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NCO=
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NX
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opposite of recession
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expansion
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scarcity
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unlimited wants; limited resources
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Disposable Income
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PI - Peronal Taxes
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change in consumption/change in DPI
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MPC
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What will happen to the consumption-income line, autonomous consumption spending, and MPC if taxes are raised to $12 billion?
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(a)decreases
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What economists beliebe that every thesis has an antithesis which provides a synthesis (next thesis)
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Hegel
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relationship between saving and disposable income
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saving function
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macrodontic
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the condition of having abnormally large teeth.
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positive analysis
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addresses the consequences of a particular event or policy, not whether those consequences are desirable
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The main economic cost of unemployment is the opportunity cost of lost output.
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True
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recession
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a period during which aggregate output declines. conventionally, a period in which aggregate output declines for 2 consecutive quarters.
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Strike
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The organized withdrawal of labor from a firm by a union.
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land
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includes all nature resources ( the gift og nature) production process aravbel forests, mineral and oil desposits etc...
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CPI
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consumer price index - average of price of goods and services purchased by a typical urban family of four. used to measure inflation
(Expenditures in current year/ expenditures of base year x100)
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Classical Dichotomy
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The theoretical separation of nominal and real variables.
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real interest rate
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nominal interest rate adjusted to remove the effects of inflation on the buying power of money
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marginal benefits
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the extra benefit experienced as a result of one unit increases in the amount of activity chosen.
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inferior goods
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demand goes down when income is higher
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finance
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the field that studies how people make decision regarding the allocation of resources over time and handling of risk
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inputs or resources
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anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants
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Cyclical Unemployment
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Deviation from the natural rate of unemployment.
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Instantaneous Multiplier
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A multiplier effect that takes effect instantaneously
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4 functions of money
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-medium of exchange
-unit of account
-store of value
-standard of deffered payment
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Shifters for supply curve
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1. technology
2. input prices
3. expectations
4. prices of alternate goods
5. # of potential sellers
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increase in productivity
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SRAS shift RIGht
because costs of producing output fall
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financial institution
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firm that operates on both sides of the markets for financial capital
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marginal cost
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the extra cost experienced as a result of one unit increase in the amount of activity chosen
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Money Multiplier
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The amount of money the banking system generates with each dollar of reserves. Money multiplier=1/R
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liquidity
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the ease w/ which an asset can be converted into the economy's medium of exchange
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Inventories include....
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1.) Finished Goods Not sold yet2.) Raw materials not Used yet3.)Unfinished goods still in the production Process
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Nominal exchange rate
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The relative price of the currencies between two countries. US dollar--Jap Yen
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Total Surplus
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Sum of surplus recieved by all members of society
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the total spending in the economy at alternative price levels
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aggregate demand
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Aggregate Demand/Supply
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The model that most economists use to explain short run fluctuations in economic activity around its long run trend
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Define: Wealth effect
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The effect on consumer spending caused by the effect of a change in the aggregate price level on the purchasing power of consumer's assets.
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substituion effect
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a decrease in the price of a good causes people to increase their purchase of the good and buy less of another good
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consumer surplus
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amount buyer is willing to pay for a good minus the amount the buyer actually pays for it-use demand curve measure (area below curve & above $ = c.s.)-used to answer buyer's wellbeing rise in response to lower price-measures the benefit buyer receives from participating in a market
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Nominal Exhange Rate
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Price Of one Currency in terms of another currency
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Wage rigidity
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the failure of wages to adjust to a level at which labor supply equals labor demand.caused by minimum wage laws, unions and collective bargaining, and efficiancy wages
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Market Failure
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A situation in which a market left on it's own fails to allocate reources efficiently.
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long run aggregate supply
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shows relationship in long run between price level and quantity of real GDP
**curve is vertical
**shows potential level of real GDP
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. How many Federal Reserve Districts are there?
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12 federal reserve districts
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A Store of Value
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An item that people can use to transfer purchasing power from the present to the future.
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economic policy: monetary policy- conducted by? influence?
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- (government actions to influence the economy)
- conducted by: the Federal Reserve System
- influence the money supply
- influence interest rates
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Which of the following would result in an increase in employment
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b. A reduction of welfare benefits.
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Problems Controlling the Money Supply
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The Fed can't control the amount of money households choose to deposit in banks. (if people lose faith the fed can't stop them from pulling money out and ruining reserves)
The Fed can't control the amount bankers choose to lend. (If bankers become more cautious about lending money supply falls and the Fed can't stop it)
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1. how people make decisions 2. how people interact 3. how the combination of all those decisions in a society leads to outcomes
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what do economists study (3)
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What is says law?
What did keynes think about says law?
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supply creates its own demand. He disagreed, there are general gluts. General gluts could occur; too much supply or insufficient demand (full employment is not reached)
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Which of the following activities is excluded from GDP, causing GDP to understate a nation's well-being?
A) the services of health care workersB) the services of military personnelC) the construction of new buildingsD) goods and services produced in
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D) goods and services produced in the underground economy
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Quantity Theory of Money in 5 Steps
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1.) V is stable2.) a change in M causes a change in P x Y3.) a change in M does not affect Y because money is neutral.4.) a change in M causes a change in P.5.) Rapid money supply growth causes rapid inflation
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calculate equilibrium income in the simple keynesian model:
A = 600 + .80Y
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A = Y
Y = 600 + .80 Y
.20 Y = 600
Y = 3000
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saving/DPI
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APS
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dependent variables
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enodogenous (y)
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growth accounting
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calculates the quantitative contribution to labor productivity growth of each of its sources
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Union Pros
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Prevents "company towns"
Prevents companies from having market power.
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macroeconomics
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the study of economy-wide phenomena
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human capital
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knowledge/skills that workers acquire through education, training, & experience
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positive externality
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uncompensated spillov third parties accuring or community at large
(wireless internet/education)
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supply
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curve or schedule that shows quantities people are willing to sell at various prices in a given time period
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M2
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consists of M1 plus time deposits savings deposits and money market mutual funds other deposits
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Unemployment Insurance
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A government program that partially protects workers' incomes when they become unemployed. This increases frictional unemployment because UI benefits end when a worker takes a job, so the workers have less incentive to find a job.
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substitutes
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goods that substitute for each other; when the price of good x rises the demand for good y increases
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inflation
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an increase in the overall price level
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Budget Surplus/Deficit
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An excess/shortfall of tax revenue over/under government spending.
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free-rider
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people benefit from public good w/o contributing to costs
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major macroeconomic policy goals
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promote maximum:
- Production (economic growth)
- Purchasing power (stable prices)
- Employment
- Smooth out business cycle fluctuations
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GOV. SPONSORED GOODS
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SOCIALLY DESIRABLE THROUGH THE POLITICAL PROCESS; MUSEUMS
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labor force
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sum of the employed and the unemployed
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equilibrium
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a state of affairs where nothing will change unless it is disturbed by an outside force
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Credit cards
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d. are not considered money but are important because they may affect how much people hold in M1 and M2.
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mutual funds
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an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds
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Increase in quantity demanded=
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Increase in quantity SuppliedShifts the Demand curve to the right.
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Mutual Fund
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An institution that sells shares to the public and uses its proceeds to buy a selection or portfolio of various types of stocks, bonds or both.
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Government Role in Economy
Equalizer
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1. Providing public goods/services
2. Redistribute income
3. reallocate resources
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nominal gdp
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value of goods and services evaluated at current year prices
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positive economics
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economics that result out of the scientific meathod. descriptive economics tries to explain the way the world works.
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supply shock
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unexpected event that causes the short run aggregate supply to shift
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real GDP per person
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real GDP divided by the population
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inefficient point
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a combination of goods in which the production of one good can be increased without reducing the production of another good
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market demand
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sum of all quantities of a good demanded per period by all households buying in the market for that good
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Benefits of Free Trade:
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- increased variety of goods-lower costs through economies of scale-increased competition-enhanced flow of ideas
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Investment Function
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I = f (r, Y, Ye, Tax policy) - , +,+
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Who prints money?
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The federal reserve prints money, the mint is the machine
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income effect
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at lower prices money goes farther you can buy more
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POLITICAL GOODS
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FROM THE PUBLIC SECTOR. THEY CAN BE PUBLIC OR PRIVATE
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Define: Aggregate Supply Curve
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Shows the relationship between the aggregate price level and thequantity of aggregate output supplied in the economy.
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Natural Rate of Unemployment
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The normal rate of unemployment around which the actual unemployment rate fluctuates.
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What concept helps to make judgments about the desirability of market outcomes (yet does not reflect economic well-being)?
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consumer surplus...because measures benefit received by buyer as the buyer themselves perceives it
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Balance of Payments
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the recored of a country's trade in goods, services, and assets
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Aggregate Demand Curve
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curve that shows the level of real gross domestic product purchased by households, business', govt., and foreigners (net exports), at different possible price levels during a time period
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employment act of 1946
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- it is the governments responsibility to promote maximum EMPLOYMENT, PRODUCTION, PURCHASING POWER
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short run aggregate supply curve
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curve that shows the relationship between price level and quantity of real GDP supplied by the firms
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change in quantity demanded
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A movement along a given demand curve caused by a change in demand price.
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GDP- Gross Domestic Product
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The total income of everyone in the economy, or as the total expenditure of everyone in the economy. also the market value of all final goods and services produced within an economy in a given period of time.
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when they believe that the market price of a good is unfair to buyers or sellers
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when do policymakers typically introduce controls on prices
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market for loanable funds
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the market in which those who want to save supply funds and those who want to borrow to invest demand funds
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What is the absolute advantage?
What is the comparitive advantage?
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absolute advantage is the ability to produce a good with fewer inputs and
comparative advantage is the ability to produce a good at a lower relative cost.
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if something happens that changes the quantity supplied at any given price
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when does the supply curve shift
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Why would a country (vietnamn )want to devalue its currency?
"beggar thy neighbor policy"
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the dollar appreciates compared to their currency. It cost more to buy american stuff so vietnamn wants to reduce imports and increase net exports. US will buy vietnamns goods because they are cheaper compared to the dollar.
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The Consumption Function
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C = f ( YD, YDe , r , Wealth, Price level) + + - + -
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Goods X and Y are complements while goods X and Z are substitutes. If the supply of good X increases:
A) the demand for both Y and Z will increaseB) the demand for Y will increase while the demand for Z will decreaseC) the demand for Y will decrease
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B) the demand for Y will increase while the demand for Z will decrease
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What do firms do if there is a fall in demand?
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They limit the fall in sales by cutting prices.
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