# Econ Review - Econ Review Topics Newer material 2 note...

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Econ Review Topics Newer material 2 note guides on money Unemployment Phillips curve Policy highlights Older material Measuring GDP in national income accounting PPF Comparative advantage/absolute advantage and international trade Calculating nom and real GDP given quantities produced and prices in current and base year Calculating inflation Calculating A bar and equilibrium real GDP Factors influencing net exports and how Changing in aggregate supply and demand and impact of those changes on equilibrium price levels and real GDP Final review MC pt 2 14 Equation of exchange (MxV=PxY) No change in MS or velocity so then there will be no change in PxY (nominal GDP) Y increases 10%, so P must decrease B Monetary policies Change in money supply Change in interest rates Change is required reserve ratio Fiscal policy Change in taxes Change in government purchasing Change in government transfer payments The Law of Diminishing marginal utility An individual will typically be able to partially order the potential uses of a good or service. For example, a ration of water might be used to sustain oneself, a dog, or a rose bush. Say that a given person gives her own sustenance highest priority, that of the dog next highest priority, and lowest priority to saving the roses. In that case, if the individual has two rations of water, then the marginal utility of either of those rations is that of sustaining the dog. The marginal utility of a third unit would be that of watering the roses.

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It may be no more than a purely ordinal change. [7] [8] The notion that marginal utilities are diminishing across the ranges relevant to decision- making is called “the law of diminishing marginal utility” (and also known as a Gossen 's First Law”). However, it will not always hold. The case of the person, dog, and roses is one in which potential uses operate independently — there is no complementarity across the three uses. Sometimes an amount added brings things past a desired tipping point , or an amount subtracted causes them to fall short. In such cases, the marginal utility of a good or service might actually be increasing . The law of supply and demand states that in a competitive free market , the price for a good will move towards the level where supply and demand for that good are equal. The Production Possibility Frontier Consider the case of an island economy that produces only two goods: wine and grain. In a given period of time, the islanders may choose to produce only wine, only grain, or a combination of the two according to the following table: Production Possibility Table Wine (thousands of bottles) Grain (thousands of bushels) 0 15 5 14 9 12 12 9 14 5 15 0 The production possibility frontier (PPF) is the curve resulting when the above data is graphed, as shown below:
Production Possibility Frontier The PPF shows all efficient combinations of output for this island economy when the

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## This note was uploaded on 03/31/2008 for the course ECON 2105 taught by Professor Rudbeck during the Fall '08 term at University of Georgia Athens.

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Econ Review - Econ Review Topics Newer material 2 note...

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