Macroeconimics HW 1 – Flashcards
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The word "economy" comes from the Greek word oikonomos, which means
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the one who manages a household
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In considering how to allocate its scarce resources among its various members, a household considers
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Each member's abilities, each member's efforts, and each member's desires
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The overriding reason why households and societies face many decisions is that
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all resources are scarce.
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Economics is the study of
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how society manages its scarce resources.
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In most societies, resources are allocated by
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the combined actions of millions of households and firms.
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The phrase "no such thing as a free lunch" mean
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people must face tradeoff
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Guns and butter are used to represent the classic societal tradeoff between spending on
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national defense and consumer goods
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A typical society strives to get the most it can from its scare resources. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. In other words the society faces a tradeoff between
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efficiency and equality
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High school athletes who skip college to become professional athletes
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understand that the opportunity cost of attending college is very high
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Consider Paul's decision to go to college. If he goes to college, he will spend $90,000 on tuition, $15,000 on room and board, and $7,000 on books. If he does not go to college, he will earn $22,000 working at a construction job and he will spend $11,000 on room and board. Paul's cost of going to college is
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$123,000.
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rational people are make decisions at the margin by
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comparing marginal costs and marginal benefits
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people are likely to respond to a policy change
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if the policy changes either the cost or benefits of theri behavior
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The principle that "trade can make everyone better off" applies to interactions and trade between
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families, states within the US, and nations
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The basic principle of economics suggests that
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Government should become involved in markets when those markets fail to produce efficient or fair outcomes
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Prices direct economic activity in a market economy by
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influencing the actions of buyers and sellers
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One reason we need government, even in market economy, is that
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the invisible hand is not perfect
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The term used to describe a situation in which markets do not allocate resources efficiently is
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market falure
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The term productivity
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refers to the quantity of goods and services produced from each unit of labor input
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Large or persistent inflation is almost always caused by
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excessive growth in quantity of money
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Suppose the Federal Reserve announces it will be making a change in key interest to increase money supply. This is likely because
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The Federal Reserve is worried about unemployment.
