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54 Cards in this Set

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Scarcity
Economics is the study of how we attempt to overcome scarcity. All economic goods (those that hold value) are scarce (limited). Scarcity forces us to make decisions and trade-offs that result in an opportunity cost.
Opportunity Cost
when we choose something, there is always a sacrifice involved.
Demand/Demand Curves
Demand is when an entity (person, business, etc.) is both willing and able to purchase an item. negative slope, down
Supply/Supply Curves
Supply is when producers are willing and able to produce goods and services at different prices in the marketplace. Again a producer or 'firm' must both be willing and have the ability to produce an item in order to offer it for sale.
positive or up
Equilibrium
the supply and demand curves on the same graph, their point of intersection is the equilibrium price and quantity for that good or service.
Circular Flow
There are two flows going at the same time. Flowing in a clockwise flow is the flow of products and resources. In exchange for this flow, there is an opposite or counterclockwise flow of money through the economy. Let's analyze these one at a time.
Gross National Product
:The difference between GNP and GDP is that the GNP (Gross National Product) includes profits earned by a country’s companies in business both at home and abroad; GDP includes only items produced in the country itself.
Gross Domestic Product
If you take the value of all goods and services produced in a country over a given time period this total is the GDP. This includes services (such as oil change, haircut, etc.) and goods such as books, clothing, etc.

The GDP is the total dollar value of all FINAL goods and services produced in a nation during one year.
Consumer Price Index
This index measures the change in prices of goods and services which most of us as consumers purchase. This measure compares the cost of a standard 'basket' of goods from year to year. That way, we can know how much prices have increased over time.
Net National Product
NNP is simply the GNP minus the depreciation value of the goods.
National Income
Take the amount of money totaled for Net Domestic Product. Subtract net foreign factor income earned in the U.S., and subtract indirect business taxes. Now you are left with NI.
Personal Income
Personal income is basically how much money we earn. To determine this amount, we take the National Income, then subtract out that money which does not come to us . . . corporate income taxes, profits the corporations keep, and Social Security taxes.
Disposable Personal Income
: Now, you can take your $2000 pay check, and you will notice that one of the deductions was $500 in federal income taxes. Before you take anything else out of your total, this amount (in this example ($1500) would be your disposable personal income
Cost Push Inflation
Cost push inflation is when prices rise because the cost of making the product increases.
Demand Pull Inflation
Demand pull inflation is when prices go up due to an increase in consumer demand for goods. As explained in module 1, many things can increase demand including an increase in income, growing population, and a change in tastes and preferences. For example, as the number of tourists increases, the demand for goods will increase thereby leading to a higher equilibrium price.
Wage Push Inflation
Wage push inflation is when prices increase due to the fact that workers receive more wages for the same amount of work. For example, if the shell collectors are paid $1 an hour and work 8 hours a day this year, then next year they are paid $1.50 an hour and do not take on any extra responsibilities, the shell suppliers will need to raise their prices to cover these costs.
Profit Push Inflation
Profit push is when the owners of business raise prices simply because they wish to make more profit. For example, if the Sunny Seashell Necklace company raised the price of its sea shell necklaces because it was sure tourist would pay, this would lead to an increased price level.
The Business Cycle
The business cycle, which is illustrated graphically below, portrays the highs and lows of the economy as people buy and sell products. Before we discuss the four basic phases, it should be noted that a business cycle DOES NOT follow a traditional time pattern
Aggregate Demand
The Aggregate Demand Curve can be defined as the "total quantity of output demanded by individuals (consumers), businesses (industry), and the government at different price levels in a given time period."
Consumer Demand
what the purchasers want
Business Investment
is the total amount spent by firms on newly produced factories, machinery, and plant and equipment. Investment also includes the expenditures of households on new homes. Investment must expand the production capacity of the economy. In contrast to consumption, investment is not for current enjoyment.
Government Purchase
what the government buys
Exports
sold to other countries
Imports
bought from other countries
Net Exports
exports minus imports
Aggregate Supply
total supply
Long Run vs. Short Run
In the short run, as prices go up, producers want to produce more of their product. But in the long run, the price level does not affect the supply of goods. In the long run, supply is determined by the level of productivity and the supply of capital and labor, thus the curve is vertical.
Equilibrium of AD and AS
The short-run equilibrium occurs where the Aggregate Demand curve crosses the short-run Aggregate Supply curve
Classical Theory
The classical theory views full employment as the norm of a capitalist economy. This theory holds that the best way to achieve price stability, full employment and steady economic growth is for the government to stay out of the economy. This "hands-off" approach is termed "laissez-faire."
Keynesian Theory
The Keynesian school of thought holds that the economy may be in equilibrium in the short run, either above or below full employment. However, this theory believes that the government should actively pursue monetary policies (enacted by the Federal Reserve Bank) and fiscal policies (enacted by the Congress) to reach adjustments to prices, employment and growth levels. If the government does not interfere to a degree, the result could be severe recession or even economic depressions.
Wage Push Inflation
Wage push inflation is when prices increase due to the fact that workers receive more wages for the same amount of work. For example, if the shell collectors are paid $1 an hour and work 8 hours a day this year, then next year they are paid $1.50 an hour and do not take on any extra responsibilities, the shell suppliers will need to raise their prices to cover these costs.
Profit Push Inflation
Profit push is when the owners of business raise prices simply because they wish to make more profit. For example, if the Sunny Seashell Necklace company raised the price of its sea shell necklaces because it was sure tourist would pay, this would lead to an increased price level.
The Business Cycle
The business cycle, which is illustrated graphically below, portrays the highs and lows of the economy as people buy and sell products. Before we discuss the four basic phases, it should be noted that a business cycle DOES NOT follow a traditional time pattern
Aggregate Demand
The Aggregate Demand Curve can be defined as the "total quantity of output demanded by individuals (consumers), businesses (industry), and the government at different price levels in a given time period."
Consumer Demand
what the purchasers want
Business Investment
is the total amount spent by firms on newly produced factories, machinery, and plant and equipment. Investment also includes the expenditures of households on new homes. Investment must expand the production capacity of the economy. In contrast to consumption, investment is not for current enjoyment.
Government Purchase
what the government buys
Exports
sold to other countries
Imports
bought from other countries
Net Exports
exports minus imports
Aggregate Supply
total supply
Long Run vs. Short Run
In the short run, as prices go up, producers want to produce more of their product. But in the long run, the price level does not affect the supply of goods. In the long run, supply is determined by the level of productivity and the supply of capital and labor, thus the curve is vertical.
Equilibrium of AD and AS
The short-run equilibrium occurs where the Aggregate Demand curve crosses the short-run Aggregate Supply curve
Classical Theory
The classical theory views full employment as the norm of a capitalist economy. This theory holds that the best way to achieve price stability, full employment and steady economic growth is for the government to stay out of the economy. This "hands-off" approach is termed "laissez-faire."
Keynesian Theory
The Keynesian school of thought holds that the economy may be in equilibrium in the short run, either above or below full employment. However, this theory believes that the government should actively pursue monetary policies (enacted by the Federal Reserve Bank) and fiscal policies (enacted by the Congress) to reach adjustments to prices, employment and growth levels. If the government does not interfere to a degree, the result could be severe recession or even economic depressions.
Which of the following goods would be considered scarce?
I. Time
II. Drinking Water
III. Diamonds
I, II, and III
Frictional unemployment could result from each of the following except:

The inability of people to find work during certain seasons of the year.
This is a correct answer

The movement of employees out of declining sectors of the economy.

The opportunity for people to find better jobs.

The reallocation of employees to growing industries.
The inability of people to find work during certain seasons of the year.
Which of the following is consistent with theories regarding the long-run aggregate supply curve?
I) The Supply curve will be horizontal until full employment is reached
II) The Supply curve will be vertical until full employment is reached
III) The Supply curve will be horizontal, then upward-sloping, and ultimately vertical.
IV) The Supply curve will be horizontal at all production levels.
V) The Supply curve will be vertical at all production levels
V only
Which of the following fiscal policy measures would increase aggregate demand?
I. Decrease personal income taxes
II. Decrease import taxes
III. Decrease government expenditures
I only
The Fed could sell bonds in the open market in an effort to keep interest rates constant when:
Money demand increases.
Using the graph, a shift from AS3 to AS2(left) could be caused by: A decrease in government spending.

A decrease in the money supply.

An increase in the marginal tax rate.

An increase in the investment in human capital.

All of the above
An increase in the marginal tax rate.
The use of tax incentives and deregulation to stimulate the ability and willingness to produce goods and services is most closely associated with:

Fiscal policy.

Classical.

Supply-side policy.

Monetary policy.

Neo-Classical Policy
Supply-side policy.
It is not likely that a country will specialize completely in one good because

Comparative advantage only works with some products.

Opportunity costs increase as more of a good is produced.

The country will need some of the product for its own people.

The country would end up inside its production-possibilities curve.

The country would run out of resources.
Opportunity costs increase as more of a good is produced.
When a country has a lower opportunity cost in producing a good than any other country:

I) Specialization in producing the good will increase consumption possibilities for everyone.
II) It has favorable terms of trade in producing the good.
III) It has an absolute advantage in producing the good.
I only