macro final.docx

macro final.docx - 1 What is opportunity cost and why is...

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1. What is opportunity cost and why is there no free lunch? - We must sacrifice something in order to get something else - opportunity cost is cost of the next best choice that you gave up to get something else 2. What does the invisible hand mean, and why does it suggest laissez-faire? - The invisible hand suggests the idea that the selfish acts that one commits for his own self-interest will ultimately benefit society. The market will reach an efficient, albeit not always equitable/fair, outcome on it’s own, and needs no guidance. Laissez-faire= no gov’t interference 3. What is the definition of Microeconomics? Macroeconomics? Economics? - Microeconomics- The part of economics concerned with single factors and the effects of individual decisions - Macroeconomics- Performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets. Studies the behavior of the aggregate economy, studies unemployment rate, GDP, rate of growth, inflation, and price levels - Economics- the study of how humans make decisions in the face of scarcity - T he branch of knowledge concerned with the production, consumption, and transfer of wealth. 4. What is the relation between Gross and Net Investment and Depreciation - Gross is total amount invested on new assets or replacing old assets - net investment is gross investment-depreciation 5. Definition of Real and Nominal GDP - real GDP quantity of goods and services produced in a nation during a year, includes changes in prices due to inflation - Nominal GDP- gross domestic product, not adjusted to inflation rates 6. How do you calculate real GDP from nominal? Formula - Real gdp=(nominal)/(price index/100) 7. How do we measure/calculate Unemployment, Labor Force, Employment - Unemployment rate= (unemployed workers/labor force)*100 - employment= (employed/labor force )*100 - Labor force=unemployed + employed - labor force participation rate = labor force/adult population 8. What is the CPI? What is it used for? Consumer price index - track changes in prices/inflations deflate nominal variables to real adjust contracts for inflation ("cost of living adjustments") so wages automatically increase and prices increase measures the cost of living and tells you how it has changed
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9. What are some shortcomings of GDP as measure of economic activity and well- being? - nonmarket transactions are not included - black markets exist - doesn't take into consideration the impact of the environment 10. What are stocks (equity)? - a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings 11. What is leverage, liquidity, buying on margin, selling short? - Leverage- use of borrowed funds, magnifies return and risk, shadow banks did lots of this - Selling short- motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit.
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