Macroeconomic EXAM 1 chapters 1-7 – Flashcards
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Aggregate Demand
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The relationship between the total quantity of goods and services demanded (from all the four sources of demand) and the price level, all other determinants of spending unchanged.
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Aggregate Demand Curve
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A graphical representation of aggregate demand.
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Change In Aggregate Demand
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Change in the aggregate quantity of goods and services demanded at every price level.
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Change In Short-Run Aggregate Supply
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A change in the aggregate quantity of goods and services supplied at every price level in the short run.
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Change In The Aggregate Quantity Of Goods And Services Demanded
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Movement along an aggregate demand curve.
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Change In The Aggregate Quantity Of Goods And Services Supplied
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Movement along the short-run aggregate supply curve.
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Contractionary Policy
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A stabilization policy designed to reduce real GDP.
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Exchange Rate
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The price of a currency in terms of another currency or currencies.
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Expansionary Policy
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A stabilization policy designed to increase real GDP.
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Fiscal Policy
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The use of government purchases, transfer payments, and taxes to influence the level of economic activity.
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Inflationary Gap
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The gap between the level of real GDP and potential output, when real GDP is greater than potential.
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Interest Rate Effect
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The tendency for a change in the price level to affect the interest rate and thus to affect the quantity of investment demanded.
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International Trade Effect
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The tendency for a change in the price level to affect net exports.
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Long Run
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In macroeconomic analysis, a period in which wages and prices are flexible.
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Long-Run Aggregate Supply (LRAS) Curve
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A graphical representation that relates the level of output produced by firms to the price level in the long run.
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Monetary Policy
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The use of central bank policies to influence the level of economic activity.
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Multiplier
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The ratio of the change in the quantity of real GDP demanded at each price level to the initial change in one or more components of aggregate demand that produced it.
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Nonintervention Policy
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A policy to take no action to try to close a recessionary or an inflationary gap, but to allow the economy to adjust on its own to its potential output.
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Potential Output
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The level of output an economy can achieve when labor is employed at its natural level.
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Recessionary Gap
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The gap between the level of real GDP and potential output, when real GDP is less than potential.
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Short Run
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In macroeconomic analysis, a period in which wages and some other prices are sticky and do not respond to changes in economic conditions.
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Short-Run Aggregate Supply (SRAS) Curve
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A graphical representation of the relationship between production and the price level in the short run.
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Stabilization Policy
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A policy in which the government or central bank acts to move the economy to its potential output.
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Sticky Price
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A price that is slow to adjust to its equilibrium level, creating sustained periods of shortage or surplus.
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Wealth Effect
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The tendency for a change in the price level to affect real wealth and thus alter consumption.
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Business Cycle
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The economy's pattern of expansion, then contraction, then expansion again.
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Expansion
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A sustained period in which real GDP is rising.
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Nominal GDP
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The total value of final goods and services for a particular period valued in terms of prices for that period.
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Peak
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The point of the business cycle at which an expansion ends and a recession begins.
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Real GDP
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The total value of all final goods and services produced during a particular year or period, adjusted to eliminate the effects of changes in prices.
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Recession
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A sustained period in which real GDP is falling.
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Trough
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The point of the business cycle at which a recession ends and an expansion begins.
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Base Period
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A time period against which costs of the market basket in other periods will be compared in computing a price index.
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Consumer Price Index (CPI)
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A price index whose movement reflects changes in the prices of goods and services typically purchased by consumers.
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Deflation
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A decrease in the average level of prices.
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Hyperinflation
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An inflation rate in excess of 200% per year.
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Implicit Price Deflator
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A price index for all final goods and services produced; it is the ratio of nominal GDP to real GDP.
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Inflation
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An increase in the average level of prices.
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Nominal Value
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A value expressed in dollars of the current period.
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Personal Consumption Expenditures Price Index
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A price index that includes durable goods, nondurable goods, and services and is provided along with estimates for prices of each component of consumption spending.
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Price Index
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A number whose movement reflects movement in the average level of prices.
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Real Value
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A value expressed in units of constant purchasing power.
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Cyclical Unemployment
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Unemployment in excess of the unemployment that exists at the natural level of employment.
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Frictional Unemployment
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Unemployment that occurs because it takes time for employers and workers to find each other.
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Labor Force
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The total number of people working or unemployed.
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Natural Level Of Employment
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The employment level at which the quantity of labor demanded equals the quantity supplied.
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Natural Rate Of Unemployment
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The rate of unemployment consistent with the natural level of employment.
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Structural Unemployment
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Unemployment that results from a mismatch between worker qualifications and the characteristics employers require.
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Unemployment Rate
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The percentage of the labor force that is unemployed.
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Depreciation
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A measure of the amount of capital that wears out or becomes obsolete during a period.
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Direct Taxes
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Taxes imposed directly on income.
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Disposable Personal Income
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The income households have available to spend on goods and services.
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Exports
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Sales of a country's goods and services to buyers in the rest of the world during a particular time period.
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Flow Variable
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A variable that is measured over a specific period of time.
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Government Purchases
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The sum of purchases of goods and services from firms by government agencies plus the total value of output produced by government agencies themselves during a time period.
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Gross Domestic Income (GDI)
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The total income generated in an economy by the production of final goods and services during a particular period.
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Gross National Product (GNP)
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The total value of final goods and services produced during a particular period with factors of production owned by the residents of a particular country.
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Gross Private Domestic Investment
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The value of all goods produced during a period for use in the production of other goods and services.
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Imports
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Purchases of foreign-produced goods and services by a country's residents during a period.
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Indirect Taxes
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Taxes imposed on the production or sale of goods and services or on other business activity.
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Net Exports
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Exports minus imports.
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Per Capita Real GNP Or GDP
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A country's real GNP or GDP divided by its population.
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Personal Consumption
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A flow variable that measures the value of goods and services purchased by households during a time period.
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Stock Variable
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A variable that is independent of time.
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Trade Deficit
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Negative net exports.
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Trade Surplus
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Positive net exports.
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Transfer Payments
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Payments that do not require the recipient to produce a good or service in order to receive them.
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Value Added
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The amount by which the value of a firm's output exceeds the value of the goods and services the firm purchases from other firms.
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Economic Growth
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The process through which an economy achieves an outward shift in its production possibilities curve
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Market Capitalist Economy
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Economy in which resources are generally owned by private individuals who have the power to make decisions about their use
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Command Socialist Economy
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Economy in which government is the primary owner of capital and natural resources and has broad power to allocate the use of factors of production
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Mixed Economies
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Economy that combine elements of market capitalist and of connamd socialist economic systems
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Markets
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The institutions that bring together buyers and sellers
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Quantity Demanded
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The quantity buyers are willing and able to buy of a good or service at a a particular price during a particular period, all other things unchanged
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Demand Schedule
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a table that shows the quantites of a good or service demanded at different prices during a particular period, all other things unchanged
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Demand Curve
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A graphical representation of a demand schedule
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Change in Quantity Demanded
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A movement along a demand curve that results from a change in price
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Law of Demand
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For virtualy all goods and services, a higher price leads to a reduction in quantity demanded and a lower price leads to an increase in quantity demanded
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Change in Demand
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A shift in a demand curve
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Demand Shifter
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A variable that can change the quantity of a good or service demanded at each price
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Complements
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Two good for which an increase in price of one reduces the demand for the other
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Substitutes
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Two goods for which an increase in price of one increases the demand for the other
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Normal Good
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A good for which demand increased when income increases
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Inferior Good
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a good for which demand decreases when income increases
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Quantity Supplied
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The quantity sellers are willing to sell of a good or services at a particular price during a particular period, all other things unchanged
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Supply Schedule
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a table that shows quantites supplied at different prices during a particular period, all other things unchanged
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Supply Curve
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A graphical representation of a supply schedule
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Change in Quantity Supplied
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Movement along the supply curve caused by a change in price
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Change in Supply
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A shift in the supply curve
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Supply Shifter
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A variable that can change the quantity of a good or service supplied at each price
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Model of Demand and Supply
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Model that uses demand and supply curves to explain the determination of price and quantity in a market
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Equilibrium Price
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The price at which quantity demanded equals quantity supplied
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Equilibrium Quantity
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The quantity demanded and supplied at the equilibrium price
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Surplus
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The amount by which the quantity supplied exceeds the quantity demanded at the current price
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Shortage
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The amount by which the quantity demanded exceeds the quantity supplied at the current price
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Circular Flow Model
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Model that provides a look at how markets work and how they are related to each other
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Product Markets
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Markets in which firms supply goods and services demanded by households
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Factor Markets
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Markets in which households supply factors of production-labor, capital, and natural. resources--demanded by firms
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Production Possibilities Model
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Model that shows the good and services that an economy is capable of producing, given the factors of production and the technology it has available
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Economic System
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The set of rules that define how an economy's resources are to be owned and how decisions about their use are to be made
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Factors of Production
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The resources available to the economy for the production of goods and services
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Utility
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The value, or satisfaction, that people derive from the goods and services they consume and the activities they pursue
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Labor
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The human effort that can be applied to the production of goods and services
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Capital
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A factor of production that has been produced for use in the production of other goods and services
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Natural resources
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The resources of nature thatcan be used for the production of goods and services
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Human Capital
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The skills a worker has as a result of education, training, or experience that can be used in production
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Financial Capital
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Includes money and other "paper" assets (such as stocks and bonds) that represent claims on future payments
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Technology
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The knowledge that can be applied to the production of goods and services
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Entrepreneur
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a person who, operating within the context of a market economy, seeeks to earn profits by finding new ways to organize factors of production
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Production Possibilities Curve
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A graphical representation of the alternative combinations of goods and services an economy can produce
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Comparative Advantage
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In producing a good or service, the situation that occurs if the opportunity cost of producing that good or service is lower for that economy than for any other
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Law of Increasing Opportunity Cost
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As an economy moves along its production possibilities curve in the direction of producing more of a particular good, the opportunity cost of additional units of that good will increase
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Full Employment
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Situation in which all the factors of production that are available for use under current market conditions are being utilized
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Efficient Production
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When an economy is operating on its production possibilities curve
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Inefficient Production
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Situation in which the economy is using the same quantites of factors of production but is operating inside its production possibilities curve
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Specialization
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Situation in which an economy is producing the goods and services in which it has a comparative advantage
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economic growth
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The process which an economy achieves an outward shift in its production possibilities curve
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Economics
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A social science that examines how people choose among the alternatives available to them
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Scarcity
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The condition of having to choose among alternatives
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Scarce Good
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A good for which the choice of one alternative requires that another be given up
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Free Good
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A good for which the choice of one use does not require that another be given up
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Opportunity Cost
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The value of the best alternative forgone in making any choice
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Margin
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The current level of an activity
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Choice at the Margin
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A decision to do a little more or a little less of something
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Microeconomics
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The branch of economics that focuses on the choices made by consumers and firms and the impacts those choices have on individual markets
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Macroeconomics
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The branch of economics that focuses on the impact of choices on the total, or aggregate, level of economic activity
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Variable
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Something whose value can change
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Constant
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Something whose value does not change
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Scientific Method
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A systematic set of procedures through which knowledge is created
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Hypothesis
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An assertion of a relationship between two or more variables that could be proven to be false
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Theory
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A hypothesis that has not been rejected after widespread testing and that wins general acceptance
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Law
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A theory that has been subjected to even more testing and that has won virtually universal acceptance
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Model
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A set of simplifying assumptions about some aspect of the real world
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Certeris Paribus
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A lating phrase that means "all other things unchanged"
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Dependent Variable
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A variable that responds to change
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Independent Variable
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A variable that induces a change
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Fallacy of False Cause
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The incorrect assumption that one event causes another because the two events tend to occur together
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Positive Statement
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A statement of fact or a hypothesis
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Normative Statement
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A statement that makes a value judgment
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Sole proprietorship
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A firm owned by one individual
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Partnership
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A firm owned by several individuals
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corporation
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A firm owned by shareholders who own stock in the firm
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Corporate stock
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Shares in the ownership of a corporation
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Stock market
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The set of institutions in which shares of stock are bought and sold
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retained earnings
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profits kept by a company
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dividends
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profits distributed to shareholders
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price floor
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a minimum allowable price set above the equilibrium price
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price ceiling
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a maximum allowable price
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third-party payer
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An agent other than the seller or the buyer who pays part of the price of a good or service.
