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Flashcards in Economics Deck (65):
1

How does a P increase affect S?

Supply increases

- more sellers are willing to sell.

2

What is a S curve shift?

Supply changes due to

something other than P.

3

What are the characteristics of a

positive S curve shift (shift right)? Causes?

S increases at each P pt

Higher Equilibrium GDP

More Sellers, market can get flooded

Govt subsidies, tech improvements

4

What are the characteristics of a

negative S curve shift (shift left)?

Causes?

  • S decreases at each P pt
  • Equilibrium GDP down

Causes: Cost of production up

Shortage of gold => less gold watches made

Wars/crises in <=Asia => less rice on the market

5

How does P affect D for an item?

opposites

P up , D down

6

What is a D Curve Shift?

D changes due to something

other than price.

7

What is a positive D Curve Shift (Shift Right)?

Causes?

  • D up at each P pt

equilibrium GDP up

Psubstitutes up

Future P increase expected War in MiddleEast => ppl buy more gas

Market Expansion, Free Obamacare => Dclinic up

8

What is a negative D Curve Shift (Shift Left)?

Causes?

  • D decreases at each P pt
  • Pcomplement up 
  • Consumer tastes change
  • Market Contraction - less spending decreases equilibrium GDP
  • Boycott, Company commits social blunder
  • Consumer income rises, Dinferior goods drops

9

What is the Marginal Propensity to Consume?

How much you spend when your income increases

Change in Spending

Change in Income

10

What is the Marginal Propensity to Save?

How much you save when income increases

(1 - MPC)   or           Change in Savings 

     Change in Income

 

11

How is the multiplier effect calculated?

Change in Spending

1 - MPC

12

How does increased spending

by consumers and the govt

affect the D curve?

D curve shifts right

13

How does spending change

due to the Multiplier Effect?

The increase in D ends up being larger than the amount of addit'l income spent in economy

One consumer spends money, which increases

  • income of a business
  • income of a vendor
  • income of employees
  • tax revenue

14

How is Price Elasticity of D calculated?

% Change in QD 

% Change in P

15

What conditions indicate Elastic Demand?

  • Many substitutes (luxury items)
  • Considered elastic if elasticity > 1
  • P up => Rev down
  • P down => Rev up

16

What conditions indicate Inelastic Demand?

  • Few substitutes (groceries, gasoline)
  • Considered inelastic if coefficient of elasticity < 1
  • P up => Rev up
  • P down => Rev down

17

What is Unitary Demand?

Total Revenue remains same if P is increased

coefficient of elasticity = 1

18

How is Income Elasticity of Demand calculated?

% Change QuantityD

% Change in Income

Normal goods > 1 (D increases more than Income)

Inferior goods < 1 (D increases less than Income)

19

What conditions occur under periods of inflation?

  • i rates up => Dloanshouses, autos, etc down
  • Value of bonds & fixed income securities down
  • Dinferior good up
  • Ddomestic goods down, Dforeign goods up

20

What happens under Demand-Pull inflation?

Overall spending increases

Demand increases (shifts right)

Market equilibrium price increases

21

What happens under Cost-Push inflation?

  • Overall production costs increase
  • Supply decreases (shifts left)
  • Market equilibrium price increases

 

Note: Demand-Pull & Cost-Push Inflation BOTH

result in market equilibrium price to increase

22

What is the Equilibrium Price?

The price where Q S = Q D

23

What is Optimal Production?

When Marginal Revenue = Marginal Cost

24

What is the result of a Price Floor?

Surplus if above equilibrium price.

25

What is GDP (Gross Domestic Product)?

Annual value of all goods and services produced domestically at current prices by consumers, businesses, the government, and foreign companies with domestic interests

Included: Foreign company has US Factory

Not included: US company has foreign factory

26

What is included under

the income approach

for calculating GDP?

  • Sole Proprietor and Corp Income
  • Passive Income
  • Taxes
  • Employee Salaries
  • Foreign Income Adjustments
  • Depreciation

27

What is included under

the Expenditure Approach

for calculating GDP?

  • Individual Consumption
  • Private Investment
  • Govt Purchases
  • Net Exports

28

What is Nominal GDP?

Measures goods/services in current prices.

29

For what is a GDP Deflator used?

Convert GDP to Real GDP

30

What is Real GDP?

      Nominal GDP     

GDP Deflator x 100

31

What is Gross National Product (GNP)?

  • Like GDP; Swaps foreign production.
  • US Firms overseas are included
  • Foreign firms domestically are not included

32

What is the Consumer Price Index (CPI)?

How is it applied?

Price of goods relative to an earlier period of time, which is the benchmark.

Year 1 : 1.0( CPI Current - CPI Last ) * 100

CPI Last

33

How is disposable income calculated?

Personal Income - Personal Taxes

34

How is Return to Scale calculated?

% Increase in Output

% Increase in Input

> 1 : Increasing returns to scale

< 1 : Decreasing returns to scale

35

When is the economy in Recession?

When GDP growth is negative

for 2 consecutive quarters.

36

What is a Depression?

A prolonged-severe recession

w/ high unemployment rates

No requisite period of time

for the economy to officially be in a depression

37

What are the stages of the Economic Cycle?

  1. Peak (highest)
  2. Recession (decreasing)
  3. Trough (lowest)
  4. Recovery (increasing)
  5. Expansion (higher again)

38

What are leading indicators?

Conditions that occur before a recession/recovery

Ex:    Stock Market

New Housing Starts

39

What are lagging indicators?

Conditions that occur after a recession/recovery

Ex:    Prime Interest Rates

Unemployment

40

What are coincident indicators?

Conditions that occur during a recession/recovery

Ex: Manufacturing output

41

Which people are included in the calculation of unemployment?

Only people looking for jobs

42

What is Cyclical Unemployment?

GDP doesn't grow fast enough to employ all ppl looking for work

Ex: Ppl unemployed in 2010 because not enough jobs

43

What is Frictional Unemployment?

People changing jobs or entering the work force.

Normal aspect of full employment.

Ex: Recent college grad looking for a job

44

What is Structural Unemployment?

Job skills do not match job so worker needs education/training

Ex: Construction worker wants to work in office- so quit and get computer training

45

How does inflation relate to unemployment?

(Vice Versa)

High Unemployment : Low Inflation

46

What is the Discount Rate?

The rate a bank pays to borrow from the Fed.

47

What is the Prime Rate?

The rate a bank charges their best customers

on short-term borrowings.

48

What is the Real Interest Rate?

Inflation-adjusted interest rate

49

What is the Nominal Rate?

Rate that uses current prices

50

What is the Risk-Free Rate?

Rate for a loan with 100% certainty of payback.

Usually results in a lower rate.

Ex: US Treasuries

51

What is included in the M1 money supply?

  • Currency
  • Coins
  • Deposits

52

What is included in the M2 money supply?

Highly liquid assets

other than M1 currency- coins or deposits

53

What is Deficit Spending?

  • Increased spending lvls w/out increased tax revenue.
  • Lower taxes w/out decrease in spending
  • Gamble that the multiplier effect will take over and boost economy

54

How can the Fed control the money supply?

By buying and selling the govt securities.

55

How does the Fed control economy-wide interest rates?

By adjusting the discount rate

charged to banks

56

What is a Tariff?

A tax on imported goods

57

What is a quota?

A limit on the number of goods that can be imported

58

How do international trade restrictions

affect domestic producers?

  • Good for domestic producers.
  • Demand curve shifts right
  • Fewer substitutes
  • They can charge higher prices

59

How to international trade restrictions

affect foreign producers?

  • They are bad for foreign producers
  • Demand curve shifts left
  • Fewer buyers
  • They must charge lower prices

60

How do international trade restrictions affect foreign consumers?

They are good for foreign consumers

Supply curve shifts right

Goods purchased at lower prices in the foreign markets

61

How do international trade restrictions affect domestic consumers?

They are bad for domestic consumers

Supply curve shifts left

Fewer goods bought due to higher prices

62

What is Accounting Cost?

Explicit (Actual) cost of operating a business

Implicit costs are opportunity costs

63

What is Accounting Profit?

Revenue

- Acctg Cost

64

What is Economic Cost?

    Explicit

+ Implicit Cost  

Economic Cost

65

What is Economic Profit?

Revenue

- Economic Cost

Economic Profit