/recovery, and contraction/recession

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16
Q

t or f

True or False: we measure long run economic growth with nominal GDP

explain

A

False! we use Real GDP per capita, since it accounts for inflation

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17
Q

Trade Balance Formula

A

export - import

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18
Q

define

exports

A

the value of the goods and services that are sold to foreign buyers all together

exports = X

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19
Q

define

imports

A

the total value of goods and services purchased from foreigh sellers

imports = M

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20
Q

define

Trade Surplus

A

X > M

exports more than imports

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21
Q

define

Trade Deficit

A

X < M

imports more than exports

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22
Q

Are trade deficits bad?

A

not necessarily, what’s important is having a strong and stable currency

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23
Q

describe

A cause of trade surplus

A

low investment spending relative to savings

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24
Q

describe

a cause of trade deficit

A

high investment spending relative to savings

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25
Q

define

GDP

Gross Domestic Product

A

the market value of all final goods and services produced within the boundary of an economy within a specific time period

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26
Q

define

Market Value

A

the value based on market transactions

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27
Q

define

Final Good

A

goods fit for final consumption

ex. a book = final good, while its pages are not

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28
Q

define

Flow Variables

and examples!

A

variables that have a time dimension, measured per unit of time

GDP, demand, investment, income

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29
Q

define

Stock Variables

A

variables whose quanities are meaningfully measured at a specific point in time

capital, inventory, population, money in circulation

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30
Q

define

Value Added Approach

gdp

A

add all values of final goods and services produced

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31
Q

go into more detail about

Value Added Approach

A

government collects level of production for each individual firm, and figures out revenue from each intermediate good

the value added from each good: revenue - intermediate input
- these values can be added together to get the final value
- or just use the market price idc
firm revenue: cost of intermediate inputs + payments to factors of production
this one is hard to describe just go find a practice problem man

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32
Q

define

Income Approach

A

total values of outputs in the economy = income = GDP

Factor payments:
- wages for rent
- interest for savings
- rent earned by those leasing their assets
- dividends paid to share holders

Non-factor payments:
- indirect tax (sales tax to government)
- capital depreciation

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33
Q

discuss

Circular Flow Diagram

get ready for a doozy

A

based on the idea that our income, spending, and production output are all interdependent
- total spending is based on total income which is based on factors of production, production is based on how much can sell (its a circle)
- government takes and spends tax money from households
- household savings go to financial markets, firms and government borrows this money to invest

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34
Q

define

Total Expenditure Approach

A

add up all expenditures of goods and services produced and bought within the economy
C + I + G + NX

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35
Q

define

C

Expenditure Approach, C + I + G + NX

A

Consumption expenditure
- household purchases
- only new items
- rents included
- purchases of newly built homes not included

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36
Q

define

I

Expenditure Approach, C + I + G + NX

A

Investment Expenditure
- firms purchases (investments, factors of production)
- plants and equipment
- newly built residential and non residential structures
- inventory adjustment

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37
Q

define

G

Expenditure Approach, C + I + G + NX

A

Government Expenditure
- government purchases of goods and services
- government transfer payments (subsidies) not included

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38
Q

define

NX

Expenditure Approach, C + I + G + NX

A

Net Export
exports - imports

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39
Q

What variable is usually used for GDP?

A

Y

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40
Q

define

Nominal GDP

A

measuring GDP with current prices using the three approaches

can inc/dec even if the quanities didn’t - purely measures price changes

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41
Q

define

Real GDP

A

the total value of goods and services within a given year, calculated as if the prices had remained constant from some base year

real GDP will only change if the quanities change

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42
Q

describe

how to calculate Real GDP

A

The total value of final goods and services produced in the economy during a given year, calculated using the prices of a second base year

Example:
find the real GDP of 2017 with 2007 as a base year
2007 GDP: 80 * $40 + 90 * $11 + 15 * $90
2017 real GDP: 100 * $40 + 80 * $11 + 20 * $90

different quantities, same prices!

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43
Q

Growth Rate Formula

A

A(1 + g)^t = B

A: earlier year
B: latter year
g: average annual growth rate when t>1
t: time between years

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44
Q

how to:

Calculate Chained Dollar Real GDP

3 steps!

A
  1. calculate average growth rate for every pair of consecutive years
  2. choose a base year, calculate its GDP
  3. use growth rates to calculate real GDP from the base year
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45
Q

Does an increase in real GDP equate to a better standard of living?

A

not necessarily, if GDP growth outpaces population growth, then avg QoL may be changed

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46
Q

Real GDP per Capita

A

real GDP / population

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47
Q

whats the relationship

Z = X / Y

A

%ΔZ = %ΔX - %ΔY

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48
Q

Can money buy happiness?

A
  1. richer countries have higher well-being on average
  2. money matters less the richer you get
  3. money isn’t everything
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49
Q

Why does measuring inflation matter?

A

it monitors standard of living and overal price lvl

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50
Q

define

Market Basket

A

typical goods and services purchased by households in the economy

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51
Q

define

Cost of Living

A

sum of all PQ in typical household (?)

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52
Q

Calculate Price Index

A
  1. choose a base year
  2. (cost of living / base yr cost of living) * 100
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53
Q

What does the consumer price index do?

A

monitors the cost of living!

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54
Q

Calculate Consumer Price Index

A

(Cost of mkt basket in a given yr / cost of mkt basket in base yr) * 100

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55
Q

Calculate Inflation

A

((CPI1 - CPI2) / CPI1) * 100

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56
Q

describe

Industrial Producer Price Index

IPPI

A
  • measures goods bought by producers
  • inflation based on commodities/raw materials
  • an early indicator of inflation as primary commodities (ex. ores) experience price changes faster than goods and services
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57
Q

GDP Deflator Calculation

A

(Nominal GDP in a given yr / real GDP same yr) * 100

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58
Q

What does GDP deflator do

A

monitors economy-wide price changes

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59
Q

a deppressed economy is a result of…

A

inadequate spending!

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60
Q

What two variables trend similarly to GDP?

A

industrial production index and employment

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61
Q

define

The Business Cycle

A

the alternations between recession and expansion

62
Q

unemployment rate has a ____ relationship with GDP

A

inverse!

63
Q

define

long run growth per capita

A

sustained upward trend in output per person

key to higher wages and higher standard of living

64
Q

when the economy is depressed inflation….

A

tends to fall

65
Q

when the economy is booming, inflation…

A

tends to rise

66
Q

define

Price Stability

A

when the prices change at an overall slow rate

a key goal of macro

67
Q

define

Open Economy

A

an economy that has trade open with other countries

68
Q

define

National accounts

A

a method of calculating consumer spending, business sales, investements, government purchases, etc

69
Q

list

The Four Flows of Funds

A
  1. Government purchases of goods and services
  2. consumer spending
  3. investment spending
  4. exports
70
Q

define

factor income

A

income earned by the factors of production

71
Q

define

non-factor payments

A

income earned by the government (as a result of production of goods and services)

72
Q

define

aggregate output

A

the total quantity of goods and services that an economy produces

73
Q

define

Chained Dollars

A

a method of calculating real GDP that splits the difference between growth rates calculated using early base years and the growth rate calculated using a late base year

74
Q

define

aggregate price level

A

a single number to define the overall price levels of final goods in the economy

75
Q

define

market basket

A

a hypothetical consumption bundle of consumer purchases of goods and services

76
Q

A price index for a base year is always…

A

100

77
Q

True or false: the three measures of inflation (CPI, IPPI, and GDP deflator) tend to fluxuate similarly

A

vrai

true

78
Q

formula for

employment rate

A

(# of ppl employed/# of people in the working age population) x 100

79
Q

define

working age population

A

ppeople ages 15 and older

80
Q

list

criteria to be unemployed

A
  1. does NOT have a parttime or fulltime job
  2. looked for jobs in the last 4 weeks
  3. is available for work
81
Q

formula for

labor force

A

employed + unemployed

82
Q

formula for

labor force pariticipation rate

A

(number of people in the labor force / number of peopole in the working age) x 100

83
Q

formula for

unemployment rate

A

(unemployed / labor force ) x 100

84
Q

define

Discouraged Worker

A

a person whose given up on searching for a job

not counted as part of the labor force

85
Q

define

marginally attached workers

A

workers who are hopeful but waiting, not working and also not searching for a job

not in the labor force

86
Q

define

underemployed workers

A

visible: part-time workers who want a full time job
invisible: workers who are dissasitisfied with their job

counted as employed

87
Q

list

four places that unemployment can vary

A
  1. regions
  2. demographics
  3. ethnicities
  4. gender
88
Q

define

jobless growth

A

growth is below average, so unemployment rises

89
Q

define

Frictional Unemployment

A

unemployment due to job search, such as waiting for a job that fits your skillset

90
Q

define

Structural Unemployment

A

unemployment that results when there are more people seeking jobs in a particular labor market than there are jobs avaliable at the current wage rate

91
Q

define

Cyclical Unemployment

A

unemployment caused by recession

enough capacity, but not enough demand for output

92
Q

formula for

Natural Rate of Unemployment

A

frictional + structural

93
Q

list

Three Ways to Change Unemployment

A
  1. characteristics of workers in the labor force
  2. changes in labor market institutions
  3. changes in government policies
94
Q

define

inflation

A

rate of chnage in the overall price level

95
Q

define

disinflation

A

process of bringing the inflation rate down

96
Q

define

Deflation

A

fall in overall price level

97
Q

How often is the labor force survery?

A

monthly

98
Q

define

quit rate

A

the fraction of workers voluntairily leaving their jobs in any given month

99
Q

intepret unemployment rate as…

A

an indicator of overall labor market conditions

100
Q

AN indication of the most unemployment being frictional is…

A

low unemployment rate and short average waiting time for unemployed

101
Q

Government programs such as ——— and ———- can reduce natural unemployment

A

job training, subsidies

102
Q

list

factors that influence structural unemployment

A
  • minimum wage
  • unions
  • efficiency wages
  • side effects of government policies
  • mismatch between employees and employers
103
Q

formula for

real wage

A

wage rate / price level

104
Q

formula for

real income

A

nominal income / price level

105
Q

define

shoe-leather costs

A

increased cost of trnsactions when people are running around and trying to avoid holding money

106
Q

define

menu costs

A

the real cost of changing a listed price

107
Q

define

unit-of-account costs

A

costs arising from the way inglation makes mone a less reliable unit of measurement

108
Q

define

interest rate

A

the return a lender recieves for allowing borrowers the use of their savings for one year, calculated as a percentage of the amount borrowed

109
Q

define

nominal interest rate

A

the interest rate defined in dollars

110
Q

formula/definee

real interest rate

A

nominal interest rate - inflation

111
Q

winners and losers

actual inflation > expected inflation

A

borrowers: gain
lenders: lose
reason: the real value of repayment is lower than expected

112
Q

winners and losers

actual inflation < expected inflation

A

borrowers: lose
Lenders: gain
reason: real value of the repayment is higher than expected

113
Q

define

core inflation

A

a measure that excludes volalile food and energy prices

114
Q

How is long run economic growth measured?

A

real GDP per capita!

115
Q

formula

%Δ real GDP per capita

A

%Δ real GDP - %Δ population

116
Q

define + formula

rule of 70

A

number of years for x to double = 70 / average growth rate

117
Q

the most important factor of LREG is…

A

productivity

118
Q

define

productivity

A

labor productivity: real GDP / number of workers

output produced per worker

119
Q

another

real GDP with productivity

A

real GDP = productivity x average hours per worker x proportion of population that works x population

120
Q

list

three things that promote productivity

A
  1. inc in physical capital
  2. inc in human capital
  3. technological process
121
Q

define

production function

A

a description that relates quantity of capital, labor, and tech to output

ex. we need specific inputs and tech and labor to make a slice of cake

122
Q

formula of

production function

A

Y = A x f(K, L, H)

123
Q

K

porduction function

A

physical capital in the economy

124
Q

L

production function

A

labor or total amount of labor hours in production

125
Q

H

production functio

A

human capital; could be measured by average years of schooling in LF or other similar means

126
Q

A

production function

A

technology, aka total factor productivity

127
Q

Y

produ

A

real GDP

128
Q

Why real GDP per capita?

A

it isolates the effects of changes within the population

129
Q

define

physical capital

A

manufactured resources such as buildings and machines

makes workers more productive

130
Q

define

human capital

A

the improvement in labor caused by the education and knowledge embodied in the workforce

makes more productive workers

131
Q

define

technological process

A

an advance in the technical means of the production of a good or service

132
Q

define

positive marginal productvity of physical capital

A

the amount by which productivity is increased by a small increase in physical capital used

133
Q

productivity is higher, all else the same when…

A
  1. more physical capital is used
  2. human capital increases
  3. technology improves
134
Q

formula for

per worker production function

A

Y/L = A x f( (K/L) , (H/L) )

Y/L = y

135
Q

Y / L

per worker production function

A

real output (GDP) per worker

136
Q

K / L

per worker production function

A

real physical capital per worker

137
Q

H / L

per worker production function

A

human capital per worker

138
Q

A

per worker production function

A

total factor productivity

139
Q

define

diminishing marginal returns

A

an increase in one input while keeping other inputs fixed will cause the increase in out out to get smaller and smaller

leads to a concave graph

140
Q

define

growth accounting

A

estimates the contribution of each major factor int he per worker function to economic growth

141
Q

formula for

CObb-Doulass production function

A

Y = K^(1/3) x L^(1/3) x H^(1/3) x A

142
Q

When all exponents equal 1…

A

constant returns to scale

143
Q

%Δy =

growth accounting output per worker

A

%ΔA + (1/3)%Δ(K/L) + (2/3)%Δ(H/L)

144
Q

list

6 channels that government policy can promote economic growth through

that’s one backwards way of saying it…

A
  1. government subsidies to infrastructure
  2. government subsidies to education
  3. government subsidies to R&D (research and development)
  4. maintaining a well-functioning financial system
  5. protection of property rights
  6. political stability and good governance
145
Q

define

property rights

A

legal rights held by owners of valuables to dispose of those valuables as they choose

146
Q

define

intellectual property rights

A

rights of inventors to accrue the rewards of their inventions

147
Q

define

convergence hypothesis

A

differences in real GDP per capita tend to narrow overtime because countries that start with lower real GDP per capita tend to have higher growth rates

148
Q

Does money buy happiness?

A
  1. richer countries onaverage have higher well-being
  2. money matters less the richer you get
  3. money isn’t everything
149
Q

environmental kuznets curve

A

environment will eventually improve :)

150
Q

an increase in inventory will lead to…

A

increase in investment spending and an increase in GDP

Econ 102 (5 decks)

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