Macro 11 Flashcards

Terms Definitions
perfect substitutes
identical products
KI (capital inflow)
-NX (-(X-IM))
spending on capital equipment, inventories, and structures, including household purchases of new housing
anything from which individuals receive utility or satisfaction
when calculating slope, the horizontal distance a straight line travels between any two points
Reasons For Price Stickyness
-Consumer relations-Menu Costs-Staggered Price Setting-Coordination Failure-Contracts
non-profit firm
example american university. extra profit is invested into making firm better. dont have to pay taxes.
Nominal Variables
Variables measured in monetary units
cyclical unemployment
higher than normal unemployment that arises at a business cycle trough and the unusually low unemployment that exists at a business cycle peak
consumer surplus
the difference between the maximum amount a person is willing to pay for a good and it's current market price

Refer to the following diagrams: Which one of the above diagrams best illustrates the effect of an increase in crude oil prices on the market for gasoline?

A) AB) BC) CD) D
D) D
fiscal policy tools
1. government purchases
2. taxes
3. transfer payments
4 factors of production
land, labor, capital, entrepreneurship
the condition where the maximum output is produced with given resources and technology
productive efficiency
principle 10
society faces a short-run trade-off between inflation and unemployment
inflation rate
percentage increase in average level of prices from one year to the next
economic growth rate
annual percentage change of real GDP
real GDP growth rate = real GDP in current year - real GDP in previous year/real GDP in previous year
The method of reducing risk with a large number of smaller, unrelated risk. It reduces firm specific risk, but does not reduce market risk.
capital intensive
production proccesses that use a high ration of capital to labor inputs
sunk costs
costs that cannot be avoided because they have already bee incurred
total change in GDP
= change G x multiplier
Marginal Product of Labor
How much can you produce
produced goods that can be used as inputs for further production, such as factories, machinery, tools, computers, and buildings
the impact of one person’s action on the well-being of a bystander.
the losses to buyers and sellers from a tax __ the revenue raised by the government
how agents make choices in face of scares resources
neoclassical growth theory
proposition that real GDP per person grows because technological change induces an amount of saving and investment that makes capital per hour of labor grow
nominal interest rate
the annual percentage increase in the nominal value of a financial asset
. What is the equation for aggregate expenditure?
positive economics
an approach to economics that seeks to understand behavior and the operation of systems without making judgements. it describes what exists and how it works.
Commodity Money
Money that takes the form of a commodity with intrinsic value. (Value even if it wasn't money)
Gold, cigarettes in prison
complementary good
a good that is used together with another good
( chips and salsa)
discouraged workers
available for work but have not looked for job during previous four weeks b/c he thinks none are available
levy taxes
how do government raise revenue to finance government expenditure
income divided into four catagories
1. wages
2. interest
3. rent
4. profit
income effect
A change in the quantity demanded of a product that results from the change in real income caused by a change in the products price.
price rationing
whenver there is a need to ration a good (when a shortage exists) in a free market- the price of the good will rise until Qs = Qd
movement along the supply curve
the change in quantity supplied brought about by a change in price
if multiplier effect> crowding out
GDP increases more than G spending
Natural Rate of Unemployment
The rate of unemployment around which the unemployment rate fluctuates
(in USA between 4% and 7%)
quantity supplied
the amount of a good that sellers are willing and able to sell
working age population
is the total number of people aged 16 years and over who are not in jail hospital or some other form on institutional car

The service a homeowner performs when she mows the yard is not included in the gross domestic product because:

A) This is a nonmarket transactionB) This is a nonproduction transaction
C) This is a noninvestment transactionD) Multiple counting would
A) This is a nonmarket transaction
When the fed increases the money supply
the equilibrium interest rate falls
calculating labor force participation rate
labor force divided by working age population

The market system corrects a shortage by:

A) Lowering product price to decrease productionB) Raising product price to increase productionC) Lowering product price to increase production
D) Raising product price to decrease production
B) Raising product price to increase production
2 questions of economic system relating to trade:
what is the nature of trade?what function do prices serve?

The gross domestic product tends to understate the amount of economic activity in the United States because it excludes:

A) The payments for police protectionB) Expenditures for health care servicesC) Expenditures for environmental protectionD) The u
D) The unpaid work performed by homemakers
the size of the tax
how much does a tax on buyers shift the demand curve downward
common errors in economic reasoning: Fallacy of composition, what is the paradox of thrift?
- what holds for one person does not necessarily hold for everybody
- the paradox of thrift- what is good for one is not necessarily good for everyone
- ex) saving- if 1 person cuts their spending by 30%, they save. but if everyone cuts their spending by 30% the economy is hurt
How do you find the 'real wage'?
When you divide W (wage) and the price of the product
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