MacroEconomics Test
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Complete list of Terms and Definitions for MacroEconomics Test

Terms Definitions
Multiplier 1/(1-MPC)
Bond A certificate of indebtedness
Disposable income (Y - T)
Patents and Copyrights Increases innovation Increases monopolies Decreases output
Government intervention to alter market structure or prevent abuse of market power antitrust
hyperinflation an inflation rate exceeding 50%/ month
expansion on business cycle output grows quickly
equality the property of distributing economic prosperity uniformly among the members of society
Describe the non-economic costs of unemployment Chapter 9 Finish
Perfect Competition -Perfect info. -Many buyers and sellers -No single individual or firm can influence price
Formula for studying GDP expenditure I+G+X=S+NT+M (Investments+Government+Exports = Savings+Net Taxes+Imports) Injections=Leakages
a market for immediate delivery spot market
convergence the process by which poorer countries close the gap with richer countries in terms of real GDP/ capita
rules a set of simple ,prespecified and publicly announced guidelines for conducting monetary policy
dependent variable A variable that responds to change
consumption schedule a schedule showing the amounts households plant o spend for consumer goods at different levels of DI
Macroeconomics The part of economic theory dealing with the economy as a whole and decision making by large units such as governments and unions.
Use the real balances interest rate foreign purchased effects to explain why the aggregate demand curve slopes downward Chapter 12 Finish
Value of trade 1. Differences in preferences 2. Benifits from division of labor
2008-?: oil prices rise, housing bubble bursts; financial crisis recession spending decreases
Net Exports NX = exports – imports Exports represent foreign spending on the economy’s goods and services Imports are the portions of C, I, and G that are spent on goods and services produced abroad.
resources are scarce to the extent that they are not sufficient to allow all goals to be accomplished at once scarcity
questions about how things should be normative questions
(in reference to economic growth) the idea that underlying economic forces will cause poorer countries and regions to "catch up" with richer ones convergence
Crowding Out A decrease in investment that results from government borrowing
Bank reserves The currency banks hold in their vaults plus their deposits at the Federal Reserve.
change in price only effects quantity demanded or supplied, not actual curve
Transfer Payment A payment to an individual or institution not made in exchange for a good or service
Real Income Income that has been adjusted for inflation and decreasing purchasing power.
labor force the total number of workers including both the employed and unemployed
quantity supplied a specific amount that will be supplied at a specific price
If the reserve ration is .1, the simple money multiplier is equal to 5. T/F? False
time between need for fiscal action and the time action is taken administrative lag
labor-force participation rate the percentage of the working-age population actually in the labor force
The study of how people work together to transform resources into goods and services to satisfy their most pressing wants, and how they distribute these goods and services among themselves. Economics
Exmaple of Spillover Cost Pollution: Chemical Manufacturer dumps wastes into lake, fish suffer spillover costs
restrictions on the flows of people into and out of a country migration controls
when banks keep their interest rates blow "what the market would bear" and deny loans to some potential borrowers, in the interest of maintaining their own profitability credit rationing
the value of what a producer sells less the value of the intermediate inputs it uses. This is equal to the incomes paid out by the producer value-added
When prices of oil rises unexpectedly, the equilibrium price level..(BLANK)......and the unemployment rate..(BLANK).......in the short run. rises, rises
Discount rate The rate of interest the Fed. charges on loans to banks.
depreciation of dollar -occurs if each dollar "buys" fewer units of a foreign currency-US good becomes less expensive to foreign consumers-foreign goods become more expensive to US consumers -will increase AD for US goods and services
Acceleration Hypothesis The hypothesis that when real GDP is held above potential, the persisten inflationary gap will cause inflation to accelerate
"Net foreign factor income" Difference between the GNP and GDP
nominal output the total amount of goods and services measured at current prices
What relates positive economics to normative economics? The art of economics
financial services industry the broad category of firms that provide financial products and services to help households and businesses earn interest, receive dividends, obtain capital gains, insure against losses, and plan for retirement
2002-2007: changes in fiscal and fed rerve policies consumption spending increases expansion
Federal Budget Deficit A flow variable that measures the amount by which federal government outlays exceed federal government revenues in a particular period, usually a year
the percentage of the labor force made up of people who do not have paid jobs, but who are immediately available and activelylooking for paying jobs unemployment rate
a price index derived by dividing nominal GDP by real GDP implicit price deflator
the sector consisting of entities located outside the borders of the United States foreign sector (BEA definition)
the relationship between two variables if an increase in one is associated with a decrease in the other negative (or inverse) relationship
3 Types of Reserves - Required Reserves:What the bank has to have- Excess Reserves: What's left over- Actual Reserves: What the bank has on handActual - Required = Excess
if the underground economy is sizable then GDP will underestimate the economys performance
Diminishing returns The benefit of one extra unit of input is less than the last extra unit of input.
economic expansion leads to a decrease in the unemployment rate, which increases wages
If the Fed wants to increase the money supply, it should: Buy bonds.
d: interest payment the amount you earn from the purchase price of the bond minus the amount you actually paid
natural rate hypothesis the claim that U evenually reurns to its normal or natural rate regardless of the rate of inflation
the sector that includes all federal, state, and local government entities government sector (BEA definition)
a shift of the demand curve in response to some determinant other than the item's price change in demand
an index of well-being made by combining measures of health, education, and income. This index is calculated by the United Nations Develpment Program Human Development Index (HDI)
Not a cost of inflation (1) 1. A fall in purchasing power
consumer price index a measure of the overall cost of the goods and services bought by a typical consumer
Classical economic theory is based on wages and prices ____ but in a modern economy, wages and prices are often ____. a) rising, falling b) falling, rising c) being flexible, sticky d) set by government, set by market forces c) being flexible, being sticky
the more capital goods we have the... less consumption goods we have
the component of GDP that represents spending by households consumption (C) (traditional macro model)
State the final impact of cost-push inflation on the price-level and real output. Stagflation; higher price level, lower output level.
personal consumption expenditure (PCE) deflator a measure of prices of goods that consumers buy that allows yearly changes in the basket of goods that reflect actual consumer purchasing habits
demand for loanable funds is equal to... planned investment spending + the government deficit
a set of goals declared by the United Nations in 2000, emphasizing eradication of extreme poverty; promotion of education, gender equity, and heath; environmental sustainability; and partnerships between rich and poor countries Millennium Development Goals (MDG's)
GDP deflator (gross domestic product deflator) an index of the price level of agregate output, or the average price of the components in total output (or GDP), relative to a base year
If the Fed wishes to raise the interest rate, it will decrease the money supply
If the Fed wishes to raise the interest rate, it will a. increase the money supply b. decrease the money supply c. increase money demand d. decrease money demand e. simply set a higher market interest rate
In the fall of 2004 the price of tomatoes dramatically increased. What could have caused this change? Hurricanes during the late summer damaged the Florida crop, shifting supply left.
what must the economy do in order to operate on the opportunities curve it must ultize full employment and productive effiency.
Aggregate Demand C+I+G+Xn-consumers-investments-Government-Xn=Export-Import
Purchasing Power equation PP=Price/Price Index
Classical economists believed thata. the government should play an active role in controlling the economyb. the government can best help the economy by leaving it alonec. the economy is controlled by the governmentd. laissez faire will hurt the economye. B
positive economics Uses descriptive statements, propositions, and predictions about the world.
seasonal unemployment the component of unemployment attributed to seasonal factors
benefits from trade restrictions -domestic producers-domestic government
scarcity   the limited nature of society's resources   
Chapter 6 Present two reasons why prices are often inflexible in the short run Finish
Risk Averse Does Not like to gamble
Inventories Producers' stocks of finished and in-process goods
when the aggregate price level falls deflation
components of Aggregate Demand consumption, investment, govt. spending, net exports will shift the curve up or down. (increase in got. spending will move the curve right, increase in money supply will move the curve right, increase in taxes will shift the curve left, decrease in govt. spending will shift the curve left, decrease in money supply will shift curve left etc.)
laissez faire free from the government, market decides everything , wages dont go down to adjust the price
Output Gap Actual national income minus potential national income, Y-Y*.
market basket representative group of good sand services for CPI
Apply the concepts of recessionary and inflationary gaps to two historical event in the United States Chapter 11 Finish
Final goods Used by consumer; Not intermediate goods
can fiscal policy have demand side effects in the short run yes
Investment The purchase of new plants, new equipment, new building, and new residences, plus net additions to inventories
production using methods that involve a high ratio of labor to capital labor-intensive production
the study of how economic activities at all levels create a national (and global) economic environment macroeconomics
a situation in whichthe quantity that sellers wish to sell at the stated price is greater than the quantity that buyers will buy at that price surplus
Public Saving The tax revenue that the government has left after paying for its spending
Fischer Effect tendency for nominal interest rates to be high when inflation is high and low when inflation is low
law of demand inverse relationship between price and quantity demanded. price increase-quantity demanded decrease and vice versa
Consumption Expenditure Household expenditure on all goods and services. Represented by the symbol C.
Full Employment the condition in which virtually all who are able and willing to work are employed.
2007 Recession low interest rates for house subprime housing leases. Mortgages bundled into large MSB. Rates go up people cant afford houses try to sell. People worry about banks interest rates go up. Fiscal policy and buy outs occur
shift in supply the graphic representation of the effect of a change in a factor other than price on supply
The law of supply states that quantity supplied of a good is inversely related to the good's price. T/F? False
government spending in excess of tax revenues budget deficit
increasing returns a situation in which a given percentage increase in the amount of inputs a firm uses leads to an even larger percentage increase in the amount of output the firm produces
The use of statistics to quantify and test economic models. Econometrics
Pursuit of Annually Balanced Budget: Intensify the Business Cycle
a measure of the money supplyequal to currency, checkable deposits, and travelers checks M1
people who desire and are available for a job, but give discouragement as the reason for no longer looking for work discouraged workers
Suppose the money supply grew by 5%, velocity stayed constant, and inflation was 2% , by how much nominal GDP increased that year? 5%
Reserve requirements Are rules set by the Federal Reserve that determine the minimum reserve ratio for a bank
nominal exchange rate -compare value of one currency in relation to another
potential GDP growth formula growth rate(t+1)=growth rate in labor hours(t+1)+growth rate of labor productivity(t+1)
A product that can be produced at a profit will be produced.  If not, then not.
list five leading indicators money supply, stock prices, interest rate speed, number of new building permits issured for private housing units, index of consumer expectations
At all points on the aggregate production curve: Income equals production.
money market deposit account (MMDA) an interest-bearing account containing a variety of interest-bearing short-term securities
d: crowding out decline in one sectors spending caused by an increase in some other sectors spending
The value of final output produced in a given period, adjusted for changing prices. real GDP
equipment owned by businesses and governments; structures; residences; and software fixed assets (BEA definition)
when a central bank buys government debt as it is issued monetizing the deficit
the annual number of deaths per 1,000 population death rate
Political Business cycle the effects on the economy of using monetary or fiscal policy to stimulate the economy before an election to improve reelection prospects
when the expenditure approach is used to measure GDP the major components of GDP are waht? consumption, governemtn spending, gross private investment, and net exports
growth rate of labor hours equals [(LH2-LH1)/(LH1)]*100where LH is labor hours (current and previous)
an increase in demand for labor will... increase wages and employment
The standard supply/demand framework: Can be modified to explain real-world events.
lower interest rate causes higher consumption, and causes a shift of the consumption function, rise in autonomous consumption spending
sunk cost a cost that is beyond recovery at the moment a decision must be made
the ease of use of an asset as a medium of exchange liquidity
a situation in which countries or regions compete in providing low-cost business environments, resulting in deterioration in labor, environmental, or safety standards race to the bottom
Marginal Propensity to Consume (MPC) The fraction of extra income a household consumes rather than saves
When the economy is at its full employment Real GDP, the unemployment rate is equal to ... a) zero b) the frictional rate c) the natural rate d) the structural rate c) the natural rate
the faster the rate of __A___, the greater the growth rate of __B__, the faster the rise in __C__ A) technological change B) productivity C) living standards
the lowest rate of unemployment that can be sustained without causing rapidly rising inflation non-accelerating inflation rate of unemployment (NAIRU)
def. of Resource Cost-Income Approach the dollar flow of income and indirect cost from final goods
do our wants change? yes as we grow older we want cars instead of toys
what does output depend on 1) amount of resources for labor to use 2) technology which determines how much output we can produce with these resources
an action by central banks to buy or sell foreign exchange reserves in order to keep exchange rates at desired levels foreign exchange market intervention
the law of increasing opportunity costs the more you produce the more you must give up. At first the resources are easy to convert but then they become increasingly hard to convert. the more that is produce the greater the oportunity cost.
If the labor demand decreases, what will happen to the real wage, employment, and output, assuming no change in the labor supply? The real wage will decrease, employment will decrease, and real output will decrease.
If the labor demand decreases, what will happen to the real wage, employment, and output, assuming no change in the labor supply? Real Wage, employment, and real output will all do the same.
In states that impose a minimum wage above the national minimum wage, it is more likely that the minimum wage acts as a binding: Price floor, causing excess supply in the market.
Why do we use Inflation rate as a measure? Implies a measure of the uncertainty regarding the purchasing power of income
1/MPS the multiplier
K is units of capital
Compounding (Equation) Yt=Pt (1 + i)^t
Chapter 3 Explain the economic effects of the government set price ceiling on product price and quantity Finish
households, familiesk, and communities core sphere
GDP Gap (Equation) SR output - NRO
nominal GDP current quantities at current prices
How we are paid for each land-rentlabor-wagescapitol-interestentrepeurs-profit
Explain what changes the government spending determinant of aggregate demand Chapter 12 Finish
Evaluating economics on a large scale. Macroeconomics
in production, a system of organization in which each worker performs only one type of task specialization
Aggregation the adding up of individual economic variables to obtain economywide totals
when determining comparative advantage we must compute opportunity cost
federal budget the budget of the federal government
Entrepreneur a person who, operating within the context of a market economy, assumes various risks in the hopes of earning profits by finding new ways to organize factors of production
inferior good one whose demand curve shifts leftward when the incomes of buyers increase and rightward when the incomes of buyers decrease
Draw a graph to illustrate the relationships among consumption, saving and disposable income Chapter 10 Finish
Doha Round the latest uncompleted sequence of trade negotiations by member of the WTO
Typically, a person's MPC is relatively high during young adulthood, decreases during the middle-age years, and increases when the person is near or in retirement Life-cycle hypothesis
Budget Surplus? Taxes (Gov. Revenues) > Government Spending/Expenditures
actions taken to increase the quantity or quality of a resource now, in order to make benefits possible inthe future investment
observations of how a numerical variable changes over time time-series date
gross investment minus an adjustment for depreciation of the capital stock net investment
money multiplier the amount the money supply expands with each dollar increase in reserves. MM=1/RR
"market effieceny" the quantity demanded is exactly equal to the quantity supplied and the market is in equilibrium
Participation rate Labor force / Population 16 and over
right of the 45 degree line intersection with consumption households save
Monetary Wealth The value of a person's monetary assets. Wealth, as distinguished from monetary wealth, refers to the value of all assets owned, both monetary and nonmonetary. In short, a person's wealth equals his or her monetary wealth (e.g. $1000 cash) plus nonmonetary wealth (eg. car or house)
The president of this Federal Reserve Bank is always a member of the FOMC New York
YD = Y + TRbar - TA Disposable Income
part of the business cycle in which output and employment bottom out at their lowest levels trough
trade bloc a group of countries having common identity, economic interests, and trade rules
d: leakages income earned but not spent by households during a given year (taxes and savings)
Intermediate goods: used as components or ingredients in the production of other goods
stagflation is: combo of high prices and falling output
a simple, mechanical model that portrays the macroeconomy as being made up of businesses that produce and invest, andhouseholds and governments that (only) consume traditional macroeconomic model
unemployment that arises as people are in transition between jobs frictional unemployment
a group of macroeconomists who theorized that people's expectations about Fed policy would cause predictable monetary policies to be ineffective in changing output levels rational expectations school
federal funds rate the interest rate on reserves that banks lend to each other
Liquidity The ease with which an asset can be converted into the economy's medium of exchange.
Traditional Economy An economy in which behaviour is based mostly on tradition
Core Inflation The rate of increase of all prices except energy and food.
quantity demanded increases as... the price of the product falls
Long-Run Economic Growth The sustained upward trend in the economy's output over time.
public sector The part of the economy that contains all government entities; government.
law of supply as price rises, the quantity supplied rises; as price alls, the quantity supplied falls
A measure comparing the prices of all goods and services produced in the economy during a given year to the prices of those goods and services purchased in a base year GDP deflator
market risk risk that affects all companies in the stock market
the theory that an employer can motivate owrkers to put forth more effort by paying them somewhat more than what they could get elsewhere efficiency wage theory
proposed by the World Bank, this is equal to gross saving less depreciation of both manufactured and natural capital genuine saving
a discount rate that reflects social rather than market valuation of future costs and benefits; usually lower than the market discount rate social discount rate
a line used to portray an income distribution, drawn on a graph with percentiles of households on the horizontal axis and the cumulative percentage of income on the vertical axis Lorenz Curve
productive efficiency when the only way to produce more of one goods is to give up something else
economic theory for public goods market will not produce good efficiently and government production would be necessary.
Pefectly Competitive Market Market where there are many buyers and sellers so that each person has a negligable impact on market price
the diversification for stability argument used by highly specialized economies who are dependent on the international market for income. tariff and quota protection are argued as a necessity to enable industrial diversification. this way, these countries wont be so dependent on exports. the problem is the economic cost of diversification may be great
What are the 2 types of economic systems? Market System Command System
This theory helps us explain how specialization works. Ricardo's theory that specialization and free trade will benefit all trading parties, even those that may be "absolutely" more efficient producers. Theory of comparative advantage.
what is refinancing? issuance of new debt in payment of debt issued earlier
the number of times a dollar would have to change hands during a year to support nominal GDP velocity of money
a curve showing the maximum amount of twooutputs that society could produce from given resources, over a given time period productoin-possibilities frontier (PPF)
transaction demand for money the demand for money based on teh desire to facilitate transactions
Gross Domestic Product (GDP) The total value of goods and services produced in the economy during a given period
What are the admissible values for the marginal propensity to consume (c)? 0 < c < 1
marginal propensity to save (MPS) the fraction of any change in disposable income that households save; equal to the change in saving divided by the change in disposable income
total income equals total expenditure because every dollar a buyer spends is a dollar of income for the seller.
a tax which collects a larger share of the income from those most able to pay progressive income tax
rotation of a curve Change in a curve that occurs when its slope changes with one point on the curve fixed
The noninstitutional adult civilian population can be broken down into ... a) employed persons and unemployed persons b) persons working and persons not working c) persons working in manufacturing and persons working in services d) persons in the labor fo d) persons in the labor force and persons not in the labor force
4 Phases of Business Cycle (Time on X-axis, Level of Real Output on Y-axis) (1) Peak (2) Recession (3) Trough (4) Recovery
Economics can best be described as the science that studies how individuals and societies deal with the problem of scarcity.
The market system's answer to the fundamental question &quot;What will be produced?&quot; is essentially: A) &quot;Goods and service that can be produced using large amounts of capital.&quot; B) &quot;Goods and services that are profitable.&quot; C) &q B) &quot;Goods and services that are profitable.&quot;
What is the final impact of expansionary fiscal policy on the price-level and real output? An increase in income, an increase in the demand for money, and an increase ion the interest rate. Also called the crowding -out effect.
If the required reserve ratio is 20 percent, banks loan out all excess reserves, people hold no currency, and the Fed sells $5,000 worth of bonds to banks, what is the ultimate impact on the money supply? The money supply will decrease by $25,000
What are the Fed's policy options or tools? change in rr, change in discount rate, and Open Market Operations
formula for GDP C+I+G+(X-M)
during expansions, output.. rises quickly
Macroeconomic Policy Objectives o Full Employmento Price Stabilityo High and sustainable rate of economic growth
Normal Proft? Cost of entrepreneaur's contributions
open economy an economy that trades internationally
required reserves =amount of new deposit*reserve ratio
In macroeconomics,a. we study one market at a timeb. we try to understand how the entire economy behavesc. we focus on large, important products and ignore the restd. we study one nation's economy onlye. we aggregate all national economies into a world ec B
The difference between the long-run and short-run frameworks is that the long-run framework focuses on demand while the short-run framework focuses on supply. T/F? False
is opportunity cost always present with a choice is made? yes
COLA cost of linving adjustment; the increase ina transfer payment or wage that feflects the increase in the price level
something whose quantity can be measured at a point in time stock
Federal Revenue income takes (bulk), gift taxes, social security taxes, death takes, customs duties, etc. Money the govt. spends.
Structural Unemployment Unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one.
Macroeconomics focus on problems, theories, policis, and different view on how the economy works.
Supply-Side Economics Economic policies designed to increase aggregate supply or shift aggregate supply curve to the right
Make three clarifying points about the multiplier Chapter 10 Finish
consumers Purchase the goods and services that are the end products of the economic system.
• Wars, changes in climate, population booms, clustering of innovations, changes in consumer confidence, changes in government spending, or changes in international exchange rates. externally induced cycles
buying and selling assets with the expectation of profiting from appreciation of depreciation in asset values speculation
selling products at prices that are below the cost of production dumping
lowering an exchange rate within a fixed exchange reate system devaluation
a resource that regenerates itself through short-term processes renewable resource
normative economics statements that describe what ought to be
aggregate supply value of domestic product produced by firms at each given price level
positive statement A statement of fact or a hypothesis
Cost-Benefit Principle An individual (firm or society) should take an action if and only if the extra benefits from taking the action are at least as great as the extra cost.
inflation tax the revenue the government raises by creating money
Supply Curve A graph of the relationship between the price of a good and the quantity supplied.
buying of government bonds from, or the selling of government bonds to, commercial banks and the general public open-market operations
creative destruction the creation of new products and production methods completely destroys the market positions of firms that are wedded to existing products and older ways of doing business
That part of national income not spent on consumption Saving
demand curve a schedul or graph showing the quanitity of a good that buyers wish to buy at each price
a curve indicating the quantities that sellers are willing to supply at various prices supply curve
programs designed to transfer income to recipients if and when certain events occur social insurance programs
loose or expansionary monetary plicy intended to counteract recessionary tendencies in the economy 11 accommodating monetary policy
whats counted in GDP 1) finished goods (avoids double counting)
free rider problem people who benefit from good without paying for it
Technological change is an increase in the quantity of output firms can produce using a given quantity of inputs; is more important for economic growth than capital per hours worked
per-unit production costs the average production cost of a particular level of output; total input cost divided by units of output
marginal cost the additional cost to you over and above the costs you have already incurred
Induced expenditures are defined as expenditures that: Change as income changes.
Who makes up the FOMC? ·The Board of Governors ·The president of the New York Federal Reserve Bank ·Four of the remaining presidents of Federal Reserve Banks on a 1-year rotating basis
the larger the MPC the larger the change in output
Double counting The mistake of including th value of intermediate goods plus the value of final goods in GDP
people who seek to enjoy the benefit of a public good without paying for it free riders
funds not loaned out by a private bank, but kept as vault cash or on deposit at the Federal Reserve 11 bank reserves
the total demand for all goods and services in a national economy 1 aggregate demand
outputs that are not used either for consumption or in a further production process waste products
Consumer Price Index (CPI) Most common index used to calculate nominal GDP. Base period is 1982-84. CPI = Cost of mkt basket current year  x 100 Cost of market basket 1982-84  
Unit of Account The measure people use to post prices and record debts
Real GDP vs. Nominal GDP Real: Includes inflation; requires a BASE YEAR & BASE PRICES FROM THE BASE YEAR.Nominal: Does not include inflation; uses CURRENT YEAR & CURRENT PRICES.
The above data suggests a policy of tax reduction will increase consumption
Market Failure A situation in which a market left on its own fails to allocate resources efficiently
Real GDP per capita Read GDP divided by teh population, measure of an economy's standard of living.
an equation where the two sides are equal by definition identity (accounting identity)
an approach to production in which a process is broken down into smaller tasks, with each worker assigned only one or a few tasks division of labor
competitive edge on production costs nations have different laws where they can produce cheaper - child labor/worker safety
The cost of Entrepreneurial ability to a firm is called: Normal Profit   This is a cost not a profit
Suppose you are told that AE = 7000 + 0.75Y. Using this equation and the multiplier, what will equilibrium income be? $28,000 (AE=Y)
1980: dramatic increase in oil prices recession spending on cars and other energy using products decreases
What is demand pull inlfation? when people keep demanding same amount no matter the price
Components of Planned TE C + I + G + (X - M)
If the economy was operating below full employment, it could return to full employment... through open market purchases, through increases in government spending or tax cuts, by itself, through falling wages and prices
what will a rise in the interest rate cause decrease in consumption spending increase in savings decrease in planned investment
the agency in the United States in charge of compiling and publishing the national accounts Bureau of Economic Analysis (BEA)
economic growth is severely impeded in economies with a lack of clear property rights
An effective way to explain the process of how the money market reaches equilibrium is to begin with an interest rate that is not the equilibrium value and watch the forces that move it toward equilibrium
What are the 3 lags associated with stabilization policy? 1- recognition lag- takes time to recognize problem 2- implementation lag- takes time to implement policy 3- response lag- takes time for policy to have effect on economy
Gross domestic product is a measure of both the marekt value of the ouput produced during a period and the cost of producing that output
National Income = NI=DI+T-TrDI=NI-T+TR
What are externalities side effects
_______ _______changes in government expenditures and taxation to achieve macroeconomic goals. Fiscal policy
Bad anything from individuals receive disutility or dissatisfaction.
Scarcity occurs when the ingredients for producing things people desire are insufficient to satisfy all wants
financial markets financial institutions though which savers can directly provide funds for borrowers
Marginal Analysis Involves comparing marginal benefits and marginal costs.
Which of the following statements about unanticipated inflation is true?a. It reduces average purchasing power in the economy.b. It reduces total purchasing power in the economy.c. It redistributes purchasing power in the economy.d. It reduces nominal wag C
Self-Correcting Shocks to aggregate demand affect aggregate output in the short-run but not the long-run
Cross elasticity is ..... for Complements? Negative.
Efficiency exists when marginal benefits equal marginal costs. Graph: MB = MC; where MB and MC intersect.
Unemployment Rate Unemployed / unemployed + employed (aka labor force)
disinflation the process of bringing down inflation that is embedded in expectations.
Economics models _______, not ________ behavior, though processes
Rational individuals... choose their comparative advantage or specialize
trade policy a government policy that directly influences the quantity of goods and services that a country imports or exports
Deadweight Loss The reduction in economic surplus resulting from a market not being in competitive equilibrium.
Producer Surplus The difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives.
specialization Situation in which an economy is producing the goods and services in which it has a comparitive advantage
Suppose the economy consists of two distinct groups: wage earners and goods sellers. If the price levelincreases by 30 percent and real wages increase by 30 percent,a. there will be no redistribution of purchasing power between goods sellers and wageearne C
Pertaining to the Demand and Supply Curve, The FLATTER it is the more .... it is? Elastic.
Independent relationship A zero association between two variables. When one variable changes, the other variable remains unchanged.
Market Any arrangement in which buyers and sellers interact to determine the price and quantity of goods and services exchanged.
Utility the satisfaction one receives from a good.
Underemployment Number of people who work part time because they cannot find full-time jobs.
Capital goods goods we use to produce other goods
transaction costs all of the costs associated with exchange, including the informational costs and enforcing the contract
finance the field of studies that shows how people make decisions regarding the allocation of resources over time and the handling of risk
real GDP the production of goods and services valued at constant prices
firm-specific risk risk that affects only a single company
Economic Surplus The sum of consumer surplus and producer surplus.
capital A factor of production that has been produced for use in the production of other goods and services
Suppose that a labor union leader is trying to bargain for an increase in union workers' real wages of 5percent. If he expected the price level to rise at a rate of 3 percent this year, how much would nominal wagesneed to increase for him to accomplish hi D
AS-AD model The aggregate supply curve and the aggregate demand curve are used together to analyze economic fluctuations
A normative statement describes how the world ? Ought to be.
Autonomous Expenditures Element of expenditure that do not change systematically with national income
Cyclical Unemployment Due to a general downturn of the economy. Like now, in a recession.
Name 3 government revenues. personal income taxes, payroll taxes, and corporate taxes
velocity of money the rate at which money changes hands
Economic Growth The ability of the economy to produce increasing quantities of goods and services.
comparative advantage In producing a good or service, the situation that occurs if the oppurtunity cost of producing that good or service is lower for that economy than any other
Price elasticity of demand is ..... And Price of supple is ..... ? ~ Negative~ Positive
Net Tax Rate The increase in net tax revenue generated when national income rises by one dollar. Also called the marginal propensity to tax.
unit of account costs arise from the way inflation makes money a less reliable unit of measurement
substitutes a change in the price of one causes a shift in demand for the other in the same direction as the price change
What is a progressive tax? average tax rate rises with income
Perfectly Competitive Market A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.
A Technological advancement will shift the....? Supply curve to the Right.
The principle that the opportunity cost increases as production of one output expands Law of increasing opportunity costs
Change in supply An increase or a decrease in the quantity supplied at each possible price. An increase in supply is a rightward shift in the entire supply curve. A decrease in supply is a leftward shift in the entire supply curve.
Factor other than price changes on demand curve shifting curve left or right
What is shortage? when the amount of a good offered for sale is less that the demand by buyers at the existing price
law of increasing oppurtunity cost As an economy moves along its production possibilities curve in the direction of producing more of a particular good, the oppurtunity cost of additional units of that good will increase
Desired Aggregate Expenditure (AE) The sum of desired or planned spending on domestic output by households, firms, governments, and foreigners.
What is the Laffer curve? A graph that shows how tax rates affect tax revenue
What are Determinants of Demand? ~ Tastes~ Income~ The price of related goods
What is a foreign exchange market? the market in which the currencies of difference countries are bought and sold
What are the benefits of trade? you can produce more than the maximum output of the PPC
If the elasticity of supply is zero, then...? The Quantity Supplied is the same regardless of price.
If a good is a necessity, demand for the good would tend to be? Inelastic. Becuase no matter the price the demand for the good will remain becuase it is a necessity.