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56 Cards in this Set
- Front
- Back
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Define; Economic Model and the basic meanings
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All economists use models (simplified mathematical representations of reality.) to explain economic outcomes. How aggregate is connected to another economic aggregate
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Define: Efficiency
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No wasted or unutilized resources, achieving a goal as cheaply as possible
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Invisible hand theorem
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Price adjusts and balances supply and demand. Markets automatically go to "equilibrium" Creates an efficient market
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Macroeconomics
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The study of all markets taken together (aggregate) and deals with problems such as inflation and unemployment. Government policies
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Opportunity Cost:
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The benefit you might have gained from doing/using the next best thing. ex.) the opportunity cost of having a kid would be two boats, three cars and vacation every year for 5 years
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Scarcity:
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Scarcity is the fundamental economic problem of having seemingly unlimited human needs and wants in a world of limited resources.
Prices deal with scarcity |
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Micro or Macro? The US interest rates should be lowered to decrease the amount of unemployment
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Macro
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Micro or Macro? Will the fact that more and more doctors are selling their practices to managed care networks increase the efficiency of medical providers?
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Micro
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Micro or Macro? Should the current federal income tax be lowered to reduce unemployment?
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Macro
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Micro or Macro? Should the federal minimum wage be raised?
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Macro
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Micro or Macro, Should Sprint and verizon both be allowed to build local phone networks
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Micro
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Micro or Macro, should commercial banks be required to provide loans in all areas of the territory from which they accept deposits
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Micro
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List two microeconomic problems
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Efficiency, International Competion, Price policys
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List two Macroeconomic problems
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Inflation, International Taxes, Business Cycles
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Capitalism
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A type of market economy based on private ownership of capital wage and labor, and production for profit.
Competition is Key |
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Consumer Sovereignty
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the consumers wishes determine what is produced
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Corporation
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Business that are treated as a person and are legally owned by their stockholders, who are not liable for the actions of the corporate "person"
run by stocks and individual owners |
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Entrepreneurship
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the ability to organize and get somethign done, usually a small group of people, the starting point of business, keeps it goal oriented.
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What is the central coordinating mechanism in a market economy
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Price, free Private ownership, invisible hand, households
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In a centrally planned socialist economy, what is the central coordinating mechanism
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Government
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How does a market economy solve the what, how and for whom to produce problem?
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Households choose and the business creates
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How does a centrally planned socialist economy solve the what, how and for whom to produce problems?
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The government chooses welfare for all, fairness and what is needed the most.
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Is capitalism or socialism the better economic system
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capitalism
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T or F, as economic systems have evolved, there has been less need for planning.
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False
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Why is entrepreneurship a central part of any busines
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It is the starting point it keeps it goal oriented, it is the ability to organized and get something done.
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Why is the circular Flow model called an engineering model
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Because they deal with aggregate terms derived form some notion of how one economic aggregate is connected to another
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Economic growth
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is measured by % changes in real GDP
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Business Cycle
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Short run pattern of GDP growth
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What are the 4 phases of the Business Cycle
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Expansion, Peaks, recession, trough
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What re the problems Business Cycles usually encounter
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Inflation during expansion and unemployment during reciession
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Expansion
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an upturn that lasts at least two consecutive quarters
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Nominal GDP
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is the total amount of goods and services measured at current prices
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Real GDP
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is measured relative to the prices of a base year, it eliminates price changes so allows GDP in different years to be compared
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Recession
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a downturn (decrease in real output) that lasts at least two consecutive quarters
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What re the two ways in which long term economic growth is measured
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Nominal GDP and real GDP
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Origins of Macro Econ
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prior to the great depression all economic decisions were carried out in a micro manner, macro emerged when they had to start making decisions dealing with inflation, unemployment, recessions and business cycles.
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Invisible hand theorem
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Price adjusts and balances supply and demand, Markets automatically go to equilibrium
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Macro as a scientific revolution
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Science often advances in paradigm shifts due to anomalies, The depression created an anomaly for micro economic theory, A new perspective in economics emerged due to an explanation by Keynes.
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Keynes explanation of the depression
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Economic growth is driven by spending, Growth can be negative or zero, consumers save instead of spend because they want to protect themselves. Creates a vicious cycle that gets econ stuck.
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Keynesian revolution (answer to depression)
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Active government may be needed to fix economic problems, behavior cannot just be explained by rational comparisons of costs to benefits
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Neo- classical
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Economic behavior can be explained by rational decisions (cost vs. benefit), The econ will automatically create full employment, Active Government involvement policy is unnecessary and counter productive
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Keynesian
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The national econ is not like one big market, economy can sink into long term slump, Govern,ent should borrow and spend to get the economy out of a slump.
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What does Milton Friedman believe
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He was a strong neo classical economist of the 10th century, said keynes ignored impact of government borrowing on national debt, deficit spending is harmful and economy can self regulate.
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Why do economists Disagree
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Different economic theories reflect different values and political philosophies. Data can always be questioned and methods are uncertain.
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Households
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most powerful, supply labor and other productive services to business, receive earnings, purchase goods and services
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Business
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Purchase labor and other factors of production. Produce and sell goods/services
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Government
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Provides public services to households and businesses, receives taxes from households and businesses.
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Foreign sector
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Other countries buy our exports and sell us imports
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Capitalism
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a type of market economy based on private ownership of capital, wage labor and production for profit. Competition drives all, results in efficiency, innovation and growth.
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Socialism
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is an economic system based on public or collective ownership of capital and production based on need rather than profit. Motivated by good will rather than self interest. Society ( or centralized planning) decides what, how and for whom to produce.
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GDP
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Gross domestic Product: market value of final goods and service produced in an economy over some period of time.
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Nominal GD
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Total amount of goods and services measured at current prices.
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Real GDP
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is measured relative to the prices of a base year. Eliminates price changes and allows GDP in different years to compared.
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Per Capita GDP:
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Real GDP/Population measure standards of living.
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Why is Growth good?
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More jobs, higher wages, better living standard
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Why is Growth bad?
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Materialism/consumerism, pollution, resource depletion
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