Macro Exam 1

Front 1

Economics I

Back 1

the study of how humans coordinate their wants and desires, given the decision-making strategy, social customs, and political realities of society

Front 2

Economics II

Back 2

the study of how people use their scarce resources to satisfy their unlimited wants

Front 3

3 Basic Questions

Back 3

What and how much to produce?
How to produce it?
For whom to produce it?

Front 4

Opportunity Cost

Back 4

-the benefit you might have gained from choosing the next best alternative
-what you give up in order to consume something else

Front 5

Normative vs. Positive

Back 5

normative=opinions
positive=facts

Front 6

Macro vs. Micro

Back 6

Macro=entire economy
Micro=pieces of the economy

Front 7

Consumer Sovereignty

Back 7

voting by how we spend our money

Front 8

Economic Decision Rule

Back 8

if MB>MC, then do it.
if MB<MC, then dont do it

Front 9

Big Goal

Back 9

economic growth to improve our standard of living

Front 10

Economic Resources

Back 10

land
labor
capital
entrepreneurship

Front 11

Land

Back 11

anything in or on the earth (including livestock)

Front 12

Labor

Back 12

Human effort to make a wage

Front 13

Capital

Back 13

building, machines, equipment that can be used and reused

Front 14

Entrepreneurship

Back 14

creativity, vision, innovation. taking risks to start something new

Front 15

Production Possibilities Curve

Back 15

a curve measuring the maximum combination of outputs that can be obtained from a given number of inputs

Front 16

4 Assumptions

Back 16

1.two broad categories of output
-capital, consumer
-defense, nondefense
2.production is limited to one year
3.resources are limited in quality and quantity
4.technology is fixed

Front 17

PPC is a graphical representation of what?

Back 17

opportunity cost and choice

Front 18

Inefficient Point

Back 18

a point inside the PPC curve not using all resources

Front 19

Unattainable Point

Back 19

a point outside the PPC curve

Front 20

Ways to Achieve Economic Growth

Back 20

increase in quantity/quality of resources
improvement in technology
increase productivity

Front 21

Balanced Growth

Back 21

evenly growing between the two outputs

Front 22

Biased Growth

Back 22

better suited to producing one or the other of the two outputs

Front 23

Comparative Advantage

Back 23

producing output at a lower opportunity cost

Front 24

Circular Flow Diagram

Back 24

households, businesses, government, international, resource market, goods and services market.
goods and services flow counterclockwise as $ flows clockwise

Front 25

Households (Consumers)

Back 25

-demand (purchase) goods and services from the businesses
-supply resources to the resource market in exchange for a wage

Front 26

Businesses (Firms)

Back 26

-purchase resources (the labor) from the resource market in order to produce products
-supply goods and services to the consumers
-types: sole proprietorship, partnerships, corporations

Front 27

Sole Proprietors

Back 27

-one owner
-easy to start, few hassles
-injuries could damage your business
-71% of businesses are this type of business
- they make 4% of the $$

Front 28

Partnerships

Back 28

-two or more owners
-unlimited liability, one person leaves, the other is responsible
-10 % of businesses are this type of business
-they make 7% of the $$

Front 29

Corporations

Back 29

-stock holders own them and sometimes run them
-limited liability
-one person leaves, others get hurt
-19% of businesses are this type of business
-they make 89% of the $$

Front 30

Government

Back 30

-budget balance=revenue(taxes)-expenditures(roads, police, NASA)
-largest source of revenue for the government is income taxes

Front 31

Types of Taxation

Back 31

-progressive: tax rate increases as income increases
-proportional ("flat" tax): everyone pays the same rate ex) sales tax
-regressive: as income increases, the amount paid in taxes decreases ex) sales tax on food

Front 32

Roles for Government

Back 32

1. providing a stable set of institutions and rules
ex) court, laws
2. promoting competition
ex) antitrust laws to limit monopoly power
3. correcting for externalities
ex) EPA
4. ensuring economic stability and growth
ex) fiscal policy to stabilize GDP
5. providing public goods
ex) museums, parks, National Defense
6. adjusting for undesirable market results
ex) income redistribution

Front 33

International

Back 33

exports: from US to the world
imports: to US from the world
trade balance=exports-imports

Front 34

Largest Trading Partners

Back 34

imports
1. Canada 16%
2. China 15.9%
3. Mexico 10.4%
4. Japan 7.9%
5. Germany 4.8%
exports
1. Canada 22.2 %
2. Mexico 12.9%
3. Japan 5.8 %
4. China 5.3 %
5. United Kingdom 4.4%

Front 35

Trade Restrictions

Back 35

-tariffs: tax on imports
-quotas: limit on quantity of imports
-qualitative: limiting imports based on quality specifications
ex) plywood knots per board

Front 36

Employment Act of 1946

Back 36

-maximize employment: minimize unemployment. "full" employment = 5% unemployed
-maximize production: GDP capacity utilization = 85%
- maximize purchasing power: little or no inflation

Front 37

Gross Domestic Product (GDP)

Back 37

the market value (PxQ) of all final goods and services produced in a country in one year

Front 38

Gross National Product (GNP)

Back 38

the market value of all final goods and services produced in a country in one year

Front 39

Final vs. Intermediate Goods

Back 39

-intermediate goods: goods used in the production of other goods
-the finished product

Front 40

Real vs. Nominal GDP

Back 40

-real GDP: adjusted to remove the effects of inflation
-nominal GDP: current prices

Front 41

Generalized Business Cycle Graph

Back 41

-Area 1: where GDP is increasing called expansion, upturn, or economic boom
-Area 2: called the peak. transition between an expansion and a contraction
-Area 3: where GDP is decreasing. called a downturn, contraction, or recession
-Area 4: Trough, transition between a contraction and an expansion

Front 42

Unemployment Rate

Back 42

number of unemployed divided by number in labor force

Front 43

Labor Force

Back 43

all US residents who are 16 years or older, non-institutionalized, and employed or actively seeking work

Front 44

Actively Seeking Work

Back 44

1) must be available to work
2) must have looked for work in the past 4 weeks
3) waiting for a recall (laid off)
4) starting a job in 30 days

Front 45

Target Rate of Unemployment/"Full' Employment

Back 45

5% unemployment

Front 46

Problems with Unemployment Rate

Back 46

1) Discouraged Workers: gave up looking for work. approx 1 million (if included, employment rate would be higher)
2) Underemployed: employed below their skill or ability, or part time
3) Underground Economy: unreported economic activity, being paid under the table. approx 5%-33% of GDP

Front 47

Types of Unemployment

Back 47

1) seasonal: unemployment from changes in the seasons
2) frictional: temporary unemployment from job switches
3) cyclical: unemployment from changes in the business cycle
4) ***structural: unemployment from technological change and innovation that make some jobs obsolete

Front 48

Inflation

Back 48

sustained increase in the average level of prices

Front 49

Deflation

Back 49

sustained decrease in the average level of prices

Front 50

Disinflation

Back 50

increase in the prices but by a smaller amount than the previous period

Front 51

Consumer Price Index (CPI)

Back 51

tracks the prices of consumer goods

Front 52

Producer Price Index (PPI)

Back 52

tracks the price of products/ingredients for producers

Front 53

GDP Deflator

Back 53

all GDP goods

Front 54

Inflation Rate

Back 54

CPI year 2 - CPI year1/CPI year 1 * 100

Front 55

Hyperinflation

Back 55

extremely high rate on inflation. monthly inflation > 50%