Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
55 Cards in this Set
- Front
- Back
|
Define unemployment rate
|
the number of unemployed people expressed as a percentage of the labor force
|
|
|
describe one type of market failure
|
if a monopoly exists, that would be a market failure because there is a lack of business competition, undermining the "economic freedom" goal
|
|
|
how does our govt attempt to fix a market failure involving prices
|
by placing price floors or ceilings
|
|
|
Draw a diagram to show a price floor in the "real world". describe a negative effect of this price floor
|
it would be a supply & demand graph of min. wage. The price floor would cause business input costs to go up, perhaps causing them to layoff certain workers
|
|
|
List and define the US economic goals.
|
1)price stability--keeping inflation low (usually under 3% a year)
2)economic freedom--people can control their own resources (money, usually) 3)full employment--everyone who wants to work has a job (in the US, full employment means the unemployment rate is < 5%) 4)economic growth--people have a better standard of living over time 5)economic security--there is a safety net for those in need 6)economic equity--"fair" distribution of resources |
|
|
what is the GDP formula?
|
I+G+C+(X-M)
|
|
|
if nominal GDP were to increase this year vs last year, will our standard of living necessarily increase? explain.
|
not necessarily because nominal GDP has not adjusted for inflation. it could be that the new GDP is only higher because prices are higher
|
|
|
what are two common causes of increased AD?
|
increased govt. spending or increased consumer spending
|
|
|
From a Neo-Classical perspective, describe a situation where an increase in AD would NOT cause inflation.
|
if AD and LRAS both moved
|
|
|
What 2 things would a Keynesian suggest to expand/improve our economy.
|
increased govt. spending
monetary policy + fiscal policy |
|
|
Full employment may occur @ Yf. What does Yf represent in macro terms?
|
that our economy is @ full capacity
|
|
|
what is a possible negative effect of deflation
|
people stop buying things because prices will get lower and businesses will fail because of this lack of demand
|
|
|
what would cause a LRAS increase? what effect would this have on the economy if the AD didn't move.
|
efficiency of economy has gone up
unemployment increases prices decrease |
|
|
What are 2 Neo-classical solutions to a high unemployment rate?
|
1) move LRAS by decreasing input costs for businesses
2) remove welfare, etc. to encourage people to get jobs instead of mooching off the govt |
|
|
if our country is experiencing disinflation and frictional unemployment (ceteris peribus), what should the Fed do? why?
|
nothing. absolutely diddly-squat. disinflation is good, it meets the goal of price stability. also, frictional unemployment is always present in any economy.
|
|
|
in general, what do "leading economic indicators" (LEI) forecast?
|
tell us what the economy will be like in the near future
|
|
|
market failure
|
when a market allowed to operate freely has negative consequences
|
|
|
price floor
|
min. set price usually set by govt.
e.g. min wage, milk |
|
|
price ceiling
|
max. set price, usually set by govt.
e.g. rent control |
|
|
positive economics
|
statements of fact, data from reliable sources
e.g. "Federal min wage was $5.15/hr from '97 to '07" |
|
|
normative economics
|
opinion of interpretation of information/data
e.g. "the min. wage should be increased to help poor." |
|
|
economic system
|
a set of rules that govern the production & distribution of goods/services
|
|
|
What are the 3 basic economic questions
|
1. Who should get what is produces, and how much?
2. What and how much should be produced? 3. How should goods/services be produced? |
|
|
what are the components/requirements of a capitalist/market economy?
|
_laissez-faire--the govt does not make econ decisions
_free enterprise--freedom to run a business as you see fit _private property--you can own/use property _pi (profit) motive--people can try to make money _competition--allowed to compete to make $$ _voluntary exchange--no one can force you to buy anything _available credit (loans)--people must be able to loan money-helps people take advantage of other aspects *most important aspect of a capitalist economy |
|
|
what are the components/requirements of a command/control (commuist) economy?
|
_govt answers all basic economic questions
|
|
|
monetary policy
|
govt. controlling $$ supply to fight inflation & unemployment
|
|
|
who is in charge of monetary policy?
|
the federal reserve
|
|
|
loose money
|
more $$ put into supply
aka "easy money" |
|
|
tight money
|
taking $ out of supply
|
|
|
Go through the process of loosening $
|
1) Fed uses tool to lower interest rates
2) banks are able to offer lower rates on loans 3) more people are able to get a loan 4) people have more $ and spend it 5) the demand curve shifts to the right 6) unemployment decreases, prices increase |
|
|
Go through the process of tightening $
|
1) Fed uses tool to raise interest rates
2)banks raise interest rates 3)fewer people are going to borrow $ 4) people have less $ to spend 5) demand curve shifts to the left 6) unemployment goes up, prices tend to stay about the same (disinflation) *prices tend to be "sticky" because people are not easily willing to charge less |
|
|
what are 2 tools the Fed uses to raise/lower interest rates?
|
discount rate
reserve requirement |
|
|
GDP
|
total spending in a nation per year
|
|
|
what are the Leading Economic Indicators (LEIs)?
|
1) S&P 500
2)initial unemployment claims--first time people go apply for unemployment benefits 3)avg. weekly work hours 4) # of new applications for building permits |
|
|
lagging economic indicators
|
data changes after overall economy has changed--tells us how econ has been for past 6 months
1) unemployment rate 2)consumer price index (CPI) stagflation--inflation & unemployment are high (very rare!) |
|
|
credit
|
euphemism for loan
|
|
|
APR
|
annual percentage rate--yearly interest rate
|
|
|
finance charge
|
interest added on to your loan balance
|
|
|
how can you avoid paying interest?
|
by paying off balance every month
|
|
|
what do coincident economic indicators show/describe?
|
what the economy is doing currently
|
|
|
what are the 4 coincident economic indicators?
|
1.GDP 2.personal income 3.industrial production (what factories are making) 4.retail sales
|
|
|
what is a fico score? What are its possible values
|
measures liklihood a borrower will repay a loan/between 300 and 850
|
|
|
what are good things to borrow money for?
|
anything that can help you make more $ than you'd pay in finance charges:/home/education
|
|
|
what are some risky things to borrow money for?
|
starting a business (most die w/in 2 yrs)/investing on margin
|
|
|
mortgage
|
homeloan
|
|
|
home equity
|
the amount of a house the home owner owns
|
|
|
refinance
|
a new mortgage replaces your previous one
|
|
|
monopoly
|
1 firm/Debeer's diamonds/very high price control/very very high barriers for new firms
|
|
|
oligopoly
|
a few firms/Coke&Pepsi/possible price control/comewhat(possibly) high barriers for new firms
|
|
|
monopolistic competition
|
numerous firms/fast food restaurants/some price control/some barriers for new firms
|
|
|
perfect competition
|
infinite # of firms/lemonade stands in summertime/none/none
|
|
|
what is the purpose of the FTC?
|
the Federal Trade Commission keeps business competition (secures economic goal of price stability)
|
|
|
How does the FTC operate?
|
a board of 5 people, businesses must ask their permission before mergering or "buying out"/can impose conditions to merger
|
|
|
cartel
|
when 2 companies conspire to "fix" prices--usually by limiting supply
|
|
|
anti-trust laws
|
illegalizes cartels and trusts
|
