Macroeconomics Clep

Front 1

PPF

Back 1

Production Possibilities Frontier Curve

Shows trade-off of goods production.

Front 2

Ceteris Paribus

Back 2

All other things equal

Front 3

Fallacy of Composition

Back 3

Assumption one instance applies to all others

Front 4

Post Hoc Fallacy

Back 4

Supposes if one event follows another the first event caused the second.

Front 5

Marginal Analysis

Back 5

The impact of one more or less variable upon an economic outcome ex.. 1 worker = ? output

Front 6

Law of Diminishing Marginal Returns

Back 6

At some point additional inputs start to diminish output

Front 7

Inputs of production

Back 7

1. Raw material

2. Labor

3. Capital

4. Entrepreneurship

Front 8

Law of Increasing Opportunity Costs

Back 8

Productivity decreases, Cost of production increases.

Front 9

Law of Demand

Back 9

Inverse relationship b/w price and quantity demanded.

Front 10

Diminishing Marginal Utility

Back 10

States the more units of a product are available, the less it is valued.

Front 11

Determinates of Demand

Back 11

Taste

Income

Price and avail. of substitute

Future price or quantity expectations

# of buyers

Gov't regulations

Front 12

Equilibrium Price

Back 12

Balance b/w buyer and seller interests.

Front 13

4 Main Economic Systems

Back 13

Free-Consumers & producers operate in an unregulated environment.

Traditional-Society does not change its methods of prod/cons

Command-gov't regulates prod/cons

Mixed-blend of 3 other systems.

Front 14

GDP

Back 14

Gross Domestic Product, Final g/s produced w/ in country's boarders in 1 year.

Front 15

GNP

Back 15

Gross National Product, Same as GDP except US bus. abroad money counts against.

Front 16

Expenditure Measurement

Back 16

Household consumption (C)

Business Investment (Ig)

Gov't (G)

Net foreign purchases (Xn)

C + Ig + G + Xn = Expenditure Measurement

Front 17

Business Cycle

Back 17

Expansion

Peak

Contraction

Trough

Recovery

Front 18

Economic Indicators

Back 18

Leading (predict a change)

Coincidental (same time)

Lagging (after the change)

Front 19

Phillips Curve

Back 19

A.W. Phillips, unemployment and inflation inverse relationship.

Front 20

Stagflation

Back 20

Inflation and unemployment rise at the same time.

Front 21

LRAS

Back 21

Long-run aggregate supply, g/s produced in a given time.

Front 22

NRU

Back 22

The natural rate of unemployment (NRU) is defined as the equilibrium rate of unemployment i.e. the rate of unemployment where real wages have found their free market level. It is where the aggregate supply of labor is in balance with the aggregate demand for labor.

Front 23

SRAS

Back 23

Short-Run Aggregate Supply suggests an increase in prices leads to a temporary increase in output as firms employ more workers.

Front 24

Types of unemployment

Back 24

Structural - mismatch of skill

Frictional - between jobs

Cyclical - due to decline in total spending

Front 25

CPI

Back 25

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance.

Front 26

GDP Price Index

Back 26

GDP Deflator vs. CPI. The GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. Unlike the CPI, the GDP deflator is a measure of price inflation or deflation for a specific base year.

Front 27

PCE

Back 27

The PCE price index measures the price fluctuations and related consumer behavior for all domestic consumption of durable and non-durable goods and services targeted toward individuals and households. The PCE "core index", however, excludes the more volatile components of food and energy.

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Cost-push Inflation

Back 28

inflation caused by an increase in prices of inputs like labour, raw material, etc. The increased price of the factors of production leads to a decreased supply of these goods.

Front 29

Demand-pull inflation

Back 29

A term used in Keynesian economics to describe the scenario that occurs when price levels rise because of an imbalance in the aggregate supply and demand. When the aggregate demand in an economy strongly outweighs the aggregate supply, prices increase.

Front 30

AE

Back 30

Aggregate Expenditures is defined as : AE = C+Ip+G+Xn

C = Household Consumption. Ip = Planned Investment. G = Government spending.

Front 31

Say's Law

Back 31

Supply creates it's own demand.

Front 32

Demand-side Economics

Back 32

Advocates use of government spending and growth in the money supply to stimulate the demand for goods and services and therefore expand economic activity. 'Keynesian Economics'

Front 33

Supply-side Economics

Back 33

By lowering taxes on corporations, government can stimulate investment in industry and thereby raise production, which will, in turn, bring down prices and control inflation

Front 34

Laffer Curve

Back 34

one possible representation of the relationship between rates of taxation and the hypothetical resulting levels of government revenue.

Front 35

MPC/MPS

Back 35

The marginal propensity to consume is the portion of extra income that consumers spend.

The marginal propensity to save is the portion of extra income that consumers save.

Front 36

Injections

Back 36

An investment of capital generally in the form of cash or equity.

Front 37

Leakage

Back 37

A diversion of funds from some iterative process. For example, in the Keynesian depiction of the circular flow of income and expenditure, leakages are the non-consumption uses of income, including saving, taxes, and imports.

Front 38

Multiplier

Back 38

An increase in spending produces an increase in national income and consumption greater than the initial amount spent.

Front 39

Crowding Out

Back 39

A situation when increased interest rates lead to a reduction in private investment spending such that it dampens the initial increase of total investment spending is called crowding out effect.

Front 40

Federal Reserve

Back 40

The central bank of the United States and the most powerful financial institution in the world. The Federal Reserve Bank was founded by the U.S. Congress in 1913 to provide the nation with a safe, flexible and stable monetary and financial system.

Front 41

FOMC

Back 41

'Federal Open Market Committee - FOMC' The branch of the Federal Reserve Board that determines the direction of monetary policy. The FOMC is composed of the board of governors, which has seven members, and five reserve bank presidents.

Front 42

Comparative Advantage

Back 42

The benefit or advantage of an economy to be able to produce a commodity at a lesser opportunity cost than other entities is referred to as comparative advantage in international trade theory.

Front 43

Balance of Payments

Back 43

(BOP) of a country is the record of all economic transactions between the residents of a country and the rest of the world in a particular period (over a quarter of a year or more commonly over a year).