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macroeconomics > chapter 1 > Flashcards

chapter 1 Flashcards

1
Q

why can households reflect the economy?

A

they face many decisions about the allocation of scare resources

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2
Q

what are some examples of scare resources?

A

monetary resources (anything that can be bought)
time resources

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3
Q

why is the management of an economies resources important?

A

because resources are scarce

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4
Q

define scarcity?

A

resources are limited and therefore society cannot produce all the goods and services its people desire

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5
Q

define economics?

A

the study of how a society manages its scare resources

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6
Q

what prevents everyone from obtaining the highest standard of living?

A

scarcity

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7
Q

what do economists study?

A

they study how people make decisions and the results of those decisions

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8
Q

what are 3 decisions that people make that economists would care about ?

A

how much people work
how much people consume
how much people save

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9
Q

what are 3 wider scale things that economists analyze?

A

average income growth
unemployment rate
inflation

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10
Q

what are economists as policy advisors typically asked?

A

to explain why or what causes certain economic events, and either how to avoid or move towards that economic event or situation

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11
Q

what is an example of an economic event?

A

bust or boom economic cycles

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12
Q

what is a normative analysis?

A

attempts to explain or offer how the world should be

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13
Q

what is a positive analysis?

A

attempts to explain or describe the world as it is

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14
Q

what is an example of a positive analysis?

A

minimum wage laws causes unemployment

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15
Q

what is an example of a normative analysis?

A

government should raise the minimum wage to increase the standard of living

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16
Q

in the real world do people tend to muddy the water between positive or normative analysis?

A

yes

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17
Q

what are the 10 principles of economics?

A

people face trade-offs
opportunity cost
rational people live at the margins
people respond to incentives
trade can make everyone better

market economy is typically a good way to organize economic activity

government defines the rules of the game within the market economy

a nations standard of living depends on its ability to produce goods and services

prices rise when the government prints to much money

society faces a trade off in the short run between inflation and unemployment

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18
Q

explain the first economic principle: people face trade offs?

A

the first principle: means that people make trade-offs in every decisions that make. typically to get one thing they must give up another in return

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19
Q

what happens to the trade offs people make when they are grouped in to societies?

A

they face different kinds of trade offs

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20
Q

what is an example of a trade off society could face?

A

the guns and butter trade off

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21
Q

what is the guns and butter trade off?

A

a country that spends more on national defence (guns) to protect itself from war will have less they can spend on consumable goods (butter)

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22
Q

how does the guns and butter trade off impact the standard of living?

A

less national defence means more disposable income, therefore there is a higher standard of living of the people within society

more national defence means less disposable income, therefore lower standard of living but more national defence

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23
Q

why is disposable income important in society?

A

normally the more disposable income a society has the higher the standard of living is

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24
Q

what is efficiency?

A

a society maximizing the usage or utility of its sacred resources

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25
Q

what is equity?

A

distributing economic prosperity fairly among members of society

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26
Q

why does society face a trade off between efficiency and equity?

A

because when government policies are designed these 2 goals often conflict

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27
Q

what is opportunity cost?

A

value of the next best alternative that is given up when making a decision

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28
Q

what is an example of opportunity cost?

A

if you allocate 1 hour of your time to studying your opportunity cost is 1 less hour you can allocate you something else you want to do

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29
Q

what are rational people?

A

people who systematically and purposefully do the best they can to achieve their objective

30
Q

what are marginal changes?

A

small incremental adjustments to a plan of action

31
Q

when do rational decision makers take action?

A

if and only if the marginal benefit of that action exceeds its marginal cost

32
Q

what are incentives?

A

something that induces a person to act

33
Q

what should policy makers always consider when assessing the cost or benefits of a public policy?

A

the incentives

34
Q

what is the law of unintended consequences?

A

the idea that the actions of people or governments always have effects that are unanticipated or unintended

35
Q

what is an example of the law of unintended consequences?

A

when seat belt laws were introduced to make drivers safer, this was true drivers were more safe when wearing a seat belt but this lead to people driving more recklessly, the seatbelts reduced the cost (injury) of accidents but increased the amount of accidents

36
Q

how does trade make everyone better?

A

because countries can specialize in producing what they do best but they can still enjoy a large variety of goods and services through trade

37
Q

what is a market economy?

A

an economy that allocates resources through decentralized decisions made by firms as they interact in the market for goods and services

38
Q

why does individual evaluation help the market?

A

it allows the prices to adjust naturally to the current economic situation without great delays

39
Q

what are the 2 reasons we have government in the market?

A

to enforce rules and maintain institutions that are key to a market economy

to promote efficiency and equity to control market failures

40
Q

what is a key rule to maintaining a market economy?

A

protection of property rights

41
Q

what are property rights?

A

the ability of an individuals to own and exercise control of scarce resources

42
Q

what is an example of property rights being important to the market?

A

farmers won’t grow crops if they expect them to get stolen, this would lead to massive food shortages

43
Q

why is it important for the government to promote efficiency and equity?

A

because market failures occur so promoting efficiency and equity can help correct those market failures

44
Q

what is the definition of a market failure?

A

occurs when a market fails to allocate resources efficiently on its own

45
Q

what are the 3 reasons for market failures?

A

imperfect competition
asymmetric information (imperfect information)
externalities

46
Q

why is imperfect competition a market failure?

A

because imperfect or un-naturally occurring forms of competition such as collusion can stop the market from operating efficiently

47
Q

why is asymmetric information a market failure?

A

because the demand might be different if the customers knew the full information. eg. apple having harmful metals in their Iphones customers demand for the iPhone would go down

48
Q

why are externalities a market failure?

A

because with externalities they either produce to much of a negate externality or not produce enough of a positive externality, therefore producing a high social cost or not maximizing social benefit

49
Q

define productivity?

A

the quantity of goods and services that can be produced from each hour of work

50
Q

why is a country standard of living tied to its productivity?

A

productivity allows for a greater variety of good and services in the country also for the excess goods and services to be exported to raise income that would lead to a higher standard of living

51
Q

what is inflation?

A

an increase in the overall price of goods and services in the economy

52
Q

what are 4 factors that cause inflation?

A

pull-inflation
supply shock (supply shortage)
push-inflation
monetary factors

53
Q

what is pull-inflation?

A

when consumer demand exceeds supply of some good or service, this causes prices to go up

54
Q

what can cause pull-inflation?

A

higher amounts of disposable income

55
Q

what is supply shock?

A

there is a shortage in supply of a desired good

56
Q

what is push inflation?

A

when suppliers experience an increase in the price of production, making the consumers pay more due to their production price increase

57
Q

what are 3 causes of push inflation?

A

higher price of raw input materials
higher wages of workers
higher taxes

58
Q

what is the monetary factor that causes inflation?

A

central bank increasing existing money supply

59
Q

what are 2 ways the central bank can change money supply?

A

changing the policy rate
quantitative easing

60
Q

how does changing the policy rate impact money supply?

A

changing the policy rate will change the amount that people borrow and spend money, incresing the rate will cause less borrowing, spending and more saving. and decreasing the rate will casue more spending, investing and borrowing, and will casue less saving

61
Q

what is quantitative easing?

A

when the central bank promotes economic activity by buying a range of financial assets in the market

62
Q

how does quantitative easing change the money supply?

A

its provides commercial banks with more liquidity for lending and encourages borrowing and investing in the market due to an increase in money supply

63
Q

what is normally the reason for long and persistent inflation?

A

monetary factors

64
Q

what will a growth in money supply lead to a growth in what?

A

it will lead to a growth in GDP

65
Q

what is the average rate that banks aim to keep the policy rate at?

A

2%, this is to match the ideal economic growth of 2%

66
Q

what 3 things generally occur when increasing the money supply?

A

higher demand for goods and services
higher inflation
lower unemployment rate

67
Q

why does society face a trade off between inflation and unemployment?

A

because when they stimulate the economy to create jobs that will lead to inflation but when they try to cut inflation by slowing the economy that will lead to unemployment

68
Q

what can policy makers use to exploit these short-run tradeoffs regardless of where the economy is at?

A

monetary policy and fiscal policy

69
Q

what plays an important role in the analysis of the business cycle?

A

the short run trade of between unemployment and inflation

70
Q

what is a business cycle?

A

the irregular and largely unpredictable fluctuations in economic activity measured by the GDP or number of workers employed

71
Q

what is an example of policy makers facing the trade off between unemployment and inflation?

A

during covid when they decided to send out stimulus packages, there was more disposable income so the demand for goods and services went up, this resulted in lower unemployment rates but higher inflation

macroeconomics (13 decks)

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