Macro Final

Front 1

opportunity cost

Back 1

value of next best alternative that is given up in order to engage in a particular economic engagement

Front 2

Productive possibilites frontier

Back 2

a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technologies. The more resources devoted to that product, the smaller the payoff of devoting additional resources to it.

Front 3

PPF Increasing marginal opportunity

Back 3

as economy moves down the production possibilites frontier

Front 4

quantity demanded is a function of:

Back 4

price of good, projections of future price of good, income (rising of purchasing power)

Front 5

shifts of demand surve versus movement on demand surve

Back 5

MOVEMENTS ALONG: when price of good changes (change of quantity demanded)
SHIFTS: when any other variables change demand

Front 6

price ceiling

Back 6

a legally determined maximum that sellers may charge. ex: rent control. demand will be higher than supply. some people should have access to goods that they otherwise wouldn't be able to afford. bad because some people still wont have acess to them (long lines), and black markets.

Front 7

price floor

Back 7

a legally determined minimum that sellers can receive. ex: min wage. reduces economic efficiency. supply will be higher than demand

Front 8

effect of sales taxes on prices

Back 8

- prices are raised
- when products are taxed by government, they are bought and sold less
- we are able to observe the benefits of having a free market

Front 9

tax incidence

Back 9

actual division of the burden of a tax on buyers and sellers

Front 10

firm

Back 10

institution that organizes production and sale of a commodity. different firms have different goals

Front 11

capitalist firm

Back 11

goal is to maximize profits. firm goal is the same as owner's goal

Front 12

non-profit firm

Back 12

example american university. extra profit is invested into making firm better. dont have to pay taxes.

Front 13

sole proprietorship

Back 13

owns and works firm. ex: family-owned dry cleaner or hairdresser. sometimes part of a larger franchise (motophoto)

Front 14

partnership

Back 14

two or more owners

Front 15

corporation

Back 15

shareholders have no managerial authority. larger shareholders (board of directors?) try to determine direction of company

Front 16

GDP

Back 16

gross domestic product. tha market value of all final goods and services produced in a country during a period of time. is often a measure of welfare and living standards and economic prosperity

Front 17

GDP equation

Back 17

Y = C + I + G + NX (C=consumption, I=investment, G=government spending and purchases, NX=net exports)

Front 18

nominal gdp

Back 18

value of goods and services evaluated at current year prices

Front 19

real GPD

Back 19

value of final goods and services evaluated at base-year prices (holds prices constant, better measure that nominal)

Front 20

real versus nominal GDP

Back 20

real GDP = (nominal GDP)(GDP deflator) x deflator

Front 21

unemployment rate

Back 21

number of unemployed / labor force x 100 (aka the percentage of labor force that is unemployed)

Front 22

labor force

Back 22

sum of employed and unemployed

Front 23

discouraged workers

Back 23

available for work but have not looked for job during previous four weeks b/c he thinks none are available

Front 24

efficiency wage

Back 24

firm pays a higher-than-market wage in order to increase efficiency

Front 25

price level

Back 25

a measure of the average price of all goods and services in the economy

Front 26

inflation rate

Back 26

percentage increase in the price level from one year to the next

Front 27

CPI

Back 27

consumer price index - average of price of goods and services purchased by a typical urban family of four. used to measure inflation

(Expenditures in current year/ expenditures of base year x100)

Front 28

PPI

Back 28

producer price index - average of the prices received by firms at all stages of production process

Front 29

menu costs

Back 29

costs to a firm for changing prices

Front 30

nominal interest rate

Back 30

state interest rate on a loan

Front 31

real interest rate

Back 31

adjust for inflation

Front 32

deflation

Back 32

decrease in price level

Front 33

macro equilibrium occurs when...

Back 33

aggregate expenditure = GDP

Front 34

when aggregate expenditure is less than GDP, inventories and GDP...

Back 34

inventories will increase and total employment will decrease

Front 35

multiplier effect

Back 35

process by which an increase in autonomous expenditure leads to a larger increase in GDP.

Front 36

autonomous expenditure

Back 36

expenditure that does not depend on level of GDP

Front 37

multiplier equation

Back 37

1/(1-MPC). mult will be higher if MPC is higher. income tax will decrease the multiplier. larger countries tend ot have larger multipliers

Front 38

consumption expenditure

Back 38

household spending. increases as income increases Consumption function: C=f(y)

Front 39

consumption is affected by:

Back 39

expectations of future price, wealth, interest rate, current income

Front 40

MPC definition and equation

Back 40

marginal propensity to consume
change in C / change in Y
between 0 and 1
C = Co + (MPC)Y

Front 41

closed economy GDP equation

Back 41

Y = Co + MPC(Y) + I + G

Front 42

what does aggregate demand curve show?

Back 42

aggregate demand curve shows relationship between price level and level of aggregate expenditure
an increase in price level causes a reduction in consumption, investment and NX. decrese in price level leads to higher equilibrium real GDP.

Front 43

aggregate expenditure and four components

Back 43

total amount of spending in the economy. four components: C, Planned investment, G, NX

Front 44

aggregate demand

Back 44

total level of expenditures produced with that economy. demand for domestically produced goods. if AD declines, output declines. if AD rises, prices rise

Front 45

aggregate supply

Back 45

total measure of output. equlibrium is when AD = AS, at this point there is full employment

Front 46

why is AD downward sloping?

Back 46

declining prices increase financial wealth and thus increase consumption. distribution of income. multiplier effect.

Front 47

6 causes of aggregate demand curve shift

Back 47

consumption, planned investment, governemnt spending shifts, government taxation shifts, export demand shifts, import demand shifts,

Front 48

causes of aggregate supply shift

Back 48

labor costs, raw material costs, import prices,

Front 49

4 functions of money

Back 49

-medium of exchange
-unit of account
-store of value
-standard of deffered payment

Front 50

fractional reserve banking system

Back 50

banking system in which banks keep less than 100 percent of deposits as reserves