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econ 202 > quiz 2 > Flashcards

quiz 2 Flashcards

1
Q

1st Limitation of traditional CPI

A

substitution effect

ppl replace more expensive items w cheaper items
- problem bcuz traditional CPI tends to assume that consumers will buy the same goods despite ↑ $
- overstate

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2
Q

2nd Limitation of traditional CPI

A

does not account for quality changes
- bad quality = ↓ demand

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3
Q

3rd Limitation of traditional CPI

A

w time, new G/S become available and consumer demand changes

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4
Q

Chained CPI

A

BLD adjusts “baskets” every month

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5
Q

1st problem with inflation

A

shoe leather costs

reference to wasted resources due to inflation
- ppl change behaviors = ↑ waste

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6
Q

2nd problem with inflation

A

menu cost

refer to various cost paid by business as they adjust to inflation
- ex: restaurant change menu price mean they have to put out costs to print new menu

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7
Q

3rd problem with inflation

A

tax distortion

inflation can force ppl to pay more tex
- more tax = ↑ tax rate

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8
Q

capital gain tax

A

“capital gain” occurs when asset is purchased at one price & sold at higher price
- gov will tax for the amount you benefit from it
ex: brought for 500
sold for 700
will be taxed for the 200

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9
Q

4th problem with inflation

A

money illusion

think they are receiving a good raise

ex: raise of 5%
inflation = 3%
real raise = 2% - not good

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10
Q

5th problem with inflation

A

price confusion

higher price in the economy scarcity, or inflation

ex: gas $ ↑

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11
Q

6th problem with inflation

A

wealth redistribution

w inflation, wealth is redistributed from lenders to borrowers

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12
Q

7th problem with inflation

A

price level uncertainty - future

make planning more difficult

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13
Q

unemployment rate equation

A

of unemployed / # of ppl in labor force

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14
Q

characteristics of the working age population

A
  • 16+ yrs of age
  • not institutionalized (prison, mental hospital, retirement homes, military
  • broken into 2 groups
    1. labor force
    2. not labor force
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15
Q

labor force

A

you are in labor force if you plan to RETURN to work in the next month or actively looking for work

not/ in labor force = employed or unemployed

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16
Q

not in labor force

A

if you haven’t looked for work or expecting to return
not in labor force = not considered unemployed

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17
Q

how does BLS obtain data for employed,unemployed

A

does monthly survey to find out who is in which group

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18
Q

What questions are in BLS survey

A
  1. r u currently employed?
    yes = in LB + employed
    no = move to 2nd questions
  2. are you expecting to return to work in the next month
    yes = LB + unemployed
    no = move to 3rd questions
  3. have u looked for work in the last 4 weeks
    yes = LB + unemployed
    no = NOT in LB |NOT unemployed | is a discourage worker
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19
Q

discourage worker

A

someone who gave up looking for jobs

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20
Q

1st problem w unemployment (UE) statistic survey

A

land line phone
- ppl dont use land line anymore
- surveys the same land line household = Bias

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21
Q

2nd problem w UE statistic survey

A

day/time issue
- BLS does survey Mon-Fri, 8am-6pm
- ppl work around these time, so ppl who are more likely to pick up the phone would be UE ppl, ↑ UE rate

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22
Q

3rd problem w UE statistic survey

A

misunderstanding
- ppl misinterpret the questions

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23
Q

4th problem w UE statistic survey

A

language
- survey is only done in english, excludes ppl

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24
Q

5th problem w UE statistic survey

A

“discourage workers” category is too board
- qt. 3 “NO” = discourage worker
but some are retired

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25
Q

6th problem w UE statistic survey

A

slow person bias
- ppl who have more time = more likely to participate

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26
Q

reason why UE survey aren’t fixed

A
  1. data compatibility
  2. expensive
  3. no perfect survey
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27
Q

when was the last time the survey was changed?

A

-1992 (+30yrs)
- OLD vers. “r u currently WOKRING?”
- caused UE rate ↓ 0.3%
- NEW vers. “r u currently EMPLOYED?”

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28
Q

U-3 UE

A

U-3 report UE who are actively looking for a job

  1. always positive
  2. continuously fluctuate
  3. UE always ↑ during recession
  4. UE always ↑ immediately after recession
  5. avg N5%
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29
Q

U-6 UE

A

report discourage workers, underemployed unemployment, .. all ppl not working

  • rate is always higher than U-3 cuz its more board
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30
Q

underemployed

A

person is working below capacity (skills) or desire (part time vs full time)

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31
Q

calculate U-6 UE

A
  1. start w U-3 rate
  2. add underemployed and marginally attach workers (not working, not looked for job in 4 wks, but have in last 12 months)
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32
Q

short term

A

< 15 weeks

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33
Q

long term

A

> 15 weeks

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34
Q

1st type of UE

A

frictional

short term UE occurs when ppl r transitioning between jobs
- most common + normal
- signal well functioning eco

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35
Q

2nd type of UE

A

structural

skills demanded by employers are different from the skills you have
- require re-training
- last longest-time (longterm)
- most serious

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36
Q

3rd type of UE

A

cyclical

occurs during downturns (recession) in the economy

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37
Q

1st influences on UE

A

status of economy
- good eco = UE ↓
- bad eco = UE ↑

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38
Q

2nd influences on UE

A

information availability
- ↑ info = ↓ UE

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39
Q

3rd influences on UE

A

government policies
- rules on hiring//firing employees
- ex: rule on discriminations
ppl avoid hiring POC or race bcuz firing might violates law –> less hiring = increase UE

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40
Q

4th influences on UE

A

labor force participation rate (LFPR)
measure % of working age

LFPR = # of ppl in LB / # working age population

high LFPR = lots of ppl trying to find job n are in LB
low LFPR = ppl giving up

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41
Q

5th influences on UE

A

trends
1. last 50 yrs, ↑ LFPR when women join workforce
2. ↓ LFPR for men, more are going to get educations
3. last 20 yrs, ↓ overall LFPR -> baby boomers retiring

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42
Q

aggregate demand (AD)

A

total amount of newly produced US final G/S demand by all consumers at various
PL

43
Q

AD equation

A

AD = consumer spending (C) + investment spending (I) + government spending (G) + export n import (x-m)

44
Q

consumer spending

A

total amount spent by households on newly produce G/S

45
Q

1st influences on C

A

change in wealth
wealth = accumulating of asset of value NOT INCOME

↑ wealth ↑ C = (AD →)

46
Q

2nd influences on C

A

changes in tax rates
↓ tax rate ↑ C = (AD → )

47
Q

3rd influences on C

A

change in interest rates
↓ interest rate ↑ C = (AD → )

48
Q

4th influences on C

A

changes in expected PL
household EXPECTS higher PL ↑ C = (AD → )

49
Q

5th influences on C

A

change in expected national income
household EXPECT ↑ national income ↑ C = (AD → )

50
Q

6th influences on C

A

changes in population (longterm)
↑ population ↑ C = (AD → )

51
Q

investment spending (I)

A

total amount that is spent by FIRMS on newly produced G/S & by households on newly built homes

52
Q

1st influence on I

A

change in interest rate

↓ interest rate ↑ I = (AD → )

53
Q

2nd influence on I

A

changes in tax rates

↓ tax rate ↑ I = (AD → )
- capital gain tax

54
Q

3rd influence on I

A

changes in expectations of firms about future business conditions

firm EXPECT IMRPOVE business conditions ↑ current I = (AD → )

55
Q

4th influence on I

A

technological innovations (new product/improvement to exisiting product)

↑ techno innovation ↑ I = (AD → )

56
Q

Government spending

A

total amount spent by ALL level of domestic gov. on newly product G/S

57
Q

1st influence on G

A

changes in political agendas of congress & president

if congress & president want to SPEND MORE, ↑ G = = (AD → )

58
Q

2nd influence on G

A

status of the economy

if eco needs a stimulus, ↑ G = (AD → )

59
Q

3rd influence on G

A

War vs peace

if theres a transition from peace to war, this lead to ↑ gov. spending, ↑ G = (AD → )

60
Q

(x-m)

A

total amount of US newly produced final G/S purchased by all foreign MINUS amount of foreign newly produced final G/S purchased by domestic

61
Q

export (x)

A

good is produced domestically and ship outside country

money flow: money come in, good go out

62
Q

import (m)

A

goods made outside US &n ship inside

money flow: money go out, good comes in

63
Q

(x-m) TRADE BALANCE

A
  • trade surplus –> x > m
  • trade deficit –> x < m
  • balance trade –> x = m
64
Q

How does X-M cause AD to shift left

A

x↓ m ↑ = AD ←

  • x ↓ = means foreign country is not demanding for goods, so suppliers supply less
  • m ↑ = means that domestic customers are not buying domestic goods, so domestic supplier supply less
  • AD ← = therefore, AD shift left cuz both are not demanding for supplies
65
Q

How does X-M cause AD to shift right

A

x ↑ m ↓ = AD →

  • x ↑ = foreigners demanding for more domestic goods
  • m ↓ = domestic buyers are not buying from foreign goods
  • AD → = bcuz bother export and import is demanding for domestics supplies
66
Q

1st influence on (x-m)

A

change of status of the economy a trading partner

if trading partner enjoys high rate of eco growth, (x ↑ - m ↓ ) AD →

67
Q

2nd influence on (x-m)

A

trade policy - deliberate action that is taken by a gov. to influence trade flows

3 TRADE POLICIES

68
Q

1 trade policy

A

tariff: tax imposed on imported goods

impose tariff = x (net export) ↑ m ↓ AD→

69
Q

2nd trade policy

A

quota: restrictions on import units allowed into a country impose on the gov of importing country

70
Q

3rd trade policy

A

exports subsidy: gov prodivdes financial assistance to firm or industry to encourage export

x ↑ = AD →

71
Q

3rd influence on (x-m)

A

changes in RELATIVE PL

↓ in relative PL of US (x ↑ m ↓) AD →

  • ex: identical goods from US and VN
  • Starting at $5
  • US ↓ to $3
  • VN stays the same

x ↑ m ↓ cuz ppl from VN start buying more goods from the US instead of their country. US also stop importing from VN

72
Q

4th influence on (x-m)

A

changes in exchange rate

exchange rate = price of 1 currency in terms of another

if US dollar ↓, ( x ↑ m↓) AD→

x ↑ bcuz USD depreciates so US goods becomes cheaper for foreigns
m↓ = weaker $ means foreigns goods are more expensive for US consumers AD→ domestic supply more

73
Q

1st reason why AD curve down

A

wealth effect/real balance effect

  • as PL ↓, purchasing power ↑ and so demand quantities ↑
74
Q

2nd reason why AD curve down

A

interest rate effect

  • as PL ↓, purchasing power of any given amount of money ↑ , purchased quantities ↑ and some ppl save more
  • if interest rate ↓, ppl would buy more
75
Q

3rd reason why AD curve down

A

if PL in US ↓, this cause ↑ spending on US G/S by foreign entities

76
Q

aggregate supply (AS)

A

total amount of newly produced US final G/S offered for sale at various PL

77
Q

Why AS curve up 1

A

employer misperception
- as PL ↑ some employers OVERESTIMATE their gains & they offer ↑ amount for sale

78
Q

Why AS curve up 2

A

employees misperception
- as PL ↑ eventually wages are adjusted upward, some employee overestimate their gain & cause them to work harder.. allowing firm to ↑ amount for sales

79
Q

Why AS curve up 3

A

sticky prices
“sticky” does not change
- as PL ↑, some firms are reluctant to increase their prices to menu costs
- when firm doesn’t ↑ price, ↑ in incurred sold quantity

80
Q

Why AS curve up 4

A

Sticky Wage
- PL ↑ , wages are slow to adjust
- during this time, wage are not adjusted to real wage
- employer have lower real cost lead to higher real profits –> cause firm to offer ↑Q for sale

81
Q

1st influence on AS

A
  1. changes in wages
    - ↓ wage = ↑ AS
82
Q

2nd influence on AS

A

change in cost of another key inputs
“key inputs” are materials used in multiple industry
- change to these “key input” affect every industry
- ex: gas, water, electricity

  • ↓ key input cost = ↑ AS
83
Q

3rd influence on AS

A

Supply shock - unexpected change in cost/availability of key input

  • GOOD supply shock = ↑ input availability ↓ price =↑ AS
  • BAD = ↓ input availability ↑ price = ↓ AS
84
Q

4th influence on AS

A

change in productivity
- productivity ↑ = ↑ AS

85
Q

currency appreciation

A

US currency increase in value relative to another currency

1 USD can buy more than before

  • if you pay less for the same amount
86
Q

currency depreciation

A

US currency loses value relative to another currency

1 USD buy less than before

  • if you pay more for the same amount
87
Q

What happen to net export when USD appreciate

A

Import = increase
(buying foreign goods)

export = decrease
(foreign buy less from us)

net export = decrease

88
Q

What happen to net export when currency depreciation

A

Import = decrease
(buying foreign goods)

export = increase
(foreign buy more from us)

net export = increase

89
Q

inflation rate equation

A

(CPI later yr - CPI earlier yr) / CPI earlier yr

90
Q

adjust price/wage equation

A

$ amount u want to adjust x (CPI yr adjusting to /
CPI yr adjusting from)

91
Q

Short term vs Long term AS

A

short term has : sticky wage/price and employee/employer misperception

long term does not

92
Q

potential RGDP

A

output of economy during good economic times or when eco has natural rate of UE

93
Q

natural rate of unemployment
(NRU)

A

UE rate of eco when its at potential RGDP

  • lowest Ue rate ab eco can have w out having a problem w inflation
94
Q

What is the US NRU

A

4-6%
(5% between)
any lower mean theres a problem w inflation

UE ↓ = ↑ inflation

95
Q

recessionary gap

A

occurs when LRAS is to the right of equilibrium

  • current actual RGDP U > 5%
96
Q

inflationary gap

A

occur when LRAS is to the left of equilibrium

  • current actual RGDP U < 5%
97
Q

fiscal policy

A

deliberate gov action that is taken to influence the economy

  • has 3 tools
    1. change in gov spending
    2. change in tax rate
    3. change in transfer
98
Q

!st tool of fiscal

A

change in gov spending “G”
- to “fix” recessionary gap, gov ↑ spending = AD →

explain:
1. to get rid of the gap, AD has to be shift to LRAS
2. gov spends more, shifting AD →
3. AD → moved the equilibrium to LRAS curve so gap is gone

99
Q

2nd tool of fiscal

A

change in tax rate
- to “fix” recessionary gap, gov ↓ tax rate = AD →

100
Q

3rd tool of fiscal

A

change in transfer
- to “fix” recessionary gap, gov ↑ transfer = AD →

101
Q

“Transfer”

A

gove acts as an intermediary redistribute income/wealth from 1 segment of society to another

(take money from the rich & give it to the poor)

102
Q

To fix inflationary gap

A

the gov actions will reverse

103
Q

autocorrection mechanism

A

Describe how an eco can eliminate recessionary and inflationary gap automatically

104
Q

Why do fiscal policy exist (if eco can fix itself)

A
  1. political convenient
    - make politician looks good
  2. autocorrection can take a long time

econ 202 (3 decks)

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