Macroeconomics Exam 1 New's Study Guide

Front 1

Positive Statement

Back 1

Testable.
"I will study for the midterm"

Front 2

Normative Statement

Back 2

What ought to be.
Not testable.
"I should study for the midterm"

Front 3

Explicity costs

Back 3

dollars sacrificed
Money cost

Front 4

Implicity costs

Back 4

value of something sacrificed

Front 5

Production Efficiency

Back 5

We cannot produce more of one ogood without producing less of some other good.

Front 6

Allocative Efficiency

Back 6

We cannot produce more of any good without giving up some other good that we "value more highly"

Point on PPF boundary where marginal benefit = Marginal cost

Front 7

Technical Efficiency

Back 7

For a given level of output being produced, we cannot decrease our inputs used.

Front 8

Bowed Out PPF

Back 8

Increasing Slope/Increasing Opportunity Costs

Front 9

Linear PPF

Back 9

Constant Slope/Constant Opportunity Costs

Front 10

When does a person have absolute advantage?

Back 10

When that person is more productive than another person in a task.

Front 11

When does a person have comparative advantage?

Back 11

When that person has less opportunity cost in doing the cost.

Front 12

What is necessary in order to specialize in a particular task?

Back 12

Comparative Advantage

Front 13

What must the acceptable price of trade be?

Back 13

Higher than the opportunity cost of the seller.

Lower than the opportunity cost of the buyer.

*Between the two opportunity costs*

Front 14

Gain from trade steps (5)

Back 14

1. Calculate OC
2. Identify who has Comparative Advantage -> specialization
3. Evaluate the price and identify the required amounts of production that each person has to do to complete the trade.
4. Calculate the costs of production
5. Compare what each person will get from trade ( if benefits exceed costs, then you gain)

Front 15

Economic Growth

Back 15

expansion of production

Front 16

Extensive Growth

Back 16

More Resources
Capital Accumulation

Front 17

Intensive Growth

Back 17

Existing Resources become better

Technological Change

Front 18

Methods of Resource Allocation

Back 18

Traditional Economy
Command Economy
Market Economy

Front 19

Traditional Economy

Back 19

Resources are allocated according to long-lived practices from the past

Front 20

Command Economy

Back 20

According to eplicit instructions from a central authority

Front 21

Market Economy

Back 21

Resources are allocated through individual decision making

Front 22

Market

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Any arrangement that enables buyers and sellers to get information and to do business with each other.

Front 23

Markets can only work when...

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Property rights exist

Front 24

Property Rights

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The social arrangements that govern the ownership, use and disposal of resources, goods and services

Front 25

Real Property

Back 25

Land, buildings, durable goods

Front 26

Financial Property

Back 26

stocks, bonds, money

Front 27

Intellectual Property

Back 27

Intangible product of creative effort (books, music, inventions)

Front 28

Perfectly Competitive Market

Back 28

A market that has many buyers and many sellers, so no single buyer or seller can influence the price.

Front 29

Goods Market

Back 29

Market where households are buyers and firms are sellers

Front 30

Factor Market

Back 30

Market where households are sellers and firms are buyers

Front 31

Factors of Production

Back 31

resources that businesses use to produce goods and services

Land, Labor, Capital, Entrepreneurship

Front 32

Land

Back 32

earns rent
"gifts of nature"

Front 33

Labor

Back 33

earns wages
"the time spent producing goods/services"

Front 34

Capital

Back 34

earns interest
"long-lasting products that are used to produce other goods

Front 35

Two Kinds of Capital

Back 35

1. Physical Capital

2. Human Capital

Front 36

Physical Capital

Back 36

Macinery, equipment, etc.

Front 37

Human Capital

Back 37

Skills and training of workers

Front 38

Entrepreneurship

Back 38

earns profit

ability to combine other factors of production into a productive enterprise

Front 39

Money Price

Back 39

number of dollars that must be given up in exchange for a product

Front 40

Relative Price

Back 40

number of other goods that must be given up in exchange for a product

Ratio of one price to another

Opportunity Cost

Front 41

Law of Demand

Back 41

As price increases, quantity demand decreases

Front 42

Substitution Effect

Back 42

Price increases, buy more substitutes, buy less of the product, quantity demanded decreases

Front 43

Determinants of Demand

Back 43

taste/preference
price of other goods
average income
number of buyers in market

Front 44

Change in price

Back 44

does not shift the demand curve

changes the quantity demanded

Front 45

Determinants in Supply

Back 45

Technology
Input Price
Expectation of future price
Number of sellers in the market
Law and regulation
Price of related goods

Front 46

Change in Price (Supply)

Back 46

will not shift the entire supply curve.
will change the quantity supplied

Front 47

Equilbrium

Back 47

Intersection of demand and supply curves

Price at which quantity demanded = quantity supplied

Front 48

Shortage

Back 48

quantity demanded > quantity supplied

Front 49

Three Important Macroeconomic Goals

Back 49

Economic Growth
High Employment/Low Unemployment
Stable Prices

Front 50

GDP

Back 50

the value of the total production of all final goods and services produced within a country during a given year

Front 51

Real GDP

Back 51

States the GDP value in term of prices of a single year

Front 52

Potential GDP

Back 52

the value of production when all the economy's factors of production (land, labor, capital and entrepreneurship) are fully employed.

Front 53

Business Cycles

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Fluctuations in real GDP around its potential GDP

Front 54

Expansion

Back 54

period of increasing real GDP (economy is growing)

Front 55

Contraction

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period of decreasing real GDP

Front 56

Recession

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period of significant decline in real GDP for at least two consecutive quarters (6 months)

Front 57

Depression

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an unusually severe recession

Front 58

Peak

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represents the end of expansion and the beginning of contraction

Front 59

Trough

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represents the end of contraction and the beginning of expansion

Front 60

Rule of 72

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given the growth rate of g and initial real GDP, the GDP will be double in approximately 72/g years

Front 61

Lucas Wedge

Back 61

the accumulated loss of output that results from a slowdown in the growth rate of real GDP per person.

measures the cost of slower productivity growth

Front 62

Okun Gap

Back 62

the gap between real GDP and potential GDP

output gap

source of loss from economic fluctuations

Front 63

Price level

Back 63

the average level of price

Front 64

Inflation

Back 64

a sustained increase of price level over time

Front 65

Deflation

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A situation in which the prices of most goods and services are falling over time so that inflation is negative

Front 66

Fiscal Policy

Back 66

making changes in tax rates and in government spending programs

federal government

Front 67

Monetary Policy

Back 67

Making changes in interest rates and the amount of money in the economy

The Federal Reserve (The Fed)

Front 68

Government Budget Surplus

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Government collects more in taxes than it spends

Front 69

Government Budget Deficit

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Government spends more than it collects in taxes

Front 70

The Federal Reserve is also known as

Back 70

The Fed