Topic 1 - Microeconomics Flashcards

1
Q

What is Microeconomics?

A

It is the study of how an individual household and firm make decisions and how they interact with one another in markets

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2
Q

What is Macroeconomics?

A

The study of the economy as a whole

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3
Q

What is the GDP, and what are the 4 main components?

A

GDP is the gross domestic product which is the market value of all final goods and services produced within a country in a given time period.

Consumption
Investment
Government purchases
Net exports

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4
Q

GDP equation

A

Y= C + I + G + NX

NX = exports - imports = net exports

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5
Q

What is another measure of income?

A

Gross National Product (GNP) or Gross National Income (GNI)

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6
Q

What is Real GDP and what happens if you change this.

A

Uses constant (base year) prices to place a value production of goods and services.

Changes in real GDP reflect only changes in the quantity of goods and services

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7
Q

What is Nominal GDP, and what happens if you change nominal GDP.

A

Uses current prices to value the economy’s production of goods and services

Changes reflect both quantities of goods and services and their prices

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8
Q

What is the GDP deflator, and what is the equation

A

Measure of the price level calculated as the ratio of nominal GDP to real GDP

(Nominal GDP/real GDP)*1000

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9
Q

What is the Human Development Index? (UN)

A

A statistic that involves life expectancy, education, and per capita income indicators to rank countries into four tiers of human development

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10
Q

What is inflation? Why does this occur?

A

The loss of value of money

Supply of money increases faster than the supply of goods

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11
Q

Two ways on how the Supply of money can increase

A
  1. Private bank money increases rapidly as banks increase the supply of credit
  2. Government money increases as the government increases the supply of fiat money, normally to buy goods and services without raising tax.
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12
Q

What is the expected inflation rate equation

A

Inflation rate (pi) = (Pt+1 - Pt)/pt

Where (pi) = expected inflation rate
Where Pt+1 = price level next period
Where pt = current price level

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13
Q

What is low inflation? And what does central banks do to try influence?

A

Reflects the expansion of private banks money.

Setting interest rates, raising them when inflation gets to high

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14
Q

Why does central banks increase interest rates

A

To slow down the private creation of credit

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15
Q

When does high inflation occur

A

Expansion of the government money supply

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16
Q

What is Hyper inflation

A

Rapid rising of inflation and always occurs because of the expansion of government money

17
Q

What is the Consumer price index? CPI

A

Another measure of inflation, which includes some foreign goods (imports)

18
Q

CPI vs the GDPDF

A

CPI includes some foreign goods (imports) whereas GDPDF does not

CPI basket is fixed and rarely changes whereas GDPDF measures the prices of all goods/services currently produced.

19
Q

What is the Fisher Effect + equation

A

Describes the relationship between nominal interest rate and the real interest rate.

I= r + (pi) or r= i - (Pi). Where i= nominal interest rate. Where r = real interest rate.
Where (pi) = inflation rate