Exam 1

Question 0

What does market economy mean?

Answer 0

People can do whatever they want

Question 1

What is opportunity cost?

Answer 1

The best alternative you give up when you make a choice

Question 2

What does a country’s standard of living depend on?

Answer 2

Its ability to produce goods and services

Question 3

What is inflation?

Answer 3

A general increase in prices

Question 4

Circular flow diagram

Answer 4

Product markets
(Outputs)

Firms Households
Factor markets
(Inputs)

Question 5

Production possibilities frontier

Answer 5

Shows various combinations of output that an economy can & cannot produce (graph)

Question 6

What does the slope of a ppf tell us?

Answer 6

Opportunity cost of what’s on the x-axis

Question 7

What are positive and normative statements?

Answer 7

Positive - descriptive

Normative - what should be done

Question 8

Demand

Answer 8

Quantity of some good that buyers want to buy

Question 9

Law of demand

Answer 9

As the price of something goes up, quantity demanded goes down

Question 10

Normal goods

Answer 10

Quantity demanded goes up as income goes up

Question 11

Inferior goods

Answer 11

Quantity demanded goes down as income goes up

Question 12

Supply

Answer 12

Amount of a good or service that sellers want to sell

Question 13

Law of supply

Answer 13

As the price of a good goes up, so will the quantity supplied

Question 14

What happens when input prices go up?

Answer 14

Quantity supplied goes down

Question 15

Equilibrium

Answer 15

When quantity supplied = quantity demanded

Question 16

Surplus

Answer 16

When the quantity supplied is greater than the quantity demanded (P> P*)

Question 17

Shortage

Answer 17

Quantity demanded is greater than quantity supplied (P<P*)

Question 18

Law of supply and demand

Answer 18

Prices adjust to reach equilibrium

Question 19

GDP

Answer 19

Dollar value of all final goods and services produced within a country in a given period of time

Question 20

Y=C+I+G+NX

Answer 20

Expenditure = consumption + investment + govt spending + net exports

Question 21

What does inflation change?

Answer 21

Value of dollars

Question 22

Nominal GDP

Answer 22

GDP expressed in “current” dollars

Question 23

Real GDP

Answer 23

Expressed in constant dollars

Question 24

Calculate nominal GDP in economy that produces 2 goods

Answer 24

(Price item1 x quantity item1) + (price item2 x quantity item2)

Question 25

Calculate real GDP in economy that produces 2 goods

Answer 25

(New quantity item1 x base year price item1) + (new quantity item2 x base year price item2)

Question 26

Growth rate

Answer 26

(Y(2)/Y(1) - 1) x100%

Question 27

CPI

Answer 27

(Consumer price index)
Choose base year
Cost of basket in year of interest/cob in base year

Question 28

Inflation

Answer 28

CPI(year of interest)-CPI(previous year)/CPI(previous)

Question 29

Cost of basket

Answer 29

Old quantity x new price

Question 30

Real interest rate

Answer 30

Nominal rate - inflation rate