Econ Comps Flashcards
1
Q
What are factors of production?
A
Factors of production are the inputs available to supply goods and services in an economy. It includes land, labor, capital, and enterprise.
2
Q
What is scarcity?
A
We have limited resources and unlimited wants. We don’t have enough of everything to go around.
3
Q
Why does scarcity make choices necessary?
A
We have to find a way to solve the problem of not having many resources as we would like. In society, we pick a way to distribute resources (allocate)
4
Q
What are economic goods?
A
Something that is wanted and limited
5
Q
What are two characteristics of economic goods?
A
1) rivalrous/non-rivalrous
2) excludable/nonexcludable
6
Q
What is opportunity costs?
A
When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you cannot spend the money on something else.
7
Q
What do incentives do?
A
Economic incentives are what motivates you to behave in a certain way. Economic incentives provide you the motivation to pursue your preferences.
For example, let’s say you want wealth. You are motivated to work because you will be paid, which will help you achieve your preference for accumulating wealth.
8
Q
What is marginal analysis? What is meant by “thinking on the margin”?
A
It is the examination of the costs and benefits of a marginal (small) change in the production of goods or an additional unit of an input or good. Marginal analysis allows business owners to measure the additional benefits of one production activity versus its costs.
Thinking on the margin means to let the past go and to think forward to the next hour, day, year, or dollar that you expend in time or money. What’s better for you now or in the next few minutes?
9
Q
What is the theory of consumer choice?
A
?
The theory of consumer choice is the branch of microeconomics that relates preferences to consumption expenditures and to consumer demand curves.
The theory of consumer choice addresses the following questions:
Do all demand curves slope downward?
How do wages affect labor supply?
How do interest rates affect household saving?
10
Q
What is total utility?
A
The overall amount of satisfaction achieved by a consumer due to the purchase and use of a particular item or service.
11
Q
What is marginal utility?
A
Marginal utility refers to the satisfaction gained from an extra unit consumed.
12
Q
How is total utility calculated?
A
.
13
Q
How is marginal utility calculated?
A
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14
Q
What is diminishing marginal utility?
A
As a person gets more units of something, the additional satisfaction from each extra unit decreases
15
Q
How is diminishing marginal utility different from diminishing marginal returns?
A
First increment of resources used to something is most productive.
Law of diminishing marginal returns is used to refer to a point at which the level of profits or benefits gained is less than the amount of money or energy invested.
16
Q
How does one weigh marginal costs and marginal benefits to make a good choice?
A
Additional units of a good should be produced as long as marginal benefit exceeds marginal cost.
Marginal benefit refers to what people are willing to give up in order to obtain one more unit of a good, while marginal cost refers to the value of what is given up in order to produce that additional unit.
17
Q
What does production possibility curves show?
A
Shows the possible combination of two goods that can be produced by an entity given resources, available tech, and institutions (e.g., laws, culture). Show trade offs (what you give up to get something else).
18
Q
What causes production possibility curves to shift?
A
1) change in size of the labor force
2) change in the quantity/quality of capital (more capital available to produce goods, the more goods that can be produced.)
3) change in quantity/quality of resources (more and better resource create more goods)
4) change in technology (improved technology produces goods faster and more efficiently)
5) health (healthier economies have more citizens in the work force as well as stronger workers)
6) education (smarter economies create faster, better ways of producing goods)
19
Q
What is absolute advantage? What is comparative advantage?
A
Absolute advantage: one person/country is better at doing an activity than another person or country
Comparative advantage: one person or country can do an activity with a lower opportunity costs than the other
20
Q
Economic Systems: What are 3 fundamental questions?
A
1) What to make
2) How to make it
3) Who’s going to make it
21
Q
What are characteristics of marked economic systems?
A
1) limited government
2) economic decisions are made by buyers and sellers, not the government
3) a competitive market economy promotes efficient use of resources
22
Q
What are characteristics of mixed economic systems?
A
A mixed economy consists of both private companies and government/state-owned entities. Both have control of owning, making, selling, and exchanging goods in the country.
1) ownership of goods by both private and government/state-owned entities.
2) monopolies have the potential to occur in this type of economy, but the government closely monitors this.
3) the government can control some parts but not all (e.g., government may control health care and/or welfare)
23
Q
What are characteristics of command economic systems?
A
The government controls all of the decisions for owning, making, issuing, and exchanging goods.’
24
Q
What is the law of demand?
A
As price goes up, quantity demanded goes down
25
Why is the demand curve downward sloping?
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26
What are 6 determinants (shifters) of demand?
1) expectation of future price
2) price of related good
3) tastes of prefs
4) income
5) normal goods: goods for which demand increases as consumers' incomoes increase
6) inferior goods for which demand decreases as income increase
27
How do determinants (shifters) change the quantity demanded of a good at every price?
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28
What are substitutes and complements?
Substitute: a product or service that a consumer sees as the same or similar to another product. In the formal language of economics, X and Y are substitutes if the demand for X increases when the price of Y increases (e.g., substituting a Fuji apple for a Gala apple)
Complementary goods: a good whose use is related to the use of an associated or paired good. Two goods (A and B) are complementary if using more of good A requires the use of more of good B. (e.g., When you go to Best Buy to get a new computer, what usually happens? You end up buying some software or programs to go with it.)
29
What are inferior goods and normal goods?
A normal good is any good that increases in demand when income increases (e.g., organic pasta)
An inferior good is a type of good that decreases in demand when income rises (e.g., cheap cars)
30
Explain the difference between change in demand and change in quantity demanded
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31
What is elasticity of demand?
measures responsiveness of consumers to change in price of good
32
How is elasticity of demand calculated? After calculating elasticity of demand, how can you tell if the answer is elastic, inelastic, or unit elastic?
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33
What determines the elasticity of demand?
Closeness of substitutes
34
What is the law of supply?
ceteris paribus as price increases, quantity supplied also increases
35
How does the law of supply explain why the supply curve is upward sloping?
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36
What are 4 determinants (shifters) of supply?
1) change in productivity
2) change in price of resources
3) change in productivity/tech/innovations
4) change in opportunity cost of producing the good (change in appeal of producing substitutes in something else)
37
How do determinants (shifters) change the quantity supplied of the good at every price?
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38
Explain the difference between change in supply vs. change in quantity supplied
?
change in supply: the whole set of data points
quantity supplied: amount producer is willing to supply at a given price shifter price
39
How is elasticity of supply calculated?
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40
After calculating elasticity of supply, how can you tell if the answer is elastic, inelastic, or unit elastic?
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41
What determines elasticity of supply?
There are numerous factors that directly impact the elasticity of supply for a good including stock, time period, availability of substitutes, and spare capacity.
42
Explain how supply and demand determine price; shortages or surpluses when the price is too low or too high.
The supply and demand model states that the price of a good will be the level where the quantity demanded equals the quantity supplied. There is never a surplus or shortage of goods at the equilibrium level.
If a price for a particular product goes up, demand will be reduced for that product.
In a perfectly competitive market, a shortage in supply will lead to a higher price point due to the limited supply availability. Surpluses will lead to a lower price point.
43
What two things are equal in equilibrium?
Forces of supply and demand are balanced
44
How do price signals tell consumers and producers how to make good choices about the use of resources? (Think about the gas prices and oil refinery example I gave you in class.)
A price signal is information conveyed to consumers and producers, via the price charged for a product or service, which provides a signal to increase/decrease supply and/or increase/decrease demand for the priced item.
45
How is consumer surplus and producer surplus calculated?
?
consumer surplus: extra value to consumers who pay less for good than they are willing to pay
producer surplus: extra value to producers who receive more for good than they are willing to sell for
46
What are price floors?
Mandated minimum price for good. Illegal to sell good at lower price.
47
What are ceilings?
A price ceiling is a government-imposed price control or limit on how high a price is charged for a product. Governments intend price ceilings to protect consumers from conditions that could make necessary commodities unattainable
48
How do price floors and ceilings create shortages/surpluses?
When the price ceiling is set below the market price, there will be a shortage. Producers won't produce as much at the lower price, while consumers will demand more because the goods are cheaper.
When price ceilings are set above the market price, then there is a possibility that there will be a shortage or a surplus. If this happens, producers who can't foresee trouble ahead will produce the larger quantity where the new price intersects their supply curve. Unbeknownst to them, consumers will not buy that many goods at the higher price and so those goods will go unsold.
49
Costs of production. How are the following graphed? (Be familiar with the relationships between the curves as well.)
1) TC
2) TVC or VC
3) TFC or FC
4) ATC
5) AVC
6) AFC
7) MC
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50
What is TR? MR? How can profit be identified?
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51
What are economies of scale (graphically with LRATC)?
?
| spreading fixed costs, advertising, big capital
52
If given change in ATC, how can one identify EOS, CRS, or DOS?
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53
What is the profit maximizing rule?
The general rule is that firm maximizes profit by producing that quantity of output where marginal revenue equals marginal costs. MC (the change in costs caused by making a new item) = MR (the change in revenue by making a new item)
54
What is the differences between accounting and economic profit?
Economic profit consists of revenue minus implicit (opportunity) and explicit (monetary) costs. Economic profit = total revenue - (explicit costs + implicit costs)
Accounting profit consists of revenue minus explicit costs. (implicit costs is not considered). Accounting profit = total monetary revenue- total costs.
55
What is normal profit?
Zero economic profit. The accounting profit a firm makes equals the firm's opportunity cost.
56
What are the characteristics of perfect competition? (Name four)
1) a large number of small firms,
2) identical products sold by all firms
3) perfect resource mobility or the freedom of entry into and exit out of the industry
4) perfect knowledge of prices and technology.
57
What is profit maximization?
The ability for company to achieve a maximum profit with low operating expenses.
The calculation for profit maximization is: the number of units where MR = MC.
58
How is MR=MC shown on a graph? How can you find the MR=MC output if you are given a table of numbers?
.
59
What is short run economic profits?
A firm in a perfectly competitive market may generate a profit in the short-run, but in the long-run it will have economic profits of zero.
60
How can you determine if short run profit conditions are positive, negative, or zero?
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61
Short run business decisions:
| How can you tell if a firm will stay in business, shut down, or is at the shut down point?
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62
What does the short run to long run adjustment flowchart look like?
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63
What does long run equilibrium look like graphically?
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64
What are allocative and productive efficiency?
allocative efficiency - producing the amount of the good that society wants
productive efficiency - firm produces lowest ATC
65
What are the characteristics of a monopoly?
1) a single firm selling all output in a market
2) a unique product
3) restrictions on entry into and exit out of the industry, and more often than not
4) specialized information about production techniques unavailable to other potential producers.
66
Monopoly: What are barriers to entry?
Barriers to entry are factors that prevent or make it difficult for new firms to enter a market. Examples include patents, copyrights, government licenses, exclusive ownership of resources, economies of scale.
67
What is natural monopoly?
A monopoly that exists if economies of scale are huge for the production of that good. The market demand for the good is unable to sustain more than one firm at the minimum efficient scale (MES). Examples are utility companies and telephone companies.
68
What is profit maximization? What does it look like on a graph with numbers?
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69
What are economic profits in the short run? What does it look like graphically?
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70
What is long run equilibrium? What does it look like graphically?
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71
What are allocative and productive efficiency?
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72
What is monopolistic competition?
A monopolistic competition exists when we've got multiple sellers who are attempting to seem different than their competitors, and it's this difference that makes you, the consumer, want to buy their specific product.
Example: While everyone may be selling white t-shirts, in a monopolistic competition, each seller is attempting to achieve profits by convincing the consumer (you) that their white t-shirt is better than that which the other competitors are selling. They can do this in a number of ways. These can include arguing that their shirts are of a better quality, that they won't shrink, or that they have no tags. They might even argue their t-shirt's quality simply on the basis of their brand name.
73
What are the characteristics of monopolistic competition? Name six.
1) Product differentiation.
2) Many firms.
3) No entry and exit cost in the long run.
4) Independent decision making.
5) Same degree of market power.
6) Buyers and Sellers do not have perfect information (Imperfect Information)
74
What is oligopoly?
An oligopoly exists when there are only a few, large competitors in the market (e.g., airlines, phone providers)
75
What are the characteristics of oligopoly?
1) an industry dominated by a small number of large firms, 2) firms sell either identical or differentiated products
3) the industry has significant barriers to entry.
76
Explain a firms' interdependence
In oligopoly one firms actions affect the decisions of other competing firms. So there is a high degree of interdependence.
77
What is the role of the government in market failure?
The government can provide solutions to market failures with
1) subsidy for positive externalities
2) rules (like H.A.)
3) taxing/fining for negative externalities
78
What are public goods?
Public goods are non-rivalrous and nonexcludable (e.g., national defense, wikipedia)
79
What are private goods?
Rivalrous and excludable goods (e.g., potato chips)
80
What does it mean for a good to be excludable or non-excludable?
Excludable goods are those for which one can at low cost prevent those who have not paid for the good from consuming it
81
What does it mean for a good to be rivalrous or non-rivalrous in consumption?
Rivalrous goods are those which can be consumed by only one person at the same time (e.g., a candy bar or a suit). Non-rivalrous goods may be consumed by many at the same time at no additional cost (e.g., national defense or a piece of scientific knowledge)
82
What is free rider problem?
The free rider problem occurs when those who benefit from resources, goods, or services do not pay for them, which results in an under-provision of those goods or services.
83
What is progressive tax?
A progressive tax is a tax where the tax rate increases as your income increases. The United States currently has a progressive income tax that requires higher income citizens to pay a larger percentage of their income in taxes.
84
What is proportional tax?
Proportional tax is a tax strategy in which the taxing authority charges the same rate of tax from each taxpayer, regardless of how much money someone makes. This means that lower-income, middle-income, or upper-income people pay the same tax percentage.
85
What is regressive tax?
Regressive tax is a tax that everyone has to pay regardless of their age, status, or ability. By its nature, a regressive tax has a greater impact on lower income people because it takes a larger percentage of their income than that of higher income individuals. Examples of regressive tax include sales tax and property tax.
86
What are externalities?
When the decision maker does not bear all cost or capture all benefits. A third unrelated party is affected. An externality can be either positive or negative.
87
What are positive externalities? What are some examples?
When a third party is positively affected by a company. (e.g., more jobs for people in the town where a company is built)
88
What are negative externalities? What are some examples?
When a third party is negatively affected by a company. (e.g., more pollution for people in the town where a company is built)
89
What are solutions to positive and negative externalities? In other words, how can externalities be internalized?
1) Through social norms (being respectful).
| 2) Through the government (e.g., rules, tax)
90
Micro graphs and diagrams that you should know:
1) supply and demand shifts
2) perfect elastic, relatively elastic, perfectly inelastic, relatively inelastic supply and demand curves (8 altogether)
3) price floors and ceilings
4) The perfect competition "short-run to long-run" flowchart
5) Monopoly making economic profits (SR or LR)
6) Perfectly competitive firm making economic profits (SR), economic losses but still producing (SR), economic losses and shutting down (SR), zero economic profit (SR or LR)
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91
Why do government regulations designed to protect the public often end up making the public worse off?
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92
Who is better off as a result of more government regulations? Who is worse off with government regulations?
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93
How do government regulations act as barriers to entry?
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94
How do "dispersed costs, concentrated benefits" explain the persistence of regulations that make most people worse off?
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95
What are incentives politicians and bureaucrats face?
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96
Define GDP
the market value of all final goods and services produced in a nation in a year
97
What are the components of GDP?
consumption, investment, government, net exports
| does not count used or resale goods, stocks, bonds, loans
98
What is included and not included in GDP?
Free goods/information are not included in GDP calculations but adds value
99
What is nominal vs. real and the GDP deflator?
The GDP deflator is a tool used to measure the level of price changes over time so that current prices can be accurately compared to historical prices. In other words, it eliminates the effects of price changes over time.
There are two variables that are needed in order to calculate the GDP deflator: Nominal GDP and Real GDP
Nominal GDP - This is the Gross Domestic Product of the current year given in current dollar amounts.
Real GDP - This is the Gross Domestic Product of the current year after it has been adjusted to reflect the historical changes in prices. The real GDP takes into consideration the inflation and deflation between the present year and the year that is being compared.
100
How does long-run GDP show growth of the economy? How is it related to standard of living?
Determinants of long-run growth include growth of productivity, demographic changes, and labor force participation.
101
What is inflation?
Decrease in value of money while there is an increase in prices
102
What is the difference between inflation, a decreased rate of inflation, and deflation?
Inflation = Decrease in value of money. Increase in prices.
Decreased rate of inflation =
Deflation = Reduction of prices of goods. Greater purchasing power.
103
How is inflation related to the price level?
.
104
What are the costs of inflation?
1) shortages of goods
2) standard of living goes down
3) fewer job opportunities
4) less purchasing power
5) less saving
105
Define price level
The average price of goods and services sold in the economy
106
Define purchasing power.
The amount of goods and services an individual can buy
107
How do you calculate inflation rate and annual inflation rate?
inflation rate = (this year's price index - last year's price index)/(last year's price index) x 100
108
Who is helped and hurt by unexpected inflation?
Hurt: savers
Helped: debtors, firms, government
Unaffected: owners of tangible goods
109
What does the CPI measure, and how is it measured?
The consumer price index (CPI) is an index measuring the level of prices in the economy and comparing them to previous years in order to gauge the level of inflation inside the economy. It's based on a fixed basket of goods that an average person buys each year.
110
How is CPI calculated?
CPI = current item price x base year price x (current CPI/base year CPI)
111
What are the definitions of unemployed, employed, and out of labor force?
Employed: People who have worked at least an hour for pay in the last week
Unemployed: People not presently working, but actively searching for work
Out of Labor Force: People who are neither employed nor unemployed are not in the labor force. This category includes retired persons, students, those taking care of children or other family members, and others who are neither working nor seeking work.
112
What is the natural rate of unemployment? What types of unemployment does it include?
The Natural Rate of Unemployment is the rate of unemployment when the labour market is in equilibrium.
It is the difference between those who would like a job at the current wage rate and those who are willing and able to take a job.
The Natural Rate of Unemployment will include: frictional unemployment and structural unemployment
E.g. a worker who is not able to get a job because he doesn’t have the right skills
113
What is full employment?
the condition in which virtually all who are able and willing to work are employed.
114
What are the 3 types of unemployment?
1) structural unemployment
2) frictional unemployment
3) cyclical unemployment
115
What is the formula for calculating unemployement rate?
(unemployed/labor force) x 100
| In other words, (unemployed/(employed + unemployed)) x 100.
116
What are underemployed and discouraged workers?
underemployed: a person who wants to work more hours or is working in a field not related to worker's skills
discouraged worker: a person who is not actively seeking employment or who does not find employment after long-term unemployment
117
What is the formula for calculating labor force index?
employed + unemployed
118
What is the formula for calculating labor force participation rate?
(labor force/adult civilian population) x 100
| In other words (employed + unemployed)/(out of labor force + unemployed + employed) x 100
119
What are business cycle phases? (Name four phases)
Business cycles are identified as having four distinct phases: expansion, peak, contraction, and trough.
120
What happens to unemployment rate and RGDP during the different business cycle phases?
.
121
Define aggregate demand
On the other hand, aggregate demand is the total amount of goods and services that are bought given an average price level of the economy
122
What are the components (shifters) of aggregate demand?
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123
what are the situations that can impact the components (shifters) of aggregate demand?
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124
Draw shifts
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125
Define disposable income
Disposable income is the amount of money that households have available for spending and saving after income taxes have been accounted for. Disposable personal income is often monitored as one of the many key economic indicators used to gauge the overall state of the economy.
126
Define aggregate supply (AS)
Aggregate supply refers to the total amount of goods supplied to the marketplace by all of the companies that participate in a given economy. This includes everything from apples to computers to car parts. Aggregate supply tries to estimate all of the products produced in an economy and help determine the overall strength and health of the economy in general.
Aggregate supply is broken up into four different parts: consumer goods, capital goods, public goods, and traded goods.
127
Why are there two aggregate supply curves? What is the difference between the SR and LR?
It goes back to the idea of elasticity, or how quickly a good adjusts to changes in price or quantity. Aggregate supply tends to be fairly inelastic in the short run, when firms are finishing up their current contracts, so it takes the shape of a traditional supply curve, sloping up over time. This curve is the short run aggregate supply curve, often labeled SRAS.
However, economies are perfectly elastic at in the long run. Thus as an economy figures out what goods are in demand, it can adjust perfectly if given enough time. As economists, we don't have to put a time frame on this adjustment period, but can just say that it will get there eventually. This is the long run aggregate supply curve, abbreviated LRAS.
128
What determines (shifts) each AS curve?
?
1) change in availability of resources
2) change in supply: sudden disruption in production
3) big innovations
4) change in disposable income
5) change in expectation of future health of economy
6) change in interest rate
129
Know how to draw both AS graphs, with appropriate labeling. Draw shifts
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130
What are "sticky wages" and why do they matter?
Sticky wages are when workers' earnings don't adjust quickly to changes in labor market conditions.
Sticky wages prevent economy from going back to equilibrium
131
Gaps: recessionary and inflationary
Recessionary gap: A recessionary gap is a macroeconomic term which refers to the difference between actual and potential production in an economy. An economy not in equilibrium, or operating at its optimum production potential, is experiencing a contractionary gap in the business cycle.
Inflationary gap: A description of a condition that arises in an economy of the difference between a country's real gross domestic product (GDP) and the level of GDP with full employment in the economy.
132
Find output and price level changes after a shift
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133
Practice placement of LRAS to draw a recession (Ya
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134
Practice shifting AD to get the economy back to equilibrium (Keynesian/fiscal policy)
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135
Understand that the economy will come back to equilibrium in the long run when wages adjust to changes in the price level. (Classical "flexible wages")
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136
Define fiscal policy
Fiscal policy is best described as taxation and spending policies that the government pursues in an effort to influence the overall state of the economy.
137
Define expansionary and contractionary, and know that taxing and spending policies the government would use for each.
Expansionary gap: Potential output is the real gross domestic product (or real GDP) that could have been produced by an economy if all the resources in the economy were fully employed - or what economists call 'full employment.' When the actual output of the economy is greater than its potential output, the gap between these two things is called an expansionary gap.
When the actual output of the economy is less than its potential output, the gap between these two things is called a contractionary gap. During contractionary gaps, unemployment is much higher than usual.
138
Know the difference between automatic and discretionary fiscal policies, and be familiar with the examples for each.
Discretionary = "Congress takes action" in response to a specific situation
Automatic = Laws already in place that are always working to counter the business cycle (e.g., progressive tax)
139
Understand how contractionary fiscal policy leads to government budget surpluses, and how expansionary fiscal policy leads to government budget deficits.
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140
Know why crowding out, lags, and political motivations decrease the effectiveness of fiscal policy
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141
Define national debt
A central government accumulates deficits
142
Define deficit
Deficit: when government spending is greater than tax revenues
143
Define surplus
When tax revenue is greater than government spending
144
What are the characteristics money? (six)
widely accepted, durable, recognizable quality, portable, limited in supply, divisible
145
What are the functions of money? (four)
1) mutual coincidence of wants
2) medium of exchange
3) unit of account: money acts as a common denominator, allowing for price comparisons
4) store of value: allows value to be used later
146
What is commodity money vs. fiat money?
commodity money = a good used as money that is also valued for another purpose (e.g., gold, silver)
fiat money = only has value because users believe it has value. Fiat is Latin for "let it be done." Modern national currencies are fiat money.
147
What is central vs. commercial banks?
Commercial banks = Financial institutions that offer loans, savings, and checking accounts. Commercial banks keep a portion of deposits in revenue and lend the rest.
Central banks = Influence the supply of fiat currency, regulates commercial banks, acts as lender of last resort
148
What is the purpose of the Federal Reserve, and why its "independence" important?
Federal government established as the U.S. Central Bank with dual mandate: 1) full employment and 2) price stability
Independent - Not influenced by political concerns. Does what it thinks is best, not what is popular. Not accountable to anyone.
149
What is fractional reserve banking?
The fractional reserve banking system is a system in which banks hold back a small fraction of their deposits in a reserve and loan out the rest of their deposits to borrowers. The fractional reserve banking system legally permits banks to hold less than 100% of their deposits as a reserve.
150
Why do changes in excess reserves lead to dramatic changes in the money supply?
.
151
What are excess reserves?
Excess reserves are bank-held funds that exceed the Federal Reserve's minimum reserve requirement. You can determine excess reserves by subtracting required reserves from legal reserves.
excess reserves = legal reserves - required reserves
152
What are required reserves?
Required reserves are the level of reserves that the Federal Reserve requires that member banks hold to honor withdrawals.
153
Why are banks usually eager to lend excess reserves?
(They can make interest off of excess reserves)
154
What is the effect of an increase in the money supply (expansionary) on nominal and real interest rates? What is the effect of an decrease in the money supply (contractionary) on nominal and real interest rates?
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155
What is the effect of an increase in the money supply (expansionary) on aggregate demand, shown on an AD/SRAS graph? What is the effect of an decrease in the money supply (contractionary) on nominal and real interest rates?
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156
What is the effect of an increase in the money supply (expansionary) on inflation and output (look at the AD/SRAS graph) What is the effect of an decrease in the money supply (contractionary) on nominal and real interest rates?
.
157
What is monetary policy
The central bank changing the money supply to influence AD
158
How does open market operations work to change the money supply?
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159
How does required reserve ratio (RRR) work to change the money supply?
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160
How does discount rate work to change the money supply?
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161
Define economic growth
An increase in productive capabilities
162
Explain the difference between long run economic growth and changes in business cycle
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163
Why does economic growth matter to the well-being, standard of living and quality of life of individuals?
.
164
How do we measure economic growth?
An increase in productive capabilities (long run). Increases in standard of living.
165
What are the fundamentals of economic growth?
Trade
Tech/productivity/innovation/capital
Cultural respect for entrepreneurship
166
Why is increasing capital and productivity so important for economic growth?
.
167
Show economic growth with a shift in SRAS, and then LRAS and PPF
.
168
What is Austrian Business Cycle Theory?
Save more spend less. Increase saving and decrease consumption. As a result of increased savings, economic growth is much greater than it would have been.
169
What two things shift the PPF?
More resources, using them better (productivity, technology)
170
What is a price taker?
An individual or company which is not influential enough to affect the price of an item.
A company is considered to be a price taker if the price it sets and quantity of goods it produces do not have any effect on the market price, and therefore the company is usually forced to go with the market price if they want to sell its goods.
171
What are three types of market structure?
Perfect Competition – many firms, freedom of entry, homogeneous product, normal profit.
Monopoly – One firm dominates the market, barriers to entry, possibly supernormal profit.
Monopolistic Competition – Freedom of entry and exit, but firms have differentiated products.
