Econ 211

Front 1

Three Economic Questions for Societies:

Back 1

1. What to produce?
2. How to produce?
3. For whom?

Front 2

Traditional Societies Characteristics (5)

Back 2

Past
Custom
Tradition
Stable, Low Growth

Front 3

Command Societies Characteristics (3)

Back 3

Decision-making centralized, can be gov't or business, accountability in elections

Front 4

Market System Characteristics (3)

Back 4

Distribution based on supply and demand, Land-Labor-Money are commodities, mentality

Front 5

Role of Gov't in Mixed Market System (LARRM)

Back 5

Legal/institutional framework, Allocated resources, regulate trade, redistribute income, macroeconomic stability

Front 6

Production Possibilities Curve (def)

Back 6

snapshot picture showing all possible combinations of two goods that could be produced at full employment and maximum efficiency

Front 7

PPC Assumptions (3)

Back 7

1. 2 goods
2. Resources are fixed (quality/quantity)
3. Technology is constant`

Front 8

Shifts in PPC caused by (5)

Back 8

Increase in resources, increase in quality of resources, increase in technology, increase in technology applicable to both goods, increase in technology applicable to one good

Front 9

Demand Side Waste

Back 9

Occurs when we operate inside PPC due to failure to maintain FULL EMPLOYMENT

Front 10

Supply Side Waste

Back 10

Occurs when we operate inside the PPC due to UNDER_EMPLOYMENT

Front 11

MOVEMENT along Demand Curve (2)

Back 11

Change in "quantity demanded" - directly correlated to price of that good. ONLY PRICE

Front 12

SHIFTS along Demand Curve (4)

Back 12

Tastes and Preferences, Income, Price of a related good, expected prices

Front 13

Normal Good

Back 13

Increase in income = inc in Demand
Decrease in income = dec in Demand

Front 14

Inferior Good

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Increase in income = dec in Demand
Decrease in income = inc in Demand

Front 15

Price relation of SUBSTITUTE good in CONSUMPTION

Back 15

Increase of butters's price = Decrease of butter's Quantity demanded = Increase demand for Margarine

Front 16

Price relation of COMPLEMENT goods in CONSUMPTION

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Car's prices inc = Car's Qd dec = Tire's Demand dec

Front 17

Shifts in Supply Curve (4)

Back 17

Imports, Technology, Price of related goods, Taxes/subsidies

Front 18

Price relation of SUBSTITUTE good in PRODUCTION

Back 18

Corn's price increases = Corn's Qs inc = Soybean's Supply dec

Front 19

Price relation of COMPLEMENT good in PRODUCTION

Back 19

Beef's price increase = Beef's Qs inc = Leather's Supply inc

Front 20

Taxes/Subsidies = affect? how?

Back 20

Both affect costs of production
1. Inc Taxes = Dec Supply (vice versa)
2. Inc Subsidies = Inc Supply (vice versa)

Front 21

Equilibrium needs (2) things

Back 21

Position of Rest and No surpluses or shortages

Front 22

Price Ceilings
a) 3 qualities
b) results in:

Back 22

a) Combat inflation, alter resource allocation, promote equity
b) shortages

Front 23

Price Floors
a) 2 qualities
b) results in:

Back 23

a) Maintain competition (see ag. industry), equity (minimum wage)
b) surplus

Front 24

Price Elasticity of Demand (2)

Back 24

.shows us consumer responsiveness to change in prices
.measures quantity demanded sensitivity to prices

Front 25

Elasticity Equation

Back 25

Percentage change in quantity demanded / percentage change in price

Front 26

Inelastic Demand:
.type of good
.availability of close subs
.percentage of budget

Back 26

E < 1
.Necessity goods
.Close subs AREN'T available
.Small proportion

Front 27

Elastic Demand:
.type of good
.availability of close subs
.percentage of budget
.time

Back 27

E > 1
.Luxury items
.Close subs ARE available
.Large proportion
.Elasticity increase over time

Front 28

Revised sequence and MGMT of Demand (2)

Back 28

1. growth of large corporations makes MGMT necessary
2. emergence of affluent society makes MGMT possible

Front 29

Types of Unemployment (4)

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1. Frictional (voluntary b/w jobs)
2. Structural (lack marketable skills)
3. Seasonal
4. Cyclical (fluctuations in overall economic activity)

Front 30

Price Index Equation

Back 30

Cost of bundle in current year
/
Cost of bundle in base year (x100)

Front 31

Inelastic Demand:
.type of good
.availability of close subs
.percentage of budget

Back 31

E < 1
.Necessity goods
.Close subs AREN'T available
.Small proportion

Front 32

Elastic Demand:
.type of good
.availability of close subs
.percentage of budget
.time

Back 32

E > 1
.Luxury items
.Close subs ARE available
.Large proportion
.Elasticity increase over time

Front 33

Revised sequence and MGMT of Demand (2)

Back 33

1. growth of large corporations makes MGMT necessary
2. emergence of affluent society makes MGMT possible

Front 34

Types of Unemployment (4)

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1. Frictional (voluntary b/w jobs)
2. Structural (lack marketable skills)
3. Seasonal
4. Cyclical (fluctuations in overall economic activity)

Front 35

Price Index Equation

Back 35

Cost (Pi) of bundle (Qo) in current year
/
Cost (Po) of bundle (Qo) in base year (x100)

Front 36

Three Types of Price Indices

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1.Consumer Price Index (doesn't include inferior goods/ tends to overestimate)
2. Producer Price Index (intermediate stages of production determine / good leading indicator)
3. Implicity Price Deflator - best overall measure of inflation

Front 37

Types of Inflation (2)

Back 37

1. Demand Side (results from excess demand, fully employment, aka demand pull)
2. Supply Side (results from lack of supply, possibly full employment, aka cost push

Front 38

Costs of Inflation (3)

Back 38

1. Menu Costs (change in price lists)
2. Fixed Income Groups Cost (inflation erodes purchasing power)
3. Distortion Costs (income moves from creditors to debtors)

Front 39

Real Interest Rate Equation

Back 39

Nominal Interest Rate (Loan) - Rate of Inflation = Real Interest Rate

Front 40

GNP (Gross National Product)

Back 40

total market value of all final good and services produced by US citizens and companies in a given year.

Front 41

GDP (Gross Domestic Product)

Back 41

total market value of all final goods and services produced within the US in a given year.

Front 42

Converting GDP to GNP

Back 42

GDP + Net Foreign Factor Income

Front 43

Nominal vs. Real GDP

Back 43

.Nominal - measured in current $ not adjusted for inflation
.Real - measured in constant $ adjusted for inflation

Front 44

Calculating Real GDP

Back 44

(Nominal GDP / Price Index) x100

Front 45

Expenditure Approach to Calculating GDP

Back 45

GDP = C + Ig + G + (X-M)

Front 46

Calculate National Income (NI)

Back 46

GNP - Depreciation - indirect business taxes = NI

Front 47

Business Cycle Theory - phases
.real GDP trend growth per year
.avg length of expansion
.avg length of contraction

Back 47

a. expansion b. peak c. contraction. d. trough
.(3-3.5% per year)
.(4-4.5 years)
.(9 months)

Front 48

Classical Macroeconomic Model
.primary ASSUMPTION
.primary ASSERTION

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.prim Assump = wages and prices perfectly flexible in that they respond to surpluses and shortages in market
.prim Assert = economy will always tend toward equilibrium at full employment (laissez-faire)

Front 49

Classical Supply Theory

Back 49

Output independent of price level (vertical Aggregate Supply depends on LLCTech)
Supply-side model bc supply determines output

Front 50

Classical Demand Theory

Back 50

Downward sloping
Increase in prices erodes away purchasing power, reduces demand for OUTPUT

Front 51

Keynesian Macroeconomic Model
.primary ASSUMPTION
.primary ASSERTION

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.prim Assump = wages and prices are fixed bc they don't respond to surpluses or shortages
.prim Assert = the economy will move toward equilibrium, but it may or may not reach full employment

Front 52

Keynesian Components of Demand (3)

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1. Consumption Spending
2. Government Spending
3. Investment Spending
AD = C + I + G

Front 53

Keynesian Consumption Spending (def)(2 things you can do)(function)

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Def: most important determinant is disposable income (Yd)
.Spend it or save it
.Yd-C = S (general form of consumption function)

Front 54

Shifts in Consumption Spending (4)

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Disposable income, wealth, change in expected prices, expected lifetime income

Front 55

Marginal Propensity to Consume (MPS) - formula

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Slope = Change in Consumption / Change in Income

Front 56

Planned Autonomous Investment Spending (2)

Back 56

.Most volatile component of AD
.Most important source of INSTABILITY in business cycle

Front 57

Investment Spending Function

Back 57

I = f(i,price)
.i = interest rates
.price = expectations**causes volatility

Front 58

Keynesian Equilibrium
.3 conditions

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1. Total Spending = Total Output
2. Savings = Planned Inv Spending
3. No Unintended Changes in Inventories

Front 59

Recessionary Gap

Back 59

occurs when the full employment level of output is greater than the equilibrium level of output

Front 60

Multiplier Equation

Back 60

= 1/(1-MPC)

.larger MPC = larger Multiplier

Front 61

Change in Output Equation

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= Change in spending (CIG) x Multiplier

Front 62

Change in lump sum taxes to f(Y) will add a first equation that is

Back 62

= Change in taxes x MPC = Change in f(Y)

Front 63

The Aggregate Demand Model
.slope?
.equation?

Back 63

Downward slope
AD = C + I + G

Front 64

SHIFTS in AD caused by: (5)

Back 64

Inv Sp, Cons Sp, Govt sp, Taxes, and Money Supply

Front 65

The Aggregate Supply Model
.Short Run (PPA) - slope
.Long Run

Back 65

SR - upward sloping Partial Price Adjustment = incr in Output(Q) puts upward pressure on wages that put upward pressure on prices.
LR - we're all dead meaning we will buy regardless of prices to survive