econ midterm Flashcards
1
Q
basic econ problem: scarcity
A
bc of limited resources n unlimited want
2
Q
econ questions
A
what/how/for whom to product
3
Q
opportunity cost
A
exist bc of scarcity
giving up something good to do something else
opportunity cost of college is debt
4
Q
consumer sovereignty
A
consumers have power, not gov
5
Q
factors of production
A
land, labor, capital, entrepreneurship
physical capital: machine/computer/tools
human capital: skills/edu of workers n anything that takes care of them
6
Q
traditional economies
A
decisions made based on whats done in the past. little change/innovation. basic econ. have same job as your parent. amish
7
Q
command economy
A
decisions made by gov
centralized planning
bureaucracy
lack of worker incentive to meet gov quotas
inefficient
short supply of consumer good, low quality. EQUITY
north korea, cuba
8
Q
market econ
A
consumers/producers make decision has private property. Efficient profit motive high standard of living NO SOCIAL SAFETY NET. when employee have no more skills, theres nothing for them. business could hurt consumers
9
Q
mixed econ
A
some decision made by gov n other by consumers/producers.
USA: gov does not own business but regulates them for consumers.
OSHA: shut down factory
FAA
FDA
10
Q
PPC
production posssibility curve
A
quantity of 2 goods that a society can currently produce
full employ: on the line
unempl: below curve
unattainable: above curve
11
Q
ppl concave
A
increasing opportunity cost
12
Q
ppc straight
A
constant opportunity cost
13
Q
ppc illustrate econ growth.
A
move curve to the right/outward
do it when theres an increase in production
14
Q
absolute advantage
A
produce a product when you can make more than someone else.
actual value
15
Q
comparative advantage
A
make a product when you can do it at a lower opportunity cost
16
Q
output questions
A
over, in direction of source not product
look at product row n c which is less.
17
Q
law of supply
A
direct relationship btw price and QS
18
Q
supply curve
A
movement along it: change in quantity of supply
19
Q
things that shift the supply curve
A
PINTS producer expectation input prices technology number of producers subsidies tazes
20
Q
Supply curve
producer expectation
A
if they think price decrease, product will b dumped before it happens
21
Q
input prices
A
higher price of input (wages)= lower supply
22
Q
technology
A
increase tech= increase supply
23
Q
subsidides
A
pay someone to do something
increase supply
24
Q
tax
A
decrease supply
25
wage
increase= increase in productivity
26
law of demand
inverse relationship btw price n quantity demand. relationship btw price of good n how much consumer is willing to purchase
27
movement along demand curve
change in quantity demanded
28
demand curve shift, change in demand
CCCPS
```
consumer income
consumer tastes
consumer expectation
population/ # of buyers
substitutes
complements
```
29
demand curve
| consumer income
normal goods: as income increases, demand increases
inferior good: as income decreases, demand increases
30
demand curve
| consumer expectations
demand decreases when consumer think that price is going to b lower in the future
31
demand curve subsitutes
one being used in place of another
32
demand curve
| complesments
2 goods used that are used together (pancake/syrup)
33
wage
increase wage= increase productivity
34
supply and demand graph
price vs quantity
| equilibrity: ppl r willing to pay at the price n consumers r willing to make at that price
35
binding price floor
above= surplus
legal min price (ex. min wage)
producers want to produce more but consumers don't want to buy that much
36
equity
fairness, if price isn't fair to ppl, gov will alter it
price floor
price ceiling
37
binding price ceiling
below, shortage
legal max price
producers don't want to produce much. high demand, low supply.
ex. rent control, landlord can't rent higher than __, so they make cutbacks on services
38
nonbinding ceiling
does not nothing to market
39
elasticity of demand
how much quantity stretch when price is changed
40
relatively inelastic demand
vertical
quantity doesn't that much when you change the price. buy at whatever price
```
a necessity
can't delay the purchase
few substitutes
broad market structure (food)
small % of budget
```
41
relatively elastic demand
horizontal. buy it when its on sale. buy at a certain price
```
luxury
can delay purchase
many substitutes
narrow market (chicken)
large % of budget
```
42
total revenue test
to c if good is elastic or not
price x quantity= TR
inelastic: increase price, increase TR
elastic: increase price, decrease TR
43
factor payment
| resources
land-rent
labor-wage
capital-interest
entrepreneurship- profit
44
GDP
```
decrease: decrease disposable income
measure anything (goods/services) made in the country in a year. doesn't count intermediate goods: double counting
```
45
recession
GDP goes down for 2 quarters
46
not in GDP
```
work you do for yourself
barter
housework
cash
transfer payment (from gov)
stock/bond
crime/pollution
```
47
income method to calculate gdp
wage
interest
rent
profit
48
expenditure method to calculate gdp
```
Cigx
consumer spending
investment (volitole, sensitive, first indicator)
gov spending
net export
```
49
unplanned investment
whats made but not sold at the end of the year
50
business cycle
expansion/recovery: increase GDP
peak: GDP highest, danger of inflation
contraction/recession: falling GDP
trough/depression: lowest GDP
51
GDP-depreciation
NDP
net domestic product
depreciation: new thing replaces old
52
Personal income- personal taxes
disposable income
53
disposable income- expenses
discretionary income
54
unemployed
able/willing/looking for a job
55
frictional unemploy
btw transition in life
56
cyclical unemploy
during contraction of business cycle, econ slowdown
57
structural unemploy
skills obselete
58
discouraged worker
unemployed person stops looking for a job
unemployed for 2 yrs
not counted in unemployment states
increase in discouraged workers will lower labor force participation
59
unemployment rate
unemployed/ labor force
60
labor force
unemployed + employed
61
labor force participation rate
labor force/ population
62
misery index
inflation + unemployment
63
demand-pull
occurs when products are bought faster than they can b produced. top of business cycle graph, decreased unemploy
64
cost-push
increase price of production= increase price
BAD
increase unemployment
65
hyperinflation
higher than 50% inlfation. no control over printing money
66
deflation
overall price fall
67
unemployed rate
unemploy / # in labor force
68
quantity theory of money
increase of money supply = increase price level
69
ways inflation creates distortions in the economy n impact business/consumers
menu costs
| shoe leather costs
70
menu costs
how much it costs for business spend time, effort to make new cost. bad inflation
71
shoe leather costs
cost of ppl trying to counteract inflation, customers buy stuff before price rise up,
72
losers from inflation
consumers (prices rise faster than income)
fixed income
savers
banks with fixed rate loans
73
winners from inflation
investors in gold/silver
real estate
gov in debt
ppl paying others on fixed dollar contract
74
leading indicators of change in econ
avg work weak
building permit increase= good
stock market increase=good
inventory
75
measure of inflation
cpi
ppi
gdp deflator
76
cpi
uses a fixed weighted market basket of goods that coonsumer purchases regularly. list f what ppl buy regularly. most weighted: mortage
77
weakness of cpi
substitution bias
uses only retail prices
quality changes=changes in price
new stuff
78
gdp deflator
nominal GDP/ real GDP
___ - 100= inflation %
meausres goods produced . doesn't included imported good
79
PPi
measures price change of goods purchased by business. increase means later increase in cpi n other stuff
80
fiscal policy automoaic
already in place to smooth out econ during recession.
| unemployment benfits, wellfare, food stamp, progressive income tax
81
discretionary fiscal policy
new laws needes to b made to fix recession/inflation
82
MPC
| consume
percentage of additional income that is spend
83
MPS
| saving
percentage of additional income that is saved
84
MPC+MPS
1
85
spending multiplier
how increase/decrease in spending will affect GDP
1/MPS
86
tax multiplier
how increase/decrease in tax affact gdp
one less than spending multiplier
87
inflationary expectaiton
phillips curve, increase shift in SRPC
88
inside lag
long
| recognize problem to time policy becomes law n enacted
89
outside lag
short
from when policy enacted to the time it makes and impact
90
Federal reserve
7 board of governors, appointed by pres, confirmed by senate. banks keep money here.
decrease suppy money= increase interest rate
91
demand pull inflation
increase shift in AD, bought faster than produced, too fast
92
cost push inflation
decrease shift in SRAS
| stagflation, little supply
93
classical econ
econ is flexible, stay out of it
94
keynesian
econ is rigid, needs intervention
95
real balances wealth effect
increase in price, less value of money, ppl can't buy alot, business make less, lowers GDP
96
interest rate effect
increase prices, ppl save less
| banks less money to lend = higher interest rate on loans. business don't spend much
97
foreign purchase effect
when price increase, foreign buy less n GDP down
98
shift in lras
more/less workers
tech
edu of workers
new energy source
99
balance budget effect
always one (spending - taxing) when spending is expansionary.
if expansionary with contractionary fiscal at the same time
AD moves right a little bit
100
phillips curve
inflation vs unemployment
natural rate of unemployment
movement along; AD
shift: up-bad, SRAS
101
medium of exchange
What this means is that you can give people money and they will give you goods or services in exchange. This is very important because it makes economic activity easy.
102
store of value
remains valuable for a long time
103
unit of account
Knowing the value or price of a good, in terms of money, enables both the supplier and the purchaser of the good to make decisions about how much of the good to supply and how much of the good to purchase.
104
monetary policy tools
discount rate: weakest
reserve requirement : powerful
open market operation : important
105
discount rate
interest rate that red charge bank for borrowing money
recession: kower
106
reserve requirement
% of bank deposits that must hold n not lend to customers
recession: lower
107
open market operation
buying/selling gov bonds
recession: buy
108
increase supply money=
increase demand.
if demand is higher than supply: inflation
if supply is too low= recession
109
fed fund rate
interest rate that bank pays another bank for a loan
| if lowered: prime rates lowered (rate that bank charge their best business
110
money multiplier
1 / reserve requirement
multiply answer by deposit then subtract by deposite
for FED: multiply answer by deposite
creating money out of thin air
111
money market
NIR vs quantity of money
| Expansionary: Right MS, Right AD
112
loanable fund
money available for borrowing
supply: saving, savors, fed
demand: investment, borrowers
real interest rate vs quantiy of loans
increase demand: expansionary fiscal
S: ppl save more if real interest rate high
113
commodity money
intrinsic value salt
114
representation money
backed by gold/silver
115
fiat money
not backed by anything, need central bank
116
M0
cash/coin
117
M1
demand deposit/checks
118
M2`
small saving account
119
MV=PQ
monetarism: monetors beleive in monetary policy. increase MS just enough to keep up with GDP. shouldn't raise more than 3%-5%
M: money supply
V: velocity
P: pice level
Q: real GDP
120
crowding out effect
expansionary fiscal policy= budget deficit
business wont b spending much bc high interest rates. therefor AD doesn't move as high bc low investment spending while gov increase spending
```
keynesian support (its okay)
Classical: powerful/importnat thing
```
FED, increase MS
121
transaction deman
amt of money to buy daily things
122
asset demand
money saved wieh niterest rate is high, not spending money.
123
capital stock
factories, machines
124
supply shock
drastic movement of supply
125
progressive tax
based on income
126
regressove tax
less money you make, the highest income of your tax is affect (the more it effects you)
sales
127
poprtional tax
to income
128
interest rate n price of bonds
inverserly related
129
reational expectation theory
ppl who knows econ make choice based on that, take anti fiscal actions making the policies usless
