Midterm THE ONE AND ONLY Flashcards
become economics. (150 cards)
1
Q
define
Microeconomics
A
analyzes the behavior of individual actions
2
Q
define
Macroeconomics
A
analyzes the overall functioning of the economy, all variables are aggregate by natue
3
Q
define
Fallacy of Composition
A
just because something is true for the individual, that doesn’t mean it’s true for the whole
the whole is greater than the sum of its parts
4
Q
define
Multiplier Effect
A
One initial action can cause a waterfall that leads to much bigger changes and problems
kinda like butterfly effect
5
Q
define
Paradox of Thrift
A
reducing expenditure can be rational for individuals, but can lead to a bad outcome for the economy
6
Q
define
Classical Theories of Economics
A
assumes economies are sef regulating
7
Q
Define and discuss
Keynesian Economics
A
Problems will be solved on their own… in the long run. When spending falls, production cuts can lead to recession, but government policies can help fix this
8
Q
define
Monetary Policy
indirect!
A
Changes the key interest rate which is controlled by the central bank
(this determines the cost of borrowing, which influences spending)
changing the amount of money in the economy does the same thing
9
Q
define
Fiscal Policy
direct!
A
Direct government involvement in the market and adopting appropriate tax policies
- inc/dec in gov spending
- deciding ncome and sales tax
- paying subsidies to households
- theres another one but i dont understand my notes so it’s a cliffhanger
10
Q
define
The Business Cycle
A
economies will trend upward and downward overtime
11
Q
When was the Great Recession?
A
2008, housing crisis related
solved by reducing taxes and increasing spending
12
Q
What year was the Great Depression?
and (canadian) unemployment rate…
A
1929, 20%
solution: let it run its course
13
Q
define
Expansion/Recovery
A
economic activities showing signs of growth
14
Q
define
contraction/recession
A
economic activities showing signs of downfall
15
Q
now a task…
Draw and label a business cycle graph!
A
should include: peaks, troughs, expansion/recovery, and contraction/recession
16
Q
t or f
True or False: we measure long run economic growth with nominal GDP
explain
A
False! we use Real GDP per capita, since it accounts for inflation
17
Q
Trade Balance Formula
A
export - import
18
Q
define
exports
A
the value of the goods and services that are sold to foreign buyers all together
exports = X
19
Q
define
imports
A
the total value of goods and services purchased from foreigh sellers
imports = M
20
Q
define
Trade Surplus
A
X > M
exports more than imports
21
Q
define
Trade Deficit
A
X < M
imports more than exports
22
Q
Are trade deficits bad?
A
not necessarily, what’s important is having a strong and stable currency
23
Q
describe
A cause of trade surplus
A
low investment spending relative to savings
24
Q
describe
a cause of trade deficit
A
high investment spending relative to savings
25
# define
GDP
| Gross Domestic Product
the market value of all final goods and services produced within the boundary of an economy within a specific time period
26
# define
Market Value
the value based on market transactions
27
# define
Final Good
goods fit for final consumption
| ex. a book = final good, while its pages are not
28
# define
Flow Variables
| and examples!
variables that have a time dimension, measured per unit of time
| GDP, demand, investment, income
29
# define
Stock Variables
variables whose quanities are meaningfully measured at a specific point in time
| capital, inventory, population, money in circulation
30
# define
Value Added Approach
| gdp
add all values of final goods and services produced
31
# go into more detail about
Value Added Approach
government collects level of production for each individual firm, and figures out revenue from each intermediate good
the value added from each good: revenue - intermediate input
- these values can be added together to get the final value
- or just use the market price idc
firm revenue: cost of intermediate inputs + payments to factors of production
this one is hard to describe just go find a practice problem man
32
# define
Income Approach
total values of outputs in the economy = income = GDP
Factor payments:
- **wages** for rent
- **interest** for savings
- **rent** earned by those leasing their assets
- dividends paid to share holders
Non-factor payments:
- indirect tax (sales tax to government)
- capital depreciation
33
# discuss
Circular Flow Diagram
| get ready for a doozy
based on the idea that our income, spending, and production output are all interdependent
- total spending is based on total income which is based on factors of production, production is based on how much can sell (its a circle)
- government takes and spends tax money from households
- household savings go to financial markets, firms and government borrows this money to invest
34
# define
Total Expenditure Approach
add up all expenditures of goods and services produced and bought within the economy
C + I + G + NX
35
# define
C
| Expenditure Approach, C + I + G + NX
Consumption expenditure
- household purchases
- only new items
- rents included
- purchases of newly built homes not included
36
# define
I
| Expenditure Approach, C + I + G + NX
Investment Expenditure
- firms purchases (investments, factors of production)
- plants and equipment
- newly built residential and non residential structures
- inventory adjustment
37
# define
G
| Expenditure Approach, C + I + G + NX
Government Expenditure
- government purchases of goods and services
- government transfer payments (subsidies) not included
38
# define
NX
| Expenditure Approach, C + I + G + NX
Net Export
exports - imports
39
What variable is usually used for GDP?
Y
40
# define
Nominal GDP
measuring GDP with current prices using the three approaches
| can inc/dec even if the quanities didn't - purely measures price changes
41
# define
Real GDP
the total value of goods and services within a given year, calculated as if the prices had remained constant from some base year
| real GDP will only change if the quanities change
42
# describe
how to calculate Real GDP
The total value of final goods and services produced in the economy during a given year, calculated using the **prices** of a second base year
Example:
find the real GDP of 2017 with 2007 as a base year
2007 GDP: 80 * $40 + 90 * $11 + 15 * $90
2017 real GDP: 100 * $40 + 80 * $11 + 20 * $90
| different quantities, same prices!
43
Growth Rate Formula
A(1 + g)^t = B
A: earlier year
B: latter year
g: average annual growth rate when t>1
t: time between years
44
# how to:
Calculate Chained Dollar Real GDP
| 3 steps!
1. calculate average growth rate for every *pair of consecutive years*
2. choose a base year, calculate its GDP
3. use growth rates to calculate real GDP from the base year
45
Does an increase in real GDP equate to a better standard of living?
not necessarily, if GDP growth outpaces population growth, then avg QoL may be changed
46
Real GDP per Capita
real GDP / population
47
# whats the relationship
Z = X / Y
%ΔZ = %ΔX - %ΔY
48
Can money buy happiness?
1. richer countries have higher well-being on average
2. money matters less the richer you get
3. money isn't everything
49
Why does measuring inflation matter?
it monitors standard of living and overal price lvl
50
# define
Market Basket
typical goods and services purchased by households in the economy
51
# define
Cost of Living
sum of all PQ in typical household (?)
52
Calculate Price Index
1. choose a base year
2. (cost of living / base yr cost of living) * 100
53
What does the consumer price index do?
monitors the cost of living!
54
Calculate Consumer Price Index
(Cost of mkt basket in a given yr / cost of mkt basket in base yr) * 100
55
Calculate Inflation
((CPI1 - CPI2) / CPI1) * 100
56
# describe
Industrial Producer Price Index
| IPPI
- measures goods bought by producers
- inflation based on commodities/raw materials
- an early indicator of inflation as primary commodities (ex. ores) experience price changes faster than goods and services
57
GDP Deflator Calculation
(Nominal GDP in a given yr / real GDP same yr) * 100
58
What does GDP deflator do
monitors economy-wide price changes
59
a deppressed economy is a result of...
inadequate spending!
60
What two variables trend similarly to GDP?
industrial production index and employment
61
# define
The Business Cycle
the alternations between recession and expansion
62
unemployment rate has a ____ relationship with GDP
inverse!
63
# define
long run growth per capita
sustained upward trend in output per person
| key to higher wages and higher standard of living
64
when the economy is depressed inflation....
tends to fall
65
when the economy is booming, inflation...
tends to rise
66
# define
Price Stability
when the prices change at an overall slow rate
| a key goal of macro
67
# define
Open Economy
an economy that has trade open with other countries
68
# define
National accounts
a method of calculating consumer spending, business sales, investements, government purchases, etc
69
# list
The Four Flows of Funds
1. Government purchases of goods and services
2. consumer spending
3. investment spending
4. exports
70
# define
factor income
income earned by the factors of production
71
# define
non-factor payments
income earned by the government (as a result of production of goods and services)
72
# define
aggregate output
the total quantity of goods and services that an economy produces
73
# define
Chained Dollars
a method of calculating real GDP that splits the difference between growth rates calculated using early base years and the growth rate calculated using a late base year
74
# define
aggregate price level
a single number to define the overall price levels of final goods in the economy
75
# define
market basket
a hypothetical consumption bundle of consumer purchases of goods and services
76
A price index for a base year is always...
100
77
True or false: the three measures of inflation (CPI, IPPI, and GDP deflator) tend to fluxuate similarly
vrai
| true
78
# formula for
employment rate
(# of ppl employed/# of people in the working age population) x 100
79
# define
working age population
ppeople ages 15 and older
80
# list
criteria to be unemployed
1. does NOT have a parttime or fulltime job
2. looked for jobs in the last 4 weeks
3. is available for work
81
# formula for
labor force
employed + unemployed
82
# formula for
labor force pariticipation rate
(number of people in the labor force / number of peopole in the working age) x 100
83
# formula for
unemployment rate
(unemployed / labor force ) x 100
84
# define
Discouraged Worker
a person whose given up on searching for a job
| not counted as part of the labor force
85
# define
marginally attached workers
workers who are hopeful but waiting, not working and also not searching for a job
| not in the labor force
86
# define
underemployed workers
visible: part-time workers who want a full time job
invisible: workers who are dissasitisfied with their job
| counted as employed
87
# list
four places that unemployment can vary
1. regions
2. demographics
3. ethnicities
4. gender
88
# define
jobless growth
growth is below average, so unemployment rises
89
# define
Frictional Unemployment
unemployment due to job search, such as waiting for a job that fits your skillset
90
# define
Structural Unemployment
unemployment that results when there are more people seeking jobs in a particular labor market than there are jobs avaliable at the current wage rate
91
# define
Cyclical Unemployment
unemployment caused by recession
| enough capacity, but not enough demand for output
92
# formula for
Natural Rate of Unemployment
frictional + structural
93
# list
Three Ways to Change Unemployment
1. characteristics of workers in the labor force
2. changes in labor market institutions
3. changes in government policies
94
# define
inflation
rate of chnage in the overall price level
95
# define
disinflation
process of bringing the inflation rate down
96
# define
Deflation
fall in overall price level
97
How often is the labor force survery?
monthly
98
# define
quit rate
the fraction of workers voluntairily leaving their jobs in any given month
99
intepret unemployment rate as...
an indicator of overall labor market conditions
100
AN indication of the most unemployment being frictional is...
low unemployment rate and short average waiting time for unemployed
101
Government programs such as --------- and ---------- can reduce natural unemployment
job training, subsidies
102
# list
factors that influence structural unemployment
- minimum wage
- unions
- efficiency wages
- side effects of government policies
- mismatch between employees and employers
103
# formula for
real wage
wage rate / price level
104
# formula for
real income
nominal income / price level
105
# define
shoe-leather costs
increased cost of trnsactions when people are running around and trying to avoid holding money
106
# define
menu costs
the real cost of changing a listed price
107
# define
unit-of-account costs
costs arising from the way inglation makes mone a less reliable unit of measurement
108
# define
interest rate
the return a lender recieves for allowing borrowers the use of their savings for one year, calculated as a percentage of the amount borrowed
109
# define
nominal interest rate
the interest rate defined in dollars
110
# formula/definee
real interest rate
nominal interest rate - inflation
111
# winners and losers
actual inflation > expected inflation
borrowers: gain
lenders: lose
reason: the real value of repayment is lower than expected
112
# winners and losers
actual inflation < expected inflation
borrowers: lose
Lenders: gain
reason: real value of the repayment is higher than expected
113
# define
core inflation
a measure that excludes volalile food and energy prices
114
How is long run economic growth measured?
real GDP per capita!
115
# formula
%Δ real GDP per capita
%Δ real GDP - %Δ population
116
# define + formula
rule of 70
number of years for x to double = 70 / average growth rate
117
the most important factor of LREG is...
productivity
118
# define
productivity
labor productivity: real GDP / number of workers
| output produced per worker
119
# another
real GDP with productivity
real GDP = productivity x average hours per worker x proportion of population that works x population
120
# list
three things that promote productivity
1. inc in physical capital
2. inc in human capital
3. technological process
121
# define
production function
a description that relates quantity of capital, labor, and tech to output
| ex. we need specific inputs and tech and labor to make a slice of cake
122
# formula of
production function
Y = A x f(K, L, H)
123
K
| porduction function
physical capital in the economy
124
L
| production function
labor or total amount of labor hours in production
125
H
| production functio
human capital; could be measured by average years of schooling in LF or other similar means
126
A
| production function
technology, aka total factor productivity
127
Y
| produ
real GDP
128
Why real GDP per capita?
it isolates the effects of changes within the population
129
# define
physical capital
manufactured resources such as buildings and machines
| makes workers more productive
130
# define
human capital
the improvement in labor caused by the education and knowledge embodied in the workforce
| makes more productive workers
131
# define
technological process
an advance in the technical means of the production of a good or service
132
# define
positive marginal productvity of physical capital
the amount by which productivity is increased by a small increase in physical capital used
133
productivity is higher, all else the same when...
1. more physical capital is used
2. human capital increases
3. technology improves
134
# formula for
per worker production function
Y/L = A x f( (K/L) , (H/L) )
| Y/L = y
135
Y / L
| per worker production function
real output (GDP) per worker
136
K / L
| per worker production function
real physical capital per worker
137
H / L
| per worker production function
human capital per worker
138
A
| per worker production function
total factor productivity
139
# define
diminishing marginal returns
an increase in one input while keeping other inputs fixed will cause the increase in out out to get smaller and smaller
| leads to a concave graph
140
# define
growth accounting
estimates the contribution of each major factor int he per worker function to economic growth
141
# formula for
CObb-Doulass production function
Y = K^(1/3) x L^(1/3) x H^(1/3) x A
142
When all exponents equal 1...
constant returns to scale
143
%Δy =
| growth accounting output per worker
%ΔA + (1/3)%Δ(K/L) + (2/3)%Δ(H/L)
144
# list
6 channels that government policy can promote economic growth through
| that's one backwards way of saying it...
1. government subsidies to infrastructure
2. government subsidies to education
3. government subsidies to R&D (research and development)
4. maintaining a well-functioning financial system
5. protection of property rights
6. political stability and good governance
145
# define
property rights
legal rights held by owners of valuables to dispose of those valuables as they choose
146
# define
intellectual property rights
rights of inventors to accrue the rewards of their inventions
147
# define
convergence hypothesis
differences in real GDP per capita tend to narrow overtime because countries that start with lower real GDP per capita tend to have higher growth rates
148
Does money buy happiness?
1. richer countries onaverage have higher well-being
2. money matters less the richer you get
3. money isn't everything
149
environmental kuznets curve
environment will eventually improve :)
150
an increase in inventory will lead to...
increase in investment spending and an increase in GDP
