Macro Exam 1

Front 1

Scarcity

Back 1

Lack of goods

Front 2

How many businesses in U.S?

Back 2

30 million

Front 3

How many consumers in US?

Back 3

300 million

Front 4

What are the 3 coordination problems of every society?

Back 4

1) How to motivate people to not only produce g+s in cost effective ways but also to find better ways to do so
2) how to decide which of the many possible combinations of g+s it should produce each year
3) how to decide the quantity & type of g+s each person should receive

Front 5

Economics

Back 5

The study of how a society solves these 3 coordination problems

Front 6

Microeconomics v. Macroeconomics

Back 6

Micro/Macro: Price of a single good/All prices in an economy
Micro/Macro: The production of a single good/Total production of an economy (GDP)
Micro/Macro: Employment status of a worker/Employment of an economy (Employment rate)

Front 7

Goods

Back 7

Anything that gives someone satisfaction

Front 8

_______ ---> _____ ---> opportunity cost

Back 8

scarcity, choices

time is scarce --> make choices --> give something up

Front 9

Ceteris Paribus

Back 9

"Holding all other things equal": we will hold some important variables constant during model building

Front 10

Utility

Back 10

The total satisfaction or "usefulness" that a consumer receives from a good

Front 11

Opportunity Cost

Back 11

The most highly valued alternative given up when a choice is made. "What you would have done" "What you gave up to do something"

Front 12

Resources?

Back 12

Land: animals, trees, water, and shit
Labor: the physical & mental talents of the people who contribute to production
Capital: produced g+s that are used to produce other g+s

Front 13

Production Possibilities Frontier (PPF)

Back 13

Shows all possible combinations of 2 goods that a person/society can produce in a certain period of time given certain technology & certain resources

Front 14

Straight line vs. Bowed out

Back 14

Straight line assumes that everyone has the same skills. The PPF is bowed out because every one is diff~

Front 15

Law of Increasing Opportunity Costs

Back 15

States that opportunity cost rises as more factors are used to produce increasing quantities of on product or the other

Front 16

Productive Efficient (PPF)

Back 16

Any point on the line/Full employment

Front 17

Productive Inefficient (PPF)

Back 17

Any point to the left of a line

Front 18

Attainable (PPF)

Back 18

Any point on the line or to the left of the line

Front 19

Unattainable

Back 19

Any point to the right of a line

Front 20

Causes of economic growth

Back 20

Expanding resources, improving technologies

Front 21

Comparative Advantage

Back 21

The ability to produce something at a lower opportunity cost

Front 22

Absolute Advantage

Back 22

The ability to produce more than someone else

Front 23

Quantity Demanded (QD)

Back 23

The number of products a consumer is willing and able to buy in a specific time and place

Front 24

Factors of Demand

Back 24

Price: P ^ -> QD v
Income: I ^ -> QD ^
Taste & Prefs: TP ^ -> QD ^
Expectations of future prices: Pf^ -> QD ^
Number of buyers: N ^ -> QD ^
Price of complements: Pc ^ -> QD v
Price of Substitutes: Ps ^ -> QD ^

Front 25

Normal Good

Back 25

A good for which QD increases as income increases

Front 26

Inferior Good

Back 26

A good for which QD decreases as income increases (public transportation, store brand products, fast food)

Front 27

Law of Demand

Back 27

As the price of a good rises, the quantity demanded of the good goes down, assuming all other factors that could affect QD don't change

Front 28

Market

Back 28

An institution that enables buyers and sellers to interact and transact with one another

Front 29

Demand Curve

Back 29

Plots the relationship between price & QD, given the factors of demand are constant

Front 30

Demand

Back 30

The maximum amount of product that buyers are willing and able to purchase over some time period at various prices, holding all other relevant factors constant

Front 31

Substitutes

Back 31

Pens & pencils

Front 32

Complements

Back 32

Popcorn & movies

Front 33

Market Demand Curve

Back 33

the sum of individual demand curves

Front 34

Law of diminishing marginal utility

Back 34

The marginal utility of each unit decreases as the supply of unit increases

Front 35

Quantity Supplied

Back 35

The # of products producers will produce and want to sell in a particular time and place

Front 36

Factors of Supply

Back 36

Price: P ^ QS ^
Cost of Production:
- Technology: T ^ -> QS ^
- Labor: W^ -> WS v
-Cost of other Resources: CR^ -> QS v
Number of sellers: # ^ -> QS ^

Front 37

Supply Curve

Back 37

Plots the relationship between price & QS, assuming all other factors remain constant

Front 38

Equilibrium

Back 38

When QS = QD

Front 39

Surplus

Back 39

When QS > QD

Front 40

Shortage

Back 40

When QD > QS

Front 41

Price Ceiling

Back 41

A government set maximum price that can be charged for a product or service. When the price ceiling is below equilibrium, it leads to shortages

Front 42

Price Floor

Back 42

A government set minimum price that can be charged for a product or service. When the price floor is set above equilibrium, it leads to surplus

Front 43

Business Cycle

Back 43

Alternating increases and decreases in economic activity.
Four phases: peak/boom, recession/downturn/contraction, trough/bottom of cycle, recovery/expansion

Front 44

Circular Flow Diagram

Back 44

Shows how businesses and households interact through the product and resource markets. Income = Spending

Business, Product Market, Households, Resource Market

Front 45

Gross Domestic Product (GDP)

Back 45

Total market value of all final goods & services produced in an economy in a given time period, where value of goods and services are calculated using nominal GDP or real GDP

Front 46

2 types to calculate GDP

Back 46

Nominal GDP: The current set of prices
Real GDP: A fixed set of prices from a base year

Front 47

Goals of macroeconomic policy

Back 47

High employment, price stability, high economic growth

Front 48

Personal Consumption

Back 48

Value of all goods & services purchased by residents of US

70% of GDP

Front 49

Investment Spending

Back 49

Spending on new homes, equipment, software, & other structures

11% of GDP

Front 50

Gov't Spending

Back 50

Wages & salaries of gov't employees, purchases of g+s from the private sector & rest of the world, & government purchases of new structures, equipment, & software

20% of GDP

Front 51

Net Exports

Back 51

Exports - Imports

-3% of GDP (Imports are greater than exports)

Front 52

How is GDP calculated

Back 52

Consumption + Investment Spending + Government Spending + (exports - imports)

Front 53

Problems with our measure of GDP

Back 53

-Doesn't take into account: externalities, non-market goods & services, & distrubution
-Can be artificially high after natural disasters