question

economics

answer

..., the study of how society manages its scarce resources

question

scarcity

answer

...not enough to go around

question

resources

answer

...simple things that satisfy human wants, used to make other things

question

ceteris paribus

answer

..., all other things held constant

question

trade-offs

answer

..., all the alternatives that we give up whenever we choose one course of action over another

question

macroeconomics

answer

...the study of aggregate economic variables. And the national and global economy

question

microeconomics

answer

...study of decisions individual businesses make

question

marginal

answer

...additional

question

command economy

answer

...central authority makes decisions on production and consumption. (Soviet Union)

question

positive economics

answer

..., An approach to economics that seeks to understand behavior and the operation of systems without making judgments. It describes what exists and how it works.

question

normative economics

answer

..., the part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics

question

land

answer

...production resources from nature. (water trees) pay rent.

question

labor

answer

...human resources. (physical effort, knowledge and skills). Pay wages, salary.

question

capital

answer

...produced tools of the trade. (buildings, machines, tools). pay interest.

question

entrepreneurship

answer

...the intelligence, imagination and ability to take risks needed to start up and maintain a business (Bill Gates). profit.

question

market economy

answer

producers and consumers decide what is made, how much, and for whom.

question

full employment

answer

...all resources are being used efficiently

question

full production

answer

..., our nations resources are being allocated in the most efficient manner possible

question

consumer vs. capital goods

answer

...consumer goods are:shoes food, clothes. capital goods are man-made tools of production: a fishing boat, a machine.

question

production possibilities curve

answer

... illustrates trade-offs and the optimum efficiency

question

opportunity cost

answer

...what must be given up to get what you want

question

economic growth

answer

...expansion of the production possibilities frontier.

question

economic system

answer

...how the questions "what to produce?", "how to produce it?" and "For whom is it produced?"

question

traditional economy

answer

..economic decisions made based on what has always been done. traditions.

question

circular flow model

answer

...represents transactions in an economy

question

demand (curve)

answer

graphed demand schedule

question

demand schedule

answer

...how much consumers will be willing and able to buy at all different price levels

question

Quantity demanded

answer

...actual amount consumers are willing and able to buy at a specific price

question

law of demand

answer

...at a higher price, less is demanded.

question

factors of demand

answer

TRIBE Tastes Related goods (price) Income # of Buyers price Expectations

question

normal goods

answer

a rise in income increases the demand for

question

inferior goods

answer

a rise in income decreases the demand for

question

substitute goods

answer

a similar cheaper product will be substituted for more expensive goods

question

change in demand (curve)

answer

entire curve can be shifted by factors of demand. (TRIBE)

question

complementary goods

answer

a pair of goods that when one price decreases, ppl are more likely to buy the other. EX: free parking next to a stadium increases ticket sales

question

supply (curve)

answer

...graphed supply schedule

question

supply schedule

answer

...how much of a good or service Producers are willing and able to supply at every price

question

law of supply

answer

...higher price = higher Quantity supplied.

question

Quantity supplied

answer

...how much producers are w&A to produce at one price level

question

Factors of supply

answer

...ROTTEN Resources: cost and availability Other goods' prices Taxes, subsidies, gov regulations Technology (productivity) Expectations of the producer Number of firms in the industry

question

Change in supply curve

answer

...left is less. right is more

question

equilibrium

answer

...intersection of economic lines. (supply and demand). quantity supplied = quantity demanded @ a certain price.

question

market clearing price

answer

...causes economy to move toward equilibrium price.

question

Qs=Qd

answer

...equilibrium

question

Surplus

answer

...quantity supplied is greater than quantity demanded.

question

Shortage

answer

...quantity demanded is greater than quantity supplied

question

price ceiling

answer

...gov set price below equilibrium *legal price maximum

question

price floor

answer

...gov sets price above equilibrium *legal price minimum

question

Gross domestic product (GDP)

answer

...total dollar value of all FINAL goods and services in one year. C+I+G+ Xn= GDP

question

Intermediate goods

answer

...bought from firm to firm that are inputs in producing final goods and services

question

final goods

answer

...goods and services sold in the end to the consumer

question

multiple counting

answer

...

question

expenditures approach

answer

GDP measuresd with this approach C+I+G+Xn =GDP

question

gross private domestic investment

answer

...market value of built, but NOT sold goods.

question

government purchases

answer

...government expenditures on goods and services

question

net exports

answer

...exports-imports

question

indirect business taxes

answer

...taxes hidden in the purchase price (like gas)

question

consumption of fixed capital

answer

...depreciation

question

depreciation

answer

...consumption of fixed capital

question

net domestic product

answer

...subtract depreciation (consumption of fixed capital) from GDP. keeps economy's output from being overstated.

question

personal income

answer

...income directly and indirectly earned by household. spendable income includes:welfare and unemployment benefits

question

disposable income

answer

...actual amount to spend consumption+savings

question

nominal GDP

answer

...GDP not adjust for inflation. shows final value of Goods and Services.

question

price index

answer

a number that compares prices in one year with some earlier base year

question

CPI

answer

......measures changes in prices of goods in a specific market basket that consumers purchase.

question

per capita

answer

...per person

question

business cycle

answer

...the highs and lows of a the economy as people buy and sell goods and services

question

productivity

answer

real output/ input

question

peak

answer

...high point in economy. during growth

question

contraction

answer

...recession

question

trough

answer

...lowest point during economic contraction

question

recovery

answer

...economy expands moving from a trough to a peak

question

economic growth

answer

an increase in RGDP

question

rule of 70

answer

...70 / annual % rate of growth in economy = how long it will take for economy to double

question

labor force

answer

...people over 16 who: -are employed or actively seeking employment

question

unemployment rate

answer

# of employed / # in work force

question

discouraged workers

answer

unemployed people who have given up looking for a job

question

frictional unemployment

answer

...voluntary unemployment. short term as workers move from one job to another. as they look for a better opportunity

question

structural unemployment

answer

involuntary unemployment. change in the structure of an economy. Workers skill do not equal employers needs.

question

cyclical unemployment

answer

involuntary employment. caused by decrease in total spending in the economy. Businesses do not need as many workers to meet the demand.

question

natural rate of unemployment

answer

...3-5% unemployment. there is always structural and frictional unemployment

question

GDP gap

answer

forfeited output due to failure to create sufficient jobs

question

Okun's Law

answer

..., 1 percent more unemployment results in 2 percent less output

question

Inflation

answer

...increase in price level over time

question

Demand pull inflation

answer

...prices increase b/c consumer demand increase

question

Cost push inflation

answer

...prices increase b/c the cost of making a product increases

question

nominal vs. real income

answer

...nominal is not adjust for inflation. real is adjust for inflation

question

cost of living adjustments

answer

...extra money from the government or an employer to offset the impact of inflation. based on CPI or PPI

question

saving schedule

answer

..., indicates the amounts households plan to save at different income levels, given a price level

question

MPC, MPS

answer

...marginal propensity to consumer, marginal propensity to save.

question

Investment demand curve

answer

..., a curve that shows the amounts of investment demanded by an economy at a series of real interest rates

question

planned investment

answer

the amount that firms plan or intend to invest

question

aggregate expenditures

answer

The total amount of spending on final goods and services in the economy; consumption ( spend-ing by consumers), investment ( (spend-ingbyconsumers),investment( spending by business), spending by government, and net foreign spending on U. S. goods ( the difference between U. S. exports and U. S. imports).

question

equilibrium GDP

answer

the GDP at which the total quantity of final goods and services purchased is equal to the total quantity of final goods and services produced

question

Unplanned investment

answer

Occurs when actual sales are more or less that businesses expected, leading to unplanned changes in inventories.

question

expenditure multiplier (1/(1-MPC))

answer

...change in expenditure X multiplier = change in GDP

question

tax multiplier (-MPC/MPS)

answer

...Change in taxes X mulitplier = Change in GDP

question

C+I+G

answer

AD Equation

question

C+I+G+Xnet

answer

aggregate demand

question

balanced budget multiplier (always=1)

answer

... MPC + MPS

question

recessionary gap

answer

...operating below full employment . Unemployment > 5%

question

inflation gap

answer

...above equilibrium. inflation is probably >5%

question

lump sum tax

answer

A tax that is the same amount for every person.

question

aggregate demand

answer

...total amount of goods and services consumers are willing and able to consumer. C+I+G+Xn

question

real balances effect

answer

when a price increases, your buying power is decreased, causing you to buy less

question

interest rate effect

answer

as price level decreases consumers demand for money increases. ~interest rates (the price of money) increase ~increased interest rates cause investment components of aggregate demand to decrease

question

foreign purchases effect

answer

..., increase in the price level ( relative to foreign price level) will reduce US exports bc Us products are now more expensive for foreigners and epxand US imports bc foreign products are less expensive for Us consumers. as a consequence, net exports will decrease which means there wil a decrease in the quantity of good and services demanded in the US econony as the price level rises. a decrease in the price level will have opposite effect

question

aggregate supply

answer

...short run and long run. ASSR price changes with demand. can cause inflation. ASLR does not change with different price levels.

question

Horizontal range of AS

answer

Keynesian Range. (many unemployed resources.) Recession

question

Keynesian Range of AS

answer

Horizontal Range of AS

question

Intermediate range

answer

part of AS curve showing a healthy economy. approaching full employment. price and wages increase.

question

slopey part of AS

answer

Intermediate Range of AS

question

vertical or classical range

answer

...part of AS curve showing economy at full employment. Increased demand only results in higher prices. not in increased productivity.

question

factors of AS

answer

...

question

menu costs

answer

the cost to firms of changing prices

question

fiscal policy

answer

the government uses taxes and spending policies to battle economic problems.

question

budget deficit

answer

when the government spends more more money than it collects annually in taxes.

question

contractionary fiscal policy

answer

policy by the government to combat inflation. EX: increased personal income taxes and decreased government spending.

question

budget surplus

answer

when the government is receiving more money in taxes annually than it is spending.

question

built-in stabilizers

answer

...a change to the economy that occurs naturally and is not caused by government intervention.

question

progressive taxes

answer

..., A tax rate that increases as the amount of ones income increases

question

proportional taxes

answer

..., taxes that require all income groups to pay the same percentage of their income in taxes

question

regressive taxes

answer

an income tax whose rates decrease as income level rises

question

full employment budget

answer

... What the federal budget would be if the economy were producing at a full-employment level of output.

question

crowding out effect

answer

The government is demanding more from the loanable funds market. This increases interest rates which makes it more difficult for businesses and consumer to borrow from the loanable funds market.

question

supply-side economics

answer

...economic belief that any problem in the economy can be solved by lessening business taxes and regulation.

question

time lags

answer

periods between the time fiscal policy is enacted and the time it becomes effective

question

council of economic advisors

answer

..., established by Employment Act of 1946- advise the President on economic policy- 3 members, appointed by President and approved by Senate,

question

employment act of 1946

answer

..., Enacted by Truman, it committed the federal government to ensuring economic growth and established the Council of Economic Advisors to confer with the president and formulate policies for maintaining employment, production, and purchasing power

question

money

answer

the physical medium of exchange. must be portable, durable, scarce, and uniform

question

medium of exchange

answer

...money

question

unit of account

answer

...standard of value. (ex. a $200 car vs a $20,000 car)

question

store of value (wealth)

answer

stabilizes value of money. this allows for savings accounts.

question

M1

answer

smallest most liquid form of money includes: checkable/demand deposits, travelers checks, coins and currency NOT vault cash.

question

token money

answer

..., Bills or coins for which the amount printed on the currency bears no relationship to the value of the paper or metal embodied within it; for currency still circulating, money for which the face value exceeds the commodity value.

question

commodity money

answer

..., objects that have value in themselves and are also used as money

question

Fiat money

answer

money backed by federal government.

question

Checkable deposits

answer

..., are also known as demand deposits. These are checking accounts

question

time deposits

answer

if longterm deposit is worth more than initial investment

question

total demand for money

answer

..., the sum of the transactions demand for money and the asset demand for money.

question

transactions demand

answer

..., demand for money as a medium of exchange to make payments. The level varies directly with nominal GDP

question

asset demand

answer

the demand for money as a store of value instead of other assets such as certificates of deposit, corporate bonds or stocks

question

federal reserve system

answer

the central bank of the U.S.. Uses monetary policy to stabalize the economy. Act as the banker bank

question

Board of Governors (BOG)

answer

7 governors who are nominated by the president and confirmed by the senate. they serve 14 year terms. They make decisions for the Fed.

question

Federal Reserve Banks

answer

the 12 banks chartered by the U.S. government to control the money supply and perform other functions.

question

Fractional reserve system

answer

system requiring financial institutions to set aside a fraction of their deposits in the form of reserves

question

actual reserves

answer

Required Reserves plus Excess Reserves.

question

Federal funds rate

answer

the interest rate at which banks loan money to other banks

question

money multiplier

answer

shows how much a new deposit in the bank can impact the money supply (1/ reserve requirement)

question

required reserve ratio

answer

RRR, the amount of money each bank must keep by law from every dollar deposited in the bank. ($in vault)

question

excess reserves

answer

reserves that banks hold over and above the legal requirement

question

vault cash

answer

The currency a bank has in its vault and cash drawers.

question

monetary policy

answer

Federal Reserve Board's regulation of the supply of money in circulation.

question

open market operations

answer

..., the buying and selling of government securities to alter the supply of money

question

discount rate

answer

...the interest rate the Fed charges banks to borrow from the Fed in order to meet reserve requirements.

question

tight money

answer

..., the economic condition in which credit is difficult to secure and interest rates are high

question

velocity of money

answer

..., the rate at which money changes hands

question

MV= PQ

answer

the equation of exchange. M= the stock of money (M1) V= velocity of circulation P= average price level Q= quantity of G&S

question

Prime interest rate

answer

..., the lowest rate charged by a bank for a short-term loan

question

cyclical asymmetry

answer

..., When monetary policy is highly effective in slowing expansion and controlling inflation but much less reliable in pushing the economy from a recession

question

Gresham's Law

answer

..., states that bad money drives good money out of circulation

question

Factors of production

answer

Land, Labor, Capital, Entrepreneurship

question

absolute advantage

answer

country is best at making 2 products

question

comparative advantage

answer

country isn't as good at making a product, but has a lower opportunity cost at making one product.

question

labor intensive good

answer

A product requiring a relatively large amount of labor to be produced (Digital camera, DVD player etc)

question

land intensive good

answer

A product requiring a relatively large amount of land to be produced (Coffee, wheat etc)

question

capital intensive good

answer

A product that requires a relatively large amount of capital to be produced (automobiles, chemicals etc)

question

terms of trade

answer

an agreement regarding how much each product will cost in terms of other products being exchanged.

question

tariffs

answer

a tax on imported goods

question

revenue tariff

answer

a tariff imposed to raise revenue

question

protective tariff

answer

a tax on imported goods that raises the price of imports so people will buy domestic goods

question

import quota

answer

a limit on the amount of a good that can be imported

question

non-tariff barrier (NTB)

answer

..., all barriers other than protective tariffs that nations put in place to impede international trade. (ex: import quotas, licensing requirements, unreasonable product quality standards, etc)

question

Dumping

answer

..., Selling products in a foreign country at lower prices than those charged in the producing country

question

World Trade organization

answer

..., an international organization based in Geneva that monitors and enforces rules governing global trade

question

balance of payments

answer

the difference between the amount of money that comes into a country and the amount that goes out of it

question

current account

answer

In the balance of payments, this records transactions involving the export or import of goods and services

question

capital account

answer

a measure of the buying and selling of assets between countries. The assets are often separated to show assets that represent ownership and assets that represent lending

question

floating exchange rates

answer

Prices of different currencies move up and down based on the demand for and the supply of each currency

question

M2

answer

includes all M1 PLUS... ~Savings ~small time deposits (CDs)

question

easy money

answer

the economic condition in which credit is easy to secure

AP MACROECONOMICS FINAL EXAM Test Answers – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards