Exam 1

Question 1

Scarcity

Answer 1

The limited nature of societies resources

Question 2

Efficiency

Answer 2

When society gets the most from its scarce resources

Question 3

Opportunity cost

Answer 3

Any item is whatever must be given up to obtain it

Question 4

Market failure

Answer 4

When the market fails to allocate resources efficiently

Question 5

Business cycle

Answer 5

Irregular and unpredictable fluctuations in econ activity as measured by production of goods and seevices or number of people employed

Question 6

How people make desicions

Answer 6

People face tradeoffs, the cost of something is what you give up to get it, rational people think at the margin, people respond to incentives

Question 7

How people interact

Answer 7

Trade can make everyone better off, markets are a good way to organize econ activity, government can improve market outcomes

Question 8

How the economy as a whole works

Answer 8

Standards of living depends on the ability to produce, prices rise when gov prints too much money, short run trade off between inflation and unemployment

Question 9

Factors of production

Answer 9

Resources the economy uses to produce goods and services

Question 10

Absolute advantage

Answer 10

The ability to produce a good using fever inputs than another producer

Question 11

Comparitive advantage

Answer 11

The ability to produce a good at a lower opp cost than another person

Question 12

Trade if

Answer 12

What you get is bigger than what you give up

Question 13

Willingness to pay

Answer 13

Max amount the buyer will pay for a good

Question 14

Pw>Pd

Answer 14

The country has comp advantage in the good. Export

Question 15

Pd>Pw

Answer 15

No comp advantage. Import

Question 16

Calculate GDP

Answer 16

C+I+G+NX

Question 17

GDP deflator

Answer 17

Nominal/real x100

Question 18

GDP excludes

Answer 18

The quality of the government, leisure, nonmarket activity

Question 19

Compute index for CPI

Answer 19

Cost of basket current year/base year x100

Question 20

Compute inflation rate for CPI

Answer 20

CPI this year-CPI last year/CPI last year x100

Question 21

Problems with CPI

Answer 21

Sub biasis, new goods=dollar more valuable, hard to measure quantity change,

Question 22

CPI vs. GDP deflator

Answer 22

Imports only included in CPI, capital goods only included in GDP, basket is fixed CPI, GFP currently produced goods and services

Question 23

Dollar amounts different times

Answer 23

Amount year t x price level today/price level year t

Question 24

real interest rate

Answer 24

Nominal-inflation rate

Question 25

Productivity

Answer 25

Average quantity of goods and services produced per unit of labor input

Question 26

Production function

Answer 26

Y/L=AF(1,K/L,H/L,N/L

Question 27

Constant returns to scale

Answer 27

Changing all inputs by the same percent causes output to change by the same percent

Question 28

Catch up effect

Answer 28

Poor countries tend to grow more rapidly than rich ones

Question 29

Inward oreinted policies

Answer 29

Raising standard of living by avoiding interaction with other countries

Question 30

Outward oreinted policies

Answer 30

Promote integration with world economy

Question 31

Foreign direct investment

Answer 31

Owned and operated by a foreign entity

Question 32

Foreign portfolio investment

Answer 32

Investments financed with foreign money but operated by domestic residents

Question 33

Raise growth rates and standard of living

Answer 33

Saving and investing, investment from abroad, education, health, free trade, research and development, population growth, natural resources

Question 34

Economist make assumptions for the purpose of

Answer 34

Focusing their thinking

Question 35

A model is

Answer 35

A simplification of reality

Question 36

Figuring out opp cost of good

Answer 36

Opp cost of x =x/other good

Question 37

GDP measures

Answer 37

Income and expenditures

Question 38

Nations standard of living is best measured by

Answer 38

Real GDP per person

Question 39

PPP equation

Answer 39

E=p*/p