Principles Of Macroeconomics Final Exam Test Questions – Flashcards
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4 categories of resources
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1. Land and natural resources 2. Labor 3. Capital (physical) 4. Entrepreneurship
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Opportunity cost
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is the most highly valued opportunity or alternative forfeited when a choice is made
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Good
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is anything from which individuals receive utility or satisfaction
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Bad
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is anything from which individuals receive disutility or dissatisfaction
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Marginal benefits
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are the benefits connected to consuming an additional unit of a good or undertaking one more unit of an activity
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Marginal costs
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are the costs connected to consuming an additional unit of a good or undertaking one more unit of an activity
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Efficiency
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is getting the most out of scarce resources
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Diminishing marginal benefit
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the marginal benefit of a good or activity diminishes for each additional unit of the good or activity consumed
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Economics
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is the science of how individuals and societies manage scarce resources
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Scarcity
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is the condition in which wants are greater than the limited resources available to satisfy those wants
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Effects of scarcity
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People have to make choices, we need rationing devices, competition exists
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Ceteris paribus
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means "all other things held constant" or "nothing else changes"
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Positive economics
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the study of "what is" in economic matters
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Normative economics
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the study of "what should be" in economic matters
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Microeconomics
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deals with human behavior and choices as they relate to relatively small units
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Macroeconomics
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deals with human behavior and choices as they relate to highly aggregate markets or the entire economy
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Production possibilities frontier (PPF)
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represents the possible combinations of two goods that can be produced in a certain period of time under the conditions of a given state of technology and fully employed resources
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Efficient
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points on the PPF
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Inefficient
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points inside the PPF
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Unattainable
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points outside (beyond) the PPF
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Productive efficiency
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is the condition where the maximum output is produced with given resources and technology
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Productive inefficiency
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is the condition where less than the max output is produced with given resources and technology
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Calculate opportunity costs using a PPF
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20 corn costs 10 cupcakes: 20/20, 10/20 --> 1/2 (0.50) cupcakes
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Increasing opportunity cost
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the opportunity cost of a good increases as more of the good is produced - goods are specialized
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Constant opportunity cost
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the opportunity cost of a good remains the same regardless of how much of the good is produced - goods are not specialized
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Economic growth
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the increased productive capabilities of an economy
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Law of Demand
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as the price of a good rises, the quantity demanded of the good falls, and as the price of the good falls, the quantity demanded of the good rises, ceteris paribus
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Law of Supply
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as the price of a good rises, the quantity supplied of the good rises, and as the price of a good falls, the quantity supplied of the good falls, ceteris paribus
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Change in Quantity Demanded
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a movement from one point to another point on the same demand curve caused by a change in the price of the good
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Change in Demand
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a shift of an entire demand curve caused by a change in a factor other than the own price of the good
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Change in Quantity Supplied
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a movement from one point to another point of the same supply curve caused by a change in the own price of the good
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Change in Supply
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a shift of a supply curve caused by a change in a factor other than the price
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Equilibrium
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is the price-quantity combination from which there is no tendency for buyers or sellers to move away
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Factors that shift the demand curve
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income, preferences, prices of related goods, the number of buyers or expectations of future price
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Factors that shift the supply curve
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relevant resources, technology, prices of other goods, number of sellers, expectations of future price, taxes, subsidies, or government restrictions
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Shortages
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a condition in which quantity demanded is greater than quantity supplied
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Surpluses
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a condition in which quantity supplied is greater than quantity demanded
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Analyzing changes in equilibrium
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determine whether the supply curve or the demand curve shifts, decide in which direction the curve shifts, use a supply/demand graph to see how the shift changes equilibrium price and quantity
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Price ceiling
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government-mandated maximum price above which legal trades cannot be made
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Price floor
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a government-mandated minimum price below which legal trades cannot be made
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Effects of a price ceiling
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shortages, at the lower price more people are willing and able to buy but fewer are willing and able to sell
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Effects of a price floor
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surpluses, at the higher price more people are willing and able to sell but fewer are willing able to buy
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Consumer Price Index (CPI)
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the weighted average of prices of a specific set of goods and services purchased by a typical household
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Inflation rate
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is the percent change in the CPI
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Inflation rate equation
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Inflation rate = CPI later - CPI earlier / CPI earlier x 100(%)
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Employed
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persons who did any work for pay or profit during CPS survey, at least 15 hours of unpaid work in a family-operated enterprise, temporarily absent from their regular jobs because of illness
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Unemployed
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persons who did not have jobs during survey, made active efforts to find a job, were not working but waiting to be called back
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Not in Labor Force
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not working or looking for work
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Labor Force
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working or not currently working bu actively looking for work
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Unemployment rate
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the percentage of the civilian labor force that is unemployed: unemployed/labor force x 100(%)
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Frictional unemployment
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unemployment due to the natural "frictions" of the economy and is represented by qualified individuals the transferable skills
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Structural unemployment
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due to structural change sin the economy that eliminate some jobs and create other jobs for which the unemployed are unqualified
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Natural unemployment
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caused by frictional and structural factors in the economy
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Cyclical unemployment
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the difference between the existing unemployment rate and the natural unemployment rate
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Gross Domestic Product
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the total market value of all final goods and services produced annually within a country's borders
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Intermediate goods
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a good that is an input in the production of a final good
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Final goods
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a good sold to the final user or ultimate consumer
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What GDP omits
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certain non-market goods and services, underground activities, sales of used goods, financial transactions, leisure time, quality of the environment
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Expenditure approach
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economist sum the spending on final goods and services in four sectors of the economy
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Real GDP
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the value of GDP in base year dollars
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Nominal GDP
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the value of GDP in current dollars
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Economic growth rate
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Real GDP later year - Real GDP earlier year / Real GDP earlier year x 100 (%)
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Aggregate demand (AD)
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buying side of the economy, the quantity demanded of all goods and services (Real GDP) at different price levels, ceteris paribus
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Real balance effect
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the change in purchasing power of dollar-denominated assets that results from a change in the price level
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Interest rate effect
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the change in foreign sector spending as the price level changes
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Short-run aggregate supply (SRAS)
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production in the short-run; the quantity supplied of all goods and services (Real GDP) at different prices levels
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Change in Quantity Demanded of Real GDP
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caused by a change in the price level
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Change in Aggregate Demand
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caused by a change in a factor of aggregate demand
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Change in Quantity Supplied of Real GDP
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caused by a change in the price level
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Change in SRAS
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caused by a change in a factor of SRAS
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Analyzing changes in short-run equilibrium
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determine if AD, SRAS, or both curves shift, determine if curves shift rightward or leftward, graph the change to see what happens to short-run equilibrium price level, real GDP, and unemployment rate
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Long-run aggregate supply (LRAS) curve
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a vertical line at the level of natural real GDP
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Historical growth
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the average person's life was one of subsistence living
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Effect of Industrial Revolution on GDP
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rapid technology progress outpaced population growth (late 1700s to early 1800s)
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Economic Growth Formula
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%^ Nominal GDP - %^ Prices - %^ Population = %^ Per Capita Real GDP
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Rule of 70
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if the annual growth rate is X%, the size of that variable doubles every 70/X years
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Causes of economic growth
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resources, technology, institutions
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Resources
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natural, labor and effective labor, physical capital
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Natural resources
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farmland and coal in the US, oil in Saudi Arabia, lumber in Canada
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Effective Labor
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labor adjusted for training and education
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Labor
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workers in an economy
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Physical capital
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tools, equipment, and structures used in the production of goods and services
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Institutions
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significant practice, relationship, or organization in a society
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Important institutions for growth
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Private property rights, political stability and rule of law, competitive markets, international trade, flow of funds across borders, efficient taxes, stable money and prices
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Opportunity cost to education
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tends to be higher in poorer countries
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Brain drain
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occurs when skilled professionals emigrate out of a country
