Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
50 Cards in this Set
- Front
- Back
opportunity cost
|
value of next best alternative that is given up in order to engage in a particular economic engagement
|
|
Productive possibilites frontier
|
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.
|
|
PPF Increasing marginal opportunity
|
as economy moves down the production possibilites frontier
|
|
quantity demanded is a function of:
|
price of good, projections of future price of good, income (rising of purchasing power)
|
|
shifts of demand surve versus movement on demand surve
|
MOVEMENTS ALONG: when price of good changes (change of quantity demanded)
SHIFTS: when any other variables change demand |
|
price ceiling
|
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.
|
|
price floor
|
a legally determined minimum that sellers can receive. ex: min wage. reduces economic efficiency. supply will be higher than demand
|
|
effect of sales taxes on prices
|
- 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 |
|
tax incidence
|
actual division of the burden of a tax on buyers and sellers
|
|
firm
|
institution that organizes production and sale of a commodity. different firms have different goals
|
|
capitalist firm
|
goal is to maximize profits. firm goal is the same as owner's goal
|
|
non-profit firm
|
example american university. extra profit is invested into making firm better. dont have to pay taxes.
|
|
sole proprietorship
|
owns and works firm. ex: family-owned dry cleaner or hairdresser. sometimes part of a larger franchise (motophoto)
|
|
partnership
|
two or more owners
|
|
corporation
|
shareholders have no managerial authority. larger shareholders (board of directors?) try to determine direction of company
|
|
GDP
|
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
|
|
GDP equation
|
Y = C + I + G + NX (C=consumption, I=investment, G=government spending and purchases, NX=net exports)
|
|
nominal gdp
|
value of goods and services evaluated at current year prices
|
|
real GPD
|
value of final goods and services evaluated at base-year prices (holds prices constant, better measure that nominal)
|
|
real versus nominal GDP
|
real GDP = (nominal GDP)(GDP deflator) x deflator
|
|
unemployment rate
|
number of unemployed / labor force x 100 (aka the percentage of labor force that is unemployed)
|
|
labor force
|
sum of employed and unemployed
|
|
discouraged workers
|
available for work but have not looked for job during previous four weeks b/c he thinks none are available
|
|
efficiency wage
|
firm pays a higher-than-market wage in order to increase efficiency
|
|
price level
|
a measure of the average price of all goods and services in the economy
|
|
inflation rate
|
percentage increase in the price level from one year to the next
|
|
CPI
|
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) |
|
PPI
|
producer price index - average of the prices received by firms at all stages of production process
|
|
menu costs
|
costs to a firm for changing prices
|
|
nominal interest rate
|
state interest rate on a loan
|
|
real interest rate
|
adjust for inflation
|
|
deflation
|
decrease in price level
|
|
macro equilibrium occurs when...
|
aggregate expenditure = GDP
|
|
when aggregate expenditure is less than GDP, inventories and GDP...
|
inventories will increase and total employment will decrease
|
|
multiplier effect
|
process by which an increase in autonomous expenditure leads to a larger increase in GDP.
|
|
autonomous expenditure
|
expenditure that does not depend on level of GDP
|
|
multiplier equation
|
1/(1-MPC). mult will be higher if MPC is higher. income tax will decrease the multiplier. larger countries tend ot have larger multipliers
|
|
consumption expenditure
|
household spending. increases as income increases Consumption function: C=f(y)
|
|
consumption is affected by:
|
expectations of future price, wealth, interest rate, current income
|
|
MPC definition and equation
|
marginal propensity to consume
change in C / change in Y between 0 and 1 C = Co + (MPC)Y |
|
closed economy GDP equation
|
Y = Co + MPC(Y) + I + G
|
|
what does aggregate demand curve show?
|
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. |
|
aggregate expenditure and four components
|
total amount of spending in the economy. four components: C, Planned investment, G, NX
|
|
aggregate demand
|
total level of expenditures produced with that economy. demand for domestically produced goods. if AD declines, output declines. if AD rises, prices rise
|
|
aggregate supply
|
total measure of output. equlibrium is when AD = AS, at this point there is full employment
|
|
why is AD downward sloping?
|
declining prices increase financial wealth and thus increase consumption. distribution of income. multiplier effect.
|
|
6 causes of aggregate demand curve shift
|
consumption, planned investment, governemnt spending shifts, government taxation shifts, export demand shifts, import demand shifts,
|
|
causes of aggregate supply shift
|
labor costs, raw material costs, import prices,
|
|
4 functions of money
|
-medium of exchange
-unit of account -store of value -standard of deffered payment |
|
fractional reserve banking system
|
banking system in which banks keep less than 100 percent of deposits as reserves
|