Macro – Wissink – Prelim 1 – Flashcards
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capital
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things that are produced and then used in the production of other goods
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factors of production
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inputs into the process of production. Another term for resources.
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opportunity cost
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the best alternative that we give up, or forgo, when we make a decision
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comparative advantage
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a producer has a comparative advantage over another in the production of a good or service is he or she can produce the product at a lower opportunity cost
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absolute advantage
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a producer has an absolute advantage over another in the production of a good or sevice if he or she can produce that product using fewer resources
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production possibility frontier (ppf)
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a graph that shows all the combinations of goods and services that can be produced if all of society's resources are used efficiently
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marginal rate of transformation
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the slope of the ppf
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command economy
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an economy in which a central gov't either directly or indirectly sets output targets, incomes, and prices
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law of demand
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the negative relationship btw price and quantity demanded. as price rises, quantity demanded decreases; as price falls, quantity demanded increases
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normal goods
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goods for which demand goes up when income increases for which demand goes down when income is lower
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inferior goods
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goods for which demand tends to fall when income rises
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substitutes
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goods that can serve as replacements for one another, when the price for one increases, demand for the other increases
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complementary goods
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goods that "go together"; a decrease in the price of one results in an increase in demand for the other and vice versa
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shift of demand curve
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the change that takes place in a demand curve corresponding to a new relationship between quantity demanded of a good and price of that good. the shift is brought about by a change in the original conditions. change in DEMAND
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movement along demand curve
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the change in quantity demanded brought about by a change in price change in QUANTITY demanded
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law of supply
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the positive relationship between price and quantity of a good supplied: an increase in market price will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity supplied
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movement along supply curve
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the change in quantity supplied brought about by a change in price change in QUANTITY supplied
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shift of a supply curve
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the change that takes place in a supply curve corresponding to a new relationship between quantity supplied of a good and the price of that good. the shift is brought about by a change in the original conditions.
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market supply
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the sum of all that is supplied each period by all producers of a single product
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equilibrium
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the condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change quantity supplied = quantity demanded p. 66 graph
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price ceiling
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a maximums price that sellers may charge for a good, usually set by gov't
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price floor
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a minimum price below which exchange is not permitted e.g. minimum wage
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consumer surplus
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maximum $ person willing to pay for good - current market price
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producer surplus
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current market $ - cost of production
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aggregate output
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the total quantity of goods and services produced in an economy in a given period
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recession
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a period during which an aggregate output declines. Conventionally, a period in which aggregate output declines for two consecutive quarters
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depression
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a prolonged and deep recession
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expansion of boom
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the period in the business cycle from a trough up to a peak during which output and employment grow
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contraction, recession, or slump
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the period in the business cycle from a peak down to a trough during which output and employment fall
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unemployment rate
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the percentage of the labor force that is unemployed
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transfer payments
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cash payments made by the gov't to people who do not supply goods, services, or labor in exchange for these payments. They include Social Security benefits, and welfare payments
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dividends
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the portion of a firm's profits that the firm pays out each period to its shareholders
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monetary policy
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the tools used by the federal reserve to control the short-term interest rate
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fiscal policy
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gov't spending policies concerning taxes and spending
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stagflation
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a situation of both high unemployment and high inflation
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Gross Domestic Product
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total market value of all final goods and services produced within a given period by factors of production located within a country
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value added
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value of good as they leave a stage of production + cost of goods as they entered that stage
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Gross National Product
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the total market value of all final goods and services produced within a given period by factors of production owned by a country's citizens, regardless of where the output is produced
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expenditure approach
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a method of computing GDP that measures the total amount spent on all final goods and services during a given period GDP = C + I + G + (Ex-Im)
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income approach
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a method of computing GDP that measures the income - wages, rents, interests, and profits - received by all factors of production in producing final goods and services
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Personal consumption expenditures (C)
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Expenditures by consumers on goods and services includes: durable goods, nondurable goods, services
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durable goods
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goods that last a relatively long time, such as cars and household appliances
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nondurable goods
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goods that are used up fairly quickly, such as food and clothing
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services
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the things we buy that do not involve the production of physical things, such as legal and medical services and education
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Gross private domestic investment (I)
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the total investment in capital - that is, the purchase of new housing, plants, equipment, and inventory by the private (or non gov't) sector includes: nonresidential investment, residential investment, change in business inventories
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nonresidential investment
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expenditures by firms for machines, tools, plants, and so on
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residential investment
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expenditures by households and firms on new houses and apartment buildings
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change in business inventories
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the amount by which firms' inventories change during a period. Inventories are the goods that firms produce now but intend to sell later.
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gross investment
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the total value of all newly produced capital goods (plant, equipment, housing, and inventory) produced in a given period.
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net investment
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gross investment - depreciation
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depreciation
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the amount by which an asset's value falls in a given period
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Gross Consumption and Gross Investment (G)
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expenditures by federal, state, and local gov'ts for final goods and services
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Capital (end of period)
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= capital (beginning of period) + net investment
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Net Exports (Ex - Im)
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exports (sales to foreigners of US produced goods and services) - imports (US purchases of goods and services from abroad). Figure can be positive or negative
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Income Approach
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looks at GSDP in terms of who receives it as income rather than who purchases it compensation of employers + proprietor's income + rental income + corporate profits + net interest + (indirect taxes - subsidies) + Net business transfer payments + surplus of gov't enterprises
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national income
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the total income earned by the factors of production owned by a country's citizens
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proprietor's income
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the income of unincorporated businesses
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rental income
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the income received by property owners in the form of rent
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net interest
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the interest paid by business
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indirect taxes minus subsidies
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Net income received by the gov't taxes such as sales tax, customs, duties, and license fees subsidies that the gov't pays for which it receives no goods or services in return
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Net business transfer payments
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net transfer payments by businesses to others
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surplus of gov't enterprises
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income of gov't enterprises can be negative
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Net National Product (NNP)
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GNP - depreciation a nation's total product minus what is required to maintain the value of its stock
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disposable personal income aka after tax income
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personal income - personal income taxes amount household has to save or spend
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nominal GDP
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gross domestic production measured in current dollars
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base year
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the year chosen for the weights in a fixed-weight procedure
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weight
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the importance attached to an item within a group of items
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fixed-weight procedure
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a procedure that uses weights from a given base year
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informal economy
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the part of the economy in which transactions take place and in which income is generated that is unreported and therefore not counted in GDP
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Gross national income (GNI)
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GNP converted into dollars using an average of currency exchange rates over several years adjusted for rates of inflation
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employed
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1) any person 16 years or older who works for pay, either for someone else or in his or her own business for one or more hours per week 2) any person 16 years or older who works without pay for 15 or more hours per week in a family enterprise 3) any person 16 years or older who has a job but has been temporarily absent without pay
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unemployed
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a person who is 16 years old or older who is not working, is available for work, and has made specific efforts to find work during the previous 4 weeks
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labor force
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# of people employed + # of unemployed
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Not in labor force
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a person who is not looking for work bc he or she does not want a job or has given up looking
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unemployment rate
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# of people unemployed ------------------------ total # of people in labor force
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labor force participation rate
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# in labor force --------------- total population 16 years or older
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frictional unemployment
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the portion of unemployment that is due to the normal turnover in the labor market used to denote short-run job/skill matching problems
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structural unemployment
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the portion of unemployment that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries
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cyclical unemployment
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unemployment that is above frictional plus structural unemployment
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natural rate of unemployment
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the unemployment rate that occurs as a normal part of the functioning of the economy sometimes taken as the sum of the frictional unemployment rate and the structural unemployment rate
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Consumer Price Index (CPI)
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Price index computed each month using a bundle that is meant to represent the "market basket" purchased monthly by the typical urban consumer
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Producer Price Indexes (PPI)
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measures of prices that producers receive for products at various stages in the production process
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real interest rate
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interest rate on a loan - inflation rate
