Unit 1 & 2

Question 1

Economics (def)

Answer 1

the study of how to allocate scare resources along compettiton

Question 2

Macroeconomics (def)

Answer 2

branch of economics that deals with overall society issues

Question 3

what does macroeconomics issues apply to?

Answer 3

include inflation, unemployment, GDP, national income, interest rates. exchange rates

Question 4

GDP

Answer 4

is the total value of all final goods and services produced that year

Question 5

What are excluded from the equation of GDP?

Answer 5

intermediate goods of production/repurchase of tools, financial transactions

Question 6

National Income

Answer 6

sum of income earned by factors of production owned by its citizens

Question 7

Personal Income

Answer 7

money receives by households before personal income taxes are subtracted

Question 8

Disposable income

Answer 8

personal income minus personal income taxes

Question 9

Income approach

Answer 9

makes use that expenditures on GDP become income, national income can be modified (EX: depreciation must be added to national income)

Question 10

Depreciation

Answer 10

decline in value of capital over time due to wear or obsolescence’s (expenses are subtracted from corpate before NI calculation )

Question 11

Subsidy payments

Answer 11

made by governments to farmers (ex: they are part of the income but not made in exchange for goods so they are not part of the GDP can be subtracted from IN)

Question 12

Net income of foreign workers

Answer 12

accounts that NI includes income of all citizens everywhere, where GDP includes value of goods produced domestically by anyone

Question 13

Net domestic product

Answer 13

GDP minutes depreciation, how much output is left over for consumption and additions to capital stock

Question 14

Okun’s law

Answer 14

estimate that every one percentage point increase in umployment rate output falls to 2-3 percentage points

Question 15

Inflation

Answer 15

sustained increase in overall price, its not nesscarily inflation

Question 16

deflation

Answer 16

sustained decrease in general price level

Question 17

nominal salary

Answer 17

the actual number of dollars

Question 18

what are effects of inflation

Answer 18

stores must change price listings and the cost of these changes are called menu cost, unit of account (standard monetary unit of goods), social tensions, value of interest payment decreases hurting lenders, savers

Question 19

who benefits from inflation

Answer 19

borrowed money at fixed interest rates pay worth less

Question 20

Business cycle

Answer 20

fluctuations in aggregate output and employment// functions are caused by change in aggregate supply and aggregate demand

Question 21

what are the phases of the business cycle

Answer 21

recession and expansion, and turning points are known as peaks and toughs

Question 22

potential output

Answer 22

when an economy’s unemployment rate equals its natural rate of unemployment

Question 23

Say’s Law

Answer 23

idea to supply creates its own demand, when supplying goods workers earn money to spend or save