Macroeconomics Final Exam

Front 1

Opportunity Cost

Back 1

What you forego in order to engage in
that activity, compared to the best available alternative.

Front 2

Adam Smith

Back 2

father of modern economics, introduced the
notion of the `invisible hand'

Front 3

Production Possibilities Frontier

Back 3

a graph that shows the combi-
nations of output that can possibly be produced given the available factors
of production and the available production technology

Front 4

Optimal Comparative Advantage (Crusoe/Friday)

Back 4

for each to be completely specialised in produc-
tion, and will then trade in order to get some of the other's good

Front 5

Diseconomies of scope

Back 5

means that there can be gains from trade, even when
production possibilities frontier are identical

Front 6

Quantity Demanded

Back 6

the amount of a good that buyers are willing
and able to purchase; falls when the price of the good rises

Front 7

Market Demand

Back 7

refers to the sum of all individual demands for a par-
ticular good or service; individual demand curves are summed horizontally to obtain the market demand curve

Front 8

Quantity Supplied

Back 8

the amount of a good that sellers are willing
and able to purchase; rises when the price of the good rises

Front 9

Market supply

Back 9

refers to the sum of all individual supplies for a particular
good or service; individual supply curves are summed horizontally to obtain
the market supply curve

Front 10

Equilibrium

Back 10

refers to a situation in which the price has reached the level
where quantity supplied equals quantity demanded

Front 11

Consumer Surplus

Back 11

buyer's willingness to pay for a good minus the
amount the buyer actually pays for it

Front 12

Producer Surplus

Back 12

the excess of the price of a good over what a seller
would have been willing to sell it for (his cost of production)

Front 13

Elasticity

Back 13

measure of the responsiveness of supply and demand to
changes in the price; AKA the slope of the supply or demand curve

Front 14

Price Ceilings

Back 14

When the government sets a height maximum on price. Causes excess demand. Example: Rent Control

Front 15

Price Floors

Back 15

When the government sets height minimum on price. Causes excess supply. Example: Minimum Wage

Front 16

Deadweight Loss

Back 16

equal to the falls
in consumer and producer surplus, minus the government revenue that
results (larger, the more elastic are supply and demand)

Front 17

Gross domestic product (GDP)

Back 17

the total market value of all final goods and services produced within a country in a given period of time.

Y = C + I + G + X or = C + I + G + NX

Front 18

GDP Deflator

Back 18

measures the changes in the prices of all the goods that together constitute GDP

Front 19

Consumer price index (CPI)

Back 19

measures the change in the cost of living faced by an `average' consumer

Front 20

`Rule of 70'

Back 20

if something grows at a rate of x% a year, it will double in approximately 70/x years.

Front 21

Productivity

Back 21

refers to the amount of goods and services produced from
each unit of labour input

Front 22

Production Function

Back 22

Y = A f (L,K,H,N)

sets out the relationship
between the quantity of inputs used in production and the quantity of
output from production

Front 23

Galton's Fallacy

Back 23

higher growth rates imply eventual `convergence' i.e. While the poor countries might have higher percentage growth rates, this
does not mean that they are closing the absolute output gap with rich
countries

Front 24

Present Value (of a payment of $R tomorrow)

Back 24

$R
--------
(1+r)

Front 25

unemployment rate

Back 25

the percentage of the LABOR FORCE that is unemployed

Front 26

labor-force participation rate

Back 26

the percentage of the adult population that is in the labor force

Front 27

Frictional unemployment

Back 27

refers to the unemployment that results from the time that it takes
to match workers with jobs

Front 28

Structural unemployment

Back 28

results because the number of jobs available is insufficient to provide
one for everyone who is willing to work (at the going wage)

Front 29

Unions

Back 29

Workers' associations that bargain with employers over wages, benefits
and working conditions

Front 30

Efficiency wages

Back 30

above-equilibrium wages paid by firms in order to increase
worker productivity

Front 31

Money

Back 31

3 main functions:
{ medium of exchange
{ store of value
{ unit of account

Front 32

Commodity monies

Back 32

Something of intrinsic value that everybody likes which means that people are confident others will accept it in future trades like grain.

Front 33

Fiat money

Back 33

Durable, portable, divisible objects with no intrinsic value, but acceptable in exchange

Front 34

The quantity equation

Back 34

MV=PY
 M is the amount of money in the economy
 V is the velocity of money
 P is the aggregate price level
 Y is the real value of the goods and services traded

Front 35

The classical dichotomy

Back 35

holds that the `real' and `monetary' sides of
the economy can be analyzed separately

Front 36

hyperinflations

Back 36

money is not neutral and the classical dichotomy does
not hold (i.e. the rate of real income growth g is affected by the nominal
variables u and pi)

Front 37

`liquid' assets

Back 37

cash or something close to it (e.g. balance in checking
account)

Front 38

`illiquid' assets

Back 38

bonds or stocks, or savings accounts at bank
{ not accepted in exchange for goods and services (bad)
{ but they earn a return

Front 39

the higher the interest rate available . . .

Back 39

the less money people will
want to hold

Front 40

the correct opportunity cost of holding money is

Back 40

nominal interest rate i