Macro Economics Flashcards For Midterm #1

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Positive Economics

Back 1

The branch of economic analysis that describes the way the economy actually works

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normative economics

Back 2

makes predictions about the way the economy should work

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surplus

Back 3

when the quantity supplied exceeds the quantity needed

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shortage

Back 4

when the quantity demanded exceeds the quantity supplied

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normal good

Back 5

if income increases, we will demand more of it

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inferior good

Back 6

if income increases, we demand less of it

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substitute good

Back 7

Coke vs. Pepsi: buy one or the other (if price of coke increases, people buy more pepsi)

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complement good:

Back 8

hot dogs and buns: one goes with the other (if price of hotdog increases, people will buy less buns and hotdogs)

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price ceilings

Back 9

max price something can cost...usually imposed during crisis (war, disasters, etc.)

(inefficient allocation to consumers, waster resources, inefficiently low quality, black markets)

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price floors

Back 10

intervention to push price higher (minimum wage)

(inefficiently low quantity, inefficient allocation to sellers, waster resources (labor), inefficinetly high quality)

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Keynesian economics

Back 11

a theory of how productive capacity and actual spending can get "out of sync"

use FISCAL or MONETARY policies

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fiscal policy

Back 12

use of presidential, congressional spending (taxing to manipulate state of economy)

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monetary policy

Back 13

changing the quantity of dollars in circulation to manipulate interest rates and state of the economy

using money or interest rates

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Neo-Classical economics

Back 14

relates supply and demand to an individuals rationality and their ability to maximize profits

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business cycle

Back 15

the seemingly regular progression of the economy (SHORT TERM)

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GDP

Back 16

Gross domestic product - measure in dollars about how much we produce

growth not consistent but long-run growth trend is increasing for USA

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peak, trough,

Back 17

peak of business cycle

lowest point in business cycle

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contraction / expansion

Back 18

when market is decreasing

when market is increasing

SHORT TERM

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inflation rate

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annual percent change in aggregate price level

(price index year 2 - price index year 1)/ (price index year 1) x100

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price stability

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when the aggregate price level is changing slowly

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National Income Accounting Identity

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Y=C+I+G+(X-M)

Y=Income

C=Consumption

I=Investment

G=Government Purchases

X=Exports

M=Imports

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Aggregate Spending

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the sum of the consumer spending, investment spending, government purchases, and exports - imports

total spending on domestically produced final goods and services in the economy

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Per-Capita GDP

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total GDP divided by the population of economy

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Calculating GDP (3 methods)

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1) market value of all sales of final goods

2) Sum of "value-added" by all firms

3) Sum of payments to all factors

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Nominal GDP

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GDP using today's prices

price X quantity

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Real GDP

Back 26

Measured using a base year's prices but today's quantities

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Price Index

Back 27

ratio of the current cost of that market basket to the cost in a base year, multiplied by 100

= (cost of market basket in a given year)/(cost of market basket in base year) x 100

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Market Basket

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a measure of the aggregate price level used to calculate the cost of purchasing a market basket

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inflation rate

Back 29

(price index year 2 - price index year 1)/(price index year 1) X 100

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government transfers

Back 30

payments by the government to individuals for which no good or service is provided in return

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disposable income

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total amount of household income available to spend and/or save

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private savings

Back 32

disposable income - consumer spending

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government borrowing

Back 33

total amount of funds borrowed by federal, state, and local government in financial markets

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intermediate goods/services

Back 34

goods or services bought from 1 firm by another firm that are inputs for production of final goods and services

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Net Exports

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the difference between the value of exports and the value of imports

(exports - imports)

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Chained dollars

Back 36

method of calculating changes in real GDP using the average between the growth rate calculated using an early base year and the growth rate calulated using a late base year

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CPI (Consumer Price Index)

Back 37

measures the cost of the market basket of a typical urban American family

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PPI (Producer Price Index)

Back 38

measure changes in the prices of goods purchased by producers

i.e. electricity, steel, coal, etc.

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GDP Deflator

Back 39

for a given year is 100X the ratio of nominal GDP to real GDP

(Nominal GDP)/(Real GDP) X 100