ECN211 WKS 1-3
% Arbitrage
% I could make a profit from either: 1) Buy a truck, rent it out, and then resell it, or 2) Sell a truck, rent it, and then buy it back. This is called *arbitrage*.
% Free entry
% I hope that I don't have to worry going in the pie making business it should be *free entry* due to it being a food based job in comparison to satellite radios.
% Investment
% I place an * investment* in a company to gain money later on as a shareholder.
% Capital market
% I supply my savings and companies demand loans to finance their investment as real interest in the *capital market*.
% Savings curve
% I won't buy a pie today but next week I'll buy a pie which is a type of *savings curve*.
% Factor income
% I work for a group and they give me a wage, then that wage is my *factor income*.
% Consumption curve
% If I buy a pie and console I would have to take into the account of the *consumption curve* which would affect my savings.
% Personal consumption expenditures
% If I buy a pie from a bakery it's a *personal consumption expenditure* because I am buying the product from the baker to eat later on.
% Consumption smoothing
% If I don't spend a bunch of money on items I would have a larger amount of money in savings which is a form of *consumption smoothing*.
% Liability
% If I have bad credit history I have a level of *liability* in the eyes of the Banks and they will be less likely to loan money to me.
% Wealth effect
% If I increase or decrease my consumption it would seem that it would change my wealth which is called a *wealth effect*.
%Consumer Price Index (CPI) ((Laspeyres price index))
% If I lived in an apartment and wanted to buy pie which rose in price from last week I would have to take into account the *Laspeyres price index*.
% Proprietors' income
% If I owned a factory any profit made from the factory is the *proprietors' income*.
% Principal balance
% If I place money in a bank account that money is the *principal balance* as it is the original amount of money in that account.
% Renting
% If I want to live in a apartment *renting* would be the best choice for me, as I only have to pay the landlord for as long as I was living there.
% Dividend
% If I was attached to a company as a shareholder I would receive a *dividend* that increases my personal finances.
% Labor-leisure tradeoff
% If I work an hour more, I loose an hour of leisure but then I can use the extra money to by another pie, this would be my *labor-leisure tradeoff*.
% Perfect competition
% If a company lowers an item's price they would see a higher demands and if the company rises the price there would be no sales due to the equilibrium of the market which is called *perfect competition*.
% Walras Law
% If say labor and capital market are in equilibrium then the last market must be the same according to *Walras's law*.
% Rigidity
% Little to change of prices paid/charged is called a *nominal rigidity*, and quantities bought and sold in the market are called *real rigidity*.
% Invisible Hand
% Self interest in consumption and supply is the *invisible hand* that controls most free capitalistic markets.
% Budget constraint
% Since I am taking college I have a *budget constraint* of what money I own and how many classes I could take until I run out of money.
% Transfer Payment
% Social Security is a form of *transfer payment*.
% Welfare
% Social Security is a form of *welfare*.
% Demand
% Something a person or group is willing to get at a price is a *demand*.
% Supply
% Something a person or group is willing to give or *supply* in a market in exchange for something.
% Price
% The amount of something in cost is a *price* usually depicted in dollars in the U.S.
% Externality
% The cost or benefit that affects a person when they didn't choose to do that is called an *externality*.
% Property right
% Theoretical socially-enforced constructs for determining how a resource or economic good is used and owned.
% Recession
% When the economy slows down it becomes a *recession* that can hurt a country, the most recent notable occurrence happened in 2008 in the U.S.
% Data revision
% When the statistics of economics changes due to new information it is called a *data revision*.
% Time preference
% Would I prefer to have pie now or later this is a form of *time preference*.
% Competition
% X-box and PlayStation are each other's *competition* when selling videogames and consoles.
% Capital Demand
%How many items a company needs at a given moment is *capital demand*.
% Stock
%I own of a portion of a company shares, which means I have a small faction of *stock* in the company.
%Opportunity Costs
%If I cram for a test the night before I would be unable to go to bed for a full night's rest this is an *opportunity cost*.
That is the real wage is measured in
($/hour)/($/cup)=(cup/hour)
The relationship between output and the labor time used in generating that output. It is the ratio of output per hour.
(Average) Labor Productivity (ALP)
If the price of ice cream was $4, Adam's wage was 10$/hour, and his wealth was $40, what is the maximum amount of time Adam can spend on leisure?
15 Hours
#Between 1970 and 1980 what quarter had the lowest Real GDP growth?
1980 Q2
The real interest rate: The Fisher equation If we use the same example as above where Adam deposits $30 in an account that pays a 10% annual interest , except this time there is also 7% inflation over the course of the year, what is the real interest rate (in annual percent)?
2
In 2014 3.0 percent of spending by married couples with kids in the U.S. was education-related.
Consumption
The economic concept used to express the desire of people to have a stable path of consumption. In the data, this is reflected by fluctuations in consumption growth being less than those in income growth.
Consumption smoothing
The value of money that has been used up to produce something and, hence, is not available for use anymore.
Cost
Utility costs and benefits of substitution
Costs: Reduction in hours of leisure X Gain in utility per additional hour of leisure Benefits: Increase in ice cream consumption X Gain in utility per additional cup of ice cream
If Adam is currently paying for 250 hours of labor, what should he do in order to increase his total profit?
Decrease the hours of labor.
The gradual decrease in the economic value of the capital stock of a firm, nation or other entity, either through physical depreciation, obsolescence or changes in the demand for the services of the capital in question.
Depreciation
Measure of cross-sensitivity across economic variables. Elasticities are measured in terms of percentage changes in one variable in response to a percentage change in another. Sometimes, instead of percentage changes, they are expressed in terms of percentage point changes. Elasticities are measured this way such that their magnitude does not depend on the units of measurement of the variables.
Elasticity
The result that the real interest is approximately equal to the nominal interest rate minus the inflation rate. This approximation is reliable for small values of the nominal interest and inflation rates.
Fisher equation
What is the link between Financial Institutions to Government called?
Government borrowing
Global economic downturn that started in 2008.
Great Recession
Which of the following correctly describes the relationship between returns to scale and Adam's capital demand?
Holding all else equal, as the returns to scale increase, Adam's capital demand increases. Holding all else equal, as the returns to scale decrease, Adam's capital demand decreases.
Which of the following would happen as the result of an increase in the wage rate?
Increase in hours worked, increase in savings, and outward shift in the consumption curve and an increase in the consumption.
If Adam is currently paying for 100 hours of labor, what should he do to increase total profit?
Increase the hours of labor.
A graph showing different bundles of goods between which a consumer is indifferent. That is, at each point on the curve, the consumer has no preference for one bundle over another. One can equivalently refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer.
Indifference curve
The transition to new manufacturing processes in the period from about 1760 to sometime between 1820 and 1840. This transition included going from hand production methods to machines, new chemical manufacturing and iron production processes, improved efficiency of water power, the increasing use of steam power, the development of machine tools and the rise of the factory system.
Industrial revoultion
If Adam is to save some of his current income to use for future consumption, his optimal choice of consumption today will be ______
Inside of the budget constraint
The number of hours of hiring that an employer is willing to do based on the various exogenous (externally determined) variables it is faced with, such as the wage rate, the unit cost of capital, the market-determined selling price of its output, etc.
Labor demand
For given technology (productivity, returns to scale, and depreciation rate), interest rate, this curve depicts how the number of hours that firms would like to hire workers for depends on the real wage.
Labor demand curve
The time people spend not being compensated for work performed when they actively engaged in the production of goods and services. Thus, this is the time people spent off the job on activities such as relaxing, working around the house (without compensation), recreational activities, and vacation.
Leisure
Future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events. In short, it is the value of future payments the entity owes to others due to past transactions.
Liability
What two things must we equate to find the optimal choice through marginal analysis?
Marginal cost and marginal benefit
The change in output resulting from employing one more unit of a particular input (for instance, the change in output when a firm's labor is increased from five to six units), assuming that the quantities of other inputs are kept constant.
Marginal product
Fanny wants some strawberries and her mother tells her to go out in the yard and pick them herself. Fanny looks at her mom and decides to ignore her...
Marginal rate of substitution
The rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of utility.
Marginal rate of substitution (MRS)
Which of the following typically decrease during recessions?
Number hours worked by employees and capital investment.
Which of the following scenarios would always result in a DECREASE of the stock of government debt?
Outflows (taxes) exceed inflows (spending)
Ordering of alternatives based on their relative utility, a process which results in an optimal "choice" (whether real or theoretical). The character of the individual preferences is determined purely by taste factors, independent of considerations of prices, income, or availability of goods.
Preferences
Wage measured in terms of the amount of goods and services that can be bought. This term is used in contrast to nominal wages or unadjusted wages. Because it has been adjusted to account for changes in the prices of goods and services, real wages provide a clearer representation of an individual's wages in terms of what they can afford to buy with those wages - specifically, in terms of the amount of goods and services that can be bought.
Real wage
Cost per unit of capital of renting capital inputs or other goods.
Rental price
An agreement where a payment is made for the temporary use of a good, service or property owned by another.
Renting
The rate of increase in output (production) relative to the associated increase in the inputs (the factors of production). If output increases at the same rate as inputs then there are constant returns to scale (CRS). If output increases at a lower rate than inputs, there are decreasing returns to scale (DRS). If output increases at a higher rate than in inputs, there are increasing returns to scale (IRS).
Returns to scale
Income that a business has from the sale of the goods and services it produces to its customers. Sometimes also referred to as sales or turnover. In the context of government, it is the money the government brings in through taxation.
Revenue
Over the period from 2008 through 2017 what index fluctuates (goes up and down) more...
S & P 500
Amy decides to follow her employers' advice and put six percent of her monthly paycheck in a 401K retirement account.
Saving
Money not spent or, alternatively, deferred consumption.
Saving
Money gained from work is called?
Savings
For given preferences, wages, price level, and wealth levels, this curve depicts how the level of saving by households depends on the real interest rate.
Savings curve
Remember, _______ requires us to make economic decisions like what to produce, how to produce, and for whom goods and services should be produced for.
Scarcity
The fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.
Scarcity
When you run out of money shopping...
Scarcity
We assume that, in general, people prefer to consume something ________ as opposed to consuming that same thing ________.
Sooner, later.
What refers to spending and which measure the size of the economy does it represent?
Spending: GDP
The difference between Gross Domestic Product (GDP) and Gross Domestic Income (GDI).
Statistical discrepancy
Which of the following items would be included in the calculation of United States GDP?
Steve sells his homemade soap through the local convivence store. A truck made in Michigan and sold to a consumer in China.
Ownership of a company divided into shares, a single share of the stock represents fractional ownership of the corporation in proportion to the total number of shares.
Stock
A simplified presentation of an empirical finding. Often a broad generalization that summarizes some complicated statistical calculations, which although essentially true may have inaccuracies in the detail.
Stylized fact
The willingness to switch between different beneficial alternative choices. For example, replacing consumption with leisure in terms of utility. Switching between workers and machines in terms of output.
Substitution
Bias in index numbers measures of inflation that fail to account for that households substitute from expensive to inexpensive items when prices change, resulting in different price changes than captured by the cost increase of a basket of goods.
Substitution bias
A tax is a financial charge or other levy imposed upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state to fund various public expenditures.
Tax
Collection of techniques, skills, methods and processes used in the production of goods or services.
Technology
Relative valuation placed on a good at an earlier date compared with its valuation at a later date.
Time preference
A redistribution of income in the market system. These payments are considered to be non-exhaustive because they do not directly absorb resources or create output.
Transfer Payment
The net cost of using a capital good and financing it through a loan to buy it and then resell the capital good after usage. This cost turns out to be approximately equal to the purchasing price of the capital good times a combination of three things: the real interest rate, the depreciation rate, and the minus of the capital gain (i.e. increase in price of capital good)
User cost of capital
A measure of how beneficial household choices are. Economists' term for happiness.
Utility
When you read that, in 2014, there were an estimated 1,645 billionaires in the world...
Wealth
The change in spending that accompanies a change in (perceived) wealth.
Wealth effect
#In 2014 in France, real GDP per capita.....
was 75.3% of that in the United States.
% (Average) Labor Productivity (ALP)
% *(Average) Labor Productivity (ALP)* Measures the relationship of output and labor time to make the output.
% Countercyclical
% *Countercyclical* in the economic variable is rising during recessions and falling during expansions.
% GDP deflator
% *GDP deflator* measures the growth of prices and services in a country's economy.
% Gross Domestic Income (GDI)
% *Gross Domestic Income (GDI)* measures all taxes, wages, and profits in a country.
% Procyclical
% *Procyclical* in the economic variable is rising during expansions and the falling during recessions.
% Total factor productivity
% *Total factor productivity* measures productivity as output per combined inputs of capital and labor.
% Price taker
% A Mum and Pop shops are *price takers* as they don't supply a huge influence in economy.
% Wage taker
% A company that hires a small group of people don't affect the area's prevailing wage is called a *wage taker*.
% Investment curve
% A company's investment relies on the real interest rate when looking at a *investment curve*.
% Capital good
% A computer or research into improving a product are a form of *capital good*.
% Statistical discrepancy
% A gap between the wages and taxes of a person to the final pricing of said taxes and wages creates a *statistical discrepancy*.
% Balance sheet (statement of financial position)
% A video game company has a *balance sheet* to track their assets, liabilities, and differences in monetary totals.
% Product Market
% Companies sell final goods and services for a price which is called *product market*.
% Marginal Analysis
% Deciding between free time or working is the better choice of the pair is *marginal analysis*.
%Scarcity
% During Covid there was a *Scarcity* of toilet paper due to the fact that people were buying too much of it before the stores could restock the toilet paper.
% Marginal utility of consumption (MUC)
% Happiness that rises or falls due to the increase or decrease of consumption is called *marginal utility of consumption (MUC)*.
% Productivity
% How efficient is the production of something is *productivity*.
% Labor supply elasticity
% How willing I am to work is the *labor supply elasticity*.
%Economics
% I am taking *economics* to learn how people decide to balance scarcity.
% Barrier to entry
% I don't have the money to set up wireless access company for videogames, this would be considered a *barrier to entry*.
% Inventory
% I had to fix the *inventory* of clocks that broke to resale them at a fixed price.
% Saving
% I have a *savings* account for a future monetary issues.
% Labor Market
% I supply my time to a boss who demands labor as an input and I earn a real wage, this is a *labor market*
% Entrepreneur
% If I wish to be an *entrepreneur* of a new brand of pies I have to take into all of my compitition.
% Marginal product
% If we hire one more person and everything else remains the same it will effect the output is called * marginal product*.
% Factors of production
% Land, labor, and capital are *factors of production*.
% Profit
% Money earned after paying off the supplies and employees is called *profit*
% Marginal revenue product
% More revenue due to an increase of inputs in a company by one change is called a *marginal revenue product*.
% Substitution bias
% Not taking in account of replacing one thing for another is a form of *substitution bias*.
% Economic efficiency
% Nothing can be improved without harming another is *economic efficiency*.
% Indifference curve
% Pie and a new console are a hypothetical *indifference curve* as they both satisfy me in equal ways.
% Production
% Putting items and knowledge/ideas together making an output is called *production*.
% Real interest rate
% Savings or investments are the *real interest rate*.
% Compensation
% Something that is given to someone to receive something in return is a form of *compensation*. In terms of employee compensation, it would be a wage.
% Fisher equation
% The *Fisher equation* equals savings and the interest rate with compounded interest.
% Great Recession
% The *Great Recession* had affected people worldwide around 2008-11.
% Keynesian Cross
% The *Keynesian cross* diagram that shows the relationship between output/income, on the horizontal axis, and spending (aggregate demand), on the vertical axis.
% Nominal
% The *nominal* price of an item that doesn't include its inflation.
% Real
% The *real* takes the inflation of an item to account.
% National accounts
% The Federal banks have to maintain the *national accounts* to track the national debt and wealth.
% Net exports
% The U.S. has to take into the account of *net exports* with it's national debt, due to the difference of the national exports to the national imports becoming so skewed.
% Net worth
% The amount of assets versus my amount of labilities is my *net worth*.
% Capital Stock
% The amount of knowledge, resources, and buildings that a company owns is the *capital stock*.
% Income statement
% The amount of money I have and what I have spent is an *income statement*.
% Interest rate
% The amount of money I owe plus a specific percentage of money is the *interest rate*.
% Wage
% The amount of money I receive while working is called a *wage*.
% Labor demand curve
% The balance act of how long companies want workers to work to the real wage they have to pay the workers is the *labor demand curve*.
% Loan
% The bank *loans* money to me in return that I give the money barrowed later and then some more in the form of interest.
% Capital gain
% The between the resale price and purchase price of the truck is *capital gain*.
% User cost of capital
% The cost of if I buy a car through a loan, then pay off the loan to own said car, I can use it until I have no need for it thus can resale the car. This is called a *user cost of capital*.
% Rental price
% The cost per unit of capital of renting capital inputs or other goods.
% Trade balance
% The difference in the money of the nation's exports and imports is a *trade balance*. When negative it's called a trade deficit and positive is a trade surplus.
% Revenue
% The income from selling items or services is a *revenue*.
% Price floor
% The least amount something can be sold for is called a *price floor*.
%Debt
% The money I barrowed is considered *debt* to the bank until I pay it back with interest.
% Disposable Personal Income (DPI)
% The money I have without going into savings is the *disposable personal income (DPI)* which don't take personal taxes into account.
% Price ceiling
% The most something can be sold is called a *price ceiling*.
% Production function
% The output of a production process depends on the inputs and is called a *production function*.
% Labor share
% The percent of the value of output paid to workers in the form of compensation is *labor share*.
% Gross Domestic Product (GDP)
% The price of all final products in period of time is the GPD.
% Price index
% The price of an item changes of time and to measure the change is in the form of a *price index*.
% Inflation
% The price of pie has risen from last week, that is a form of *inflation*.
% Equilibrium
% The supply and demand equal out and external additions do not affect the *equilibrium*.
% Depreciation
% The wear an tear of a vinyl record is a form of *depreciation* as it's value and usability is lessened.
% Marginal rate of substitution (MRS)
% The willingness to work more for money over leisure to keep my preferred lifestyle is the the *marginal rate of substitution (MRS)*.
% Aggregate
% To *aggregate* is to place together or add together something.
% Consumption
% To buy an new console is a form of *consumption*.
% Substitution
% To choose one thing over another due to cheaper prices is a form of *substitution*.
% Tax
% To take care of the school, government, and public buildings I have to pay my *taxes*.
% International economics
% Trade between China and the U.S. is a form of *International economics*.
% First Welfare Theorem
% Under certain circumstances the market outcome is economically efficient and it's called the *first welfare theorem*.
% Preferences
% What I like over other things is a *preference*.
% Stock and flow
% What item I have at a moment in time is a *stock* while a *flow* is how long I have said item over a period of time like a year.
% Zero-profit condition
% When profits and wages equal out creating a *zero-profit condition*.
% Budget set
% With the college deals I was able to take classes within a *budget set*.
Say Adam owns an ice cream parlor where he makes and sells ice cream. For the sake of simplicity we are going to assume that Adam's only two costs are ingredients and labor, he must pay his workers $18 an hour and the cost of ingredients is $.5 for every cup of ice cream he makes. Say Adam's workers are able to make 12 cups of ice cream an hour and he can sell each cup of ice cream for $6 a cup. What is Adam's profit in dollars if he decides to sell 84 cups of ice cream?
12 cups/hr X $0.5 ingredients = $6 cups/hr $18 per hr + $6 cups = $24 input pay 84 cups / 12 = 7 cups/hr 7 X $24 = $168 $6 per cup sold X 84 cups = $504 504 - 168 = a profit of $336
If the price of ice cream was $7, Adam's wage was 21$/hour, and his wealth was $91, what is the maximum amount of ice cream Adam can afford if he spends all of his time on leisure?
13 Cups
What percent of 2001Q4 GDP was government spending?
19%
If Adam rents a 20 foot long truck and the rental price is Rt=$100 per foot then Adam pays:
20 × $100 = $2000 In rent for his truck.
#In Q2 of 2010, what percent of GDI was ambiguous components?
30%
Nominal interest rate: Return in dollars If Adam were to deposit $30 in a bank account that pays a 10% annual interest, what would be the value of his account after one year?
33
What percentage of GDI in the 3rd quarter of 1996 was the compensation of employees?
55
What was the percentage decrease in household wealth in the U.S. between Q3 and Q4 of 2008?
7%
What was the total amount of (annualized) consumption spending in the 4th quarter of 2001?
7.22
In the budget set of Panel A, which corresponds to a price level, P=2, an hourly wage of W=10, and a wealth level of A=40, what is the maximum number of cups of ice cream Adam can afford when he works 10 hours?
70 Cups
In the fourth quarter of 2006, how much did households spend on an annualized basis in trillions of dollars?
9.45
If the price of ice cream was $2, Adam's wage was 10$/hour, and his wealth was $40, what is the maximum amount of ice cream that Adam can afford?
95 Cups
A decrease in supply (a leftward shift in the supply curve) will cause which of the following?
A decrease in the equilibrium quantity.
A large decrease in real GDP per capita would likely be accompanied by.....
A decrease in the standard of living.
If only the productivity of the truck Adam chooses to rent decreases, which of the following would be true at the new profit maximizing level of output and length of truck?
A decrease in total costs and in total revenue.
As we mentioned earlier the investment curve shows the relationship between the real interest rate and firms level of investment in capital goods, what sort of relationship do you think exists between these two?
A negative relationship, as the rate of real interest increases firms' level of investment decreases.
Between 2008 and 2010 the total level of employment in the United States decreased significantly, this sustained decrease is indicative of ______________.
A recession and a decrease of economic activity.
Suppose the price of ice cream decreases. If nothing else changes what should Adam do? And what should he expect to happen to his profits?
Adam should decrease the amount of labor he hires in order to maximize his profits. At this new level of profit maximization his total profits will be less than before.
Suppose the wage Adam must pay his workers decreases. If nothing else changes what should Adam do? And what should he expect to happen to his profits?
Adam should increase the amount of labor he hires in order to maximize his profits. At this new level of profit maximization his total profits will be greater than before.
Adam's preference weight of consumption to .5, willingness to substitute to 1.02, price to 2, wage to 10, and wealth to 40. If the price of ice cream were to increase to 15.2 and Adam's wage were to increase to 29.97 which of the following would happen?
Adam will work less, will consume less ice cream, and Adam's budget constraint flattens.
Adam's preference weight of consumption to .5, willingness to substitute to 1.02, price to 9, wage to 10, and wealth to 40. If Adam's wage were to increase which of the following would happen?
Adam will work more and will consume more ice cream.
Verb: To add together, Noun: Sum of different items, Adjective: Formed by adding together.
Aggregate
If only the productivity of Adam's workers decreases, which of the following would be true at the new profit maximizing level of output and quantity of labor hired?
An decrease in the amount of labor Adam hires
Select the three answers below that would result in an increase of GDP.
An increase in exports An increase in government spending. An increase in investment spending.
An increase in demand (rightward shift in the demand curve) will cause which of the following?
An increase in the equilibrium price and quantity.
Which of the following would happen as a result of an increase in productivity?
An increase in total output at any given amount of labor and increase in the marginal product of labor at any given amount of labor.
Taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices.
Arbitrage
Anything tangible or intangible that can be owned or controlled to produce value and that is held to have positive economic value.
Asset
n the learning object, we learned how the labor input can increase through both increases in the number of workers and or increases in the average amount of hours worked. Which input is least likely to be a sustainable source of growth in the long run?
Average hours worked.
Also known as a statement of financial position is a summary of the financial balances of an individual or organization
Balance sheet
To receive (money) from somebody temporarily, expecting to return it (often with interest).
Borrow
What is the link between the Rest OF The World to Financial Institutions called?
Borrowing from abroad
All possible consumption bundles that someone can afford given the prices of goods and the person's income level. This set is bounded above by the budget line. Graphically speaking, all the consumption bundles that lie inside the budget constraint and on the budget constraint are in this set.
Budget Set
The boundary of the budget set that reflects all combinations of consumption and leisure at which spending equals the sum of labor income and wealth.
Budget constraint
The downward and upward movement of Gross Domestic Product (GDP) around its long-term growth trend.
Business cycle
To obtain property right in exchange for payment.
Buy
The number of capital goods that a firm uses in production and how it depends on the various exogenous (externally determined) variables the firm is faced with.
Capital Demand
Cumulative amount of capital goods that are used in production. These include equipment, structures, and intangibles.
Capital Stock
A profit that results from a sale of a capital asset, such as stock, bond or real estate, where the sale price exceeds the purchase price. The gain is the difference between a higher selling price and a lower purchase price. Conversely, a capital loss arises if the proceeds from the sale of a capital asset are less than the purchase price.
Capital gain
Already-produced durable tangible or intangible goods or non-financial assets that are used in production of goods or services.
Capital good
Diagram that pictures the economy as consisting of four main sectors that interact with each other through different markets and in which financial institutions help to facilitate (some of) the interactions.
Circular flow diagram
Which of the following would be considered a capital good?
Company computers used at a large accounting firm. A patent for the design of a new airplane electronics component.
Wages and benefits, both current and deferred, that employees receive in return for their work. It is the cost of employing workers for the employer/firm.
Compensation
Which component accounts for the largest share of personal income in the U.S. ?
Compensation
What is the largest component of GDI in 2005Q1?
Compensation of employees
Focus on three decisions households make:
Consume --Spending on goods and services. Labor supply --How much to work to earn wages. Save --Put money aside that can be used for future consumption and bears interest.
Laspeyres price index that measures the percent increase in the cost of living for households as captured by their out-of-pocket spending on goods and services.
Consumer Price Index (CPI)
About one in every five urban households owned a car in 2014 in China.
Consumption
Spending is also called?
Consumption
The purchase and use of goods and services by economic agents, in particular by households.
Consumption
When you pay your electricity bill...
Consumption
For given preferences, wages, price level, and wealth levels, this curve depicts how the level of consumption by households depends on the real interest rate.
Consumption curve
Marginal utilities of consumption and leisure
Costs: Reduction in hours of leisure X (Change in utility/Change in hours of leisure) <--Marginal utility of consumption (MUC) Benefits: Increase in ice cream consumption X Change in utility/Change in cups of ice cream) <--Marginal utility of leisure (MUL)
Equate marginal cost and benefit
Costs: Reduction in hours of leisure X Marginal utility of leisure (MUL) = Benefits: Increase in ice cream consumption X Marginal utility of consumption (MUC)
A variable that moves in opposite direction to the overall state of the economy. For example, unemployment that goes down when output growth is strong and spikes during recessions.
Countercyclical
When economic statistics change because they get updated to reflect the inclusion of new information (or sometimes a change in definition or measurement methodology).
Data revision
An obligation (usual money) owed by one party, the borrower or debtor, to a second party, the lender or creditor.
Debt
At a given real rate of interest, as the wage decreases the level of savings _______.
Decrease
Holding all else equal a decrease in household wealth (initial assets) will _______ consumption today.
Decrease
Which of the following would happen as the result of an increase in household wealth (i.e. initial assets)?
Decrease in hours worked, a decrease in savings, a shift in the savings curve, and outward shift in the consumption curve and an increase in consumption.
Total personal income minus personal current taxes. A measure of how much households can spend on personal consumption without having to tap into their savings.
Disposable Personal Income (DPI)
A payment made by a corporation to its shareholders, usually as a distribution of profits.
Dividend
Which component accounts for the smallest share of personal income in the U.S.?
Dividends
As the price of the ice cream Adam sells increases Adam's user cost _______ at any given length of truck.
Does not change
As the real interest rate increases, Adam's marginal revenue product ______ at any given length of the truck.
Does not change
#The study of how humans make decisions in the face of scarcity.
Economics
The study of how humans make decisions in the face of scarcity.
Economics
Someone who starts and/or runs a business.
Entrepreneur
Income derived from selling the services of factors of production.
Factor Income
Resources, or inputs are what is used in the production process to produce output.
Factors of production
True or false, at the end of the learning object, we discussed how the long run outlook for future output growth in highly industrialized nations will likely be much more rapid than the previous century.
False
True or false? Generally firms are more willing to invest in capital goods during recessions so they can take full advantage of the expansionary period that will follow.
False
From looking at the data we find that _______ assets make up the largest portion of total household assets.
Financial
#This sector of the economy receives money from the sale of goods and services and pays the household sector in exchange for their labor.
Firms
Inputs: Consumption, Government Purchases, and Investments Outputs: GDP, Taxes, Disposable income
Firms
A condition in which firms can freely enter the market for an economic good by establishing production and beginning to sell the product.
Free entry
In terms of reliability of data ______ is a better measure of economic activity and is generally subject to fewer and smaller revisions.
GDP
Pros and cons of GDP and GDI
GDP Pros: ● Available one quarter earlier than GDI. ● Expenditures better measured. ● Smaller revisions of data in later vintages. GDP Cons: ● Several expenditures are increasingly important but hard to measure ● Trade-in services. ● Intangibles. ● Social media? GDI Pros: ●GDI a better indicator of the economic cycle. ● GDI revisions larger but line up more accurately with changing picture GDI Cons: ● Components of GDI other than compensation more accounting than economic concepts.
Measure of the level of prices of all new, domestically produced, final goods and services in an economy.
GDP deflator
#Taxes flow into this sector of the economy and transfers flow out of this sector.
Government
For there to be real wage growth over a given period of time, nominal wage growth must be ______ than inflation.
Greater than
Total income received by all sectors of an economy within a state. It includes the sum of all wages, profits, and taxes, minus subsidies.
Gross Domestic Income (GDI)
A monetary measure of the market value of all final goods and services produced in a period (quarterly or yearly).
Gross Domestic Product (GDP)
Remember, macroeconomics is the part of economics that studies the outcomes and decision making as it relates to the economy as a whole.
Have prices risen in the United States over the past year? What effect will a raise in the minium wage have on the unemployment rate? How will inflation affect United States exports? Will lower interest rates stimulate economic growth?
Which of the following correctly describes the relationship between the rental rate of capital and Adam's capital demand?
Holding all else equal, as the rental rate of capital decreases, Adam's capital demand increases. Holding all else equal, as the rental rate of capital increases, Adam's capital demand decreases.
Inputs: Disposable income Outputs: Consumption, Imports, and Private Savings
Households
Which sector of the economy accounted for the highest amount of spending in GDP in 2001Q4?
Households
Which sector of the economy had the largest increase in spending between 2001Q3 and 2001Q4?
Households
The optimal leisure-consumption choice is on the budget constraint/line because...
If it was above, the choice would not be affordable. Any choice below the line would allow Adam to increase his leisure time and still be able to afford the same level of consumption. Any choice below the line would allow Adam to maintain his level of leisure time and afford more consumption.
If Adam were in an industry with freedom of entry and exit and all firms in that industry were earning negative profits (making a loss), which of the following would most likely result?
In the long-run firms would exit the industry and the profits of the remaining firms would increase.
Gross Domestic Income
Includes income sources from production
Which of the following would cause real GDP per capita to overstate a country's standard of living?
Income inequality High rates of crime Low life expectancy
Financial statement that reports the revenues (income) and expenses of a person/corporation/sector over a given time period. For firms this is sometimes referred to as a profit and loss statement.
Income statement
What refers to the income and which measure(s) of the size of the economy does it represent?
Income: GDI
An increase in the capital stock will _______ total output at any given amount of labor.
Increase
Increasing the amount of labor demanded by firms _______ total output.
Increases
Percentage change in, or growth rate of, the overall price level. When this change is negative, this is sometimes also referred to as deflation.
Inflation
The goods and materials that a business holds for the ultimate purpose of resale (or repair).
Inventory
The amount purchased per unit time of goods which are not consumed at the present time. Additions to a stock of durable goods.
Investment
For given technology, wages, and price level, this curve depicts how the level of investment by firms depends on the real interest rate.
Investment curve
What is the link between Financial Institutions to Firms called?
Investments
The idea that the joint pursuit of self-interest and the allocation of resources using markets leads to (relatively) efficient economic outcomes.
Invisible Hand
Holding all else equal a decrease in household wealth will shift the consumption curve ______.
Inward
Real GDP
Is Gross Domestic Product corrected for the effect of price changes (quantity)
Real GDP per capita
Is economists' measure of standard of living
All compensation for work effort, including for example wages, benefits, and bonuses.
Labor Income
Leisure time OR Work?
Labor Supply
What are factors of production?
Labor and Product
When you get paid $1400 for a week of work...
Labor income
The percent of the value of output paid to workers in the form of compensation.
Labor share
A couple decides that the father will not work but instead take care of their child (will be a stay-at-home dad) while the mother works
Labor supply
In 2015 4.9 percent of all employed persons in the United States worked more than one job (were multiple jobholders)
Labor supply
The total hours (adjusted for intensity of effort) that workers wish to work at a given real wage rate.
Labor supply
For given preferences, interest rate, inflation, and wealth levels, this curve depicts how the amount that households would like to work depends on the real wage.
Labor supply curve
Measure of sensitivity of households' willingness to work with respect to changes in the (real) wage. In particular, it is measured as the percentage change in the labor supply in response to a one percent change in the (real) wage.
Labor supply elasticity
Tradeoff faced by individuals between the amount of time spent engaged in productive work for which they earn a wage and leisure activities that generate utility.
Labor-leisure tradeoff
Let's say you are the CEO of a mid-sized company and you need to expand your office space to accompany the size of your growing business. However, you really don't want to deal with the risk and headache of owning a large commercial property, not to mention that if you continue to grow at your current pace you may need another new office space within five years. Which method of obtaining capital should you probably use?
Lease an office that fits your current needs.
When you decide to take a day off on a sunny summer day...
Leisure
Lending of money from one individual or organization to another. The lender gives up the opportunity to spend the money now in return for an interest payment on the amount lent. The borrower buys the opportunity to spend the money now at the cost of paying interest later.
Loan
Compared to previous decades (let's call those "normal"), over the last 20 years real wage growth in the United States has been ______ .
Lower than normal
#Jeff is concerned with how an increase in the supply of money will affect the trade balance between the United States and China, this would most likely be considered a ________ area of study.
Macroeconomics
The part of economics that studies the outcomes and decision making as it relates to the economy as a whole.
Macroeconomics
Gross Domestic Product
Main gauge of size of economy
Marginal analysis is the decision-making tool that compares the additional benefits of an activity with the additional costs of that activity.
Marginal Analysis
The additional revenue generated from using one more unit of a particular input.
Marginal revenue product
On a day when the temperature reaches a record-high in New Delhi, Raj really wants some ice cream to cool off...
Marginal utility of consumption
The utility gain from an increase, or utility loss from a decrease, in consumption.
Marginal utility of consumption (MUC)
After a long day at work Luisa really enjoys relaxing on the couch at home...
Marginal utility of leisure
The utility gain from an increase, or utility loss from a decrease, in leisure.
Marginal utility of leisure (MUL)
A system whereby parties engage in exchange. Markets rely on sellers offering their goods or services (including labor) in exchange for money from buyers. It can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enable the distribution and allocation of resources in a society. Markets allow any trade-able item to be evaluated and priced.
Market
The part of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of limited resources.
Microeconomics
As elasticity of demand increases the quantity demanded by consumers is ______ sensitive to changes in price.
More
If the interest rate rises, then Adam consumes ______ ice cream tomorrow.
More
Looking at the labor demand curve we can see that it matches our basic intuition because as real wage decreases firms hire ______ labor and vise versa.
More
Classify income by production factor- Production factor/Recipient: Workers Capital Owners Government
NIPA name: Compensation of employees Consumption of fixed capital Net operating surplus Net taxes on production and imports(indirect taxes)
GDP and GDI not exactly equal- Production factor/Recipient: Workers Capital Owners Government Statistical Discrepancy
NIPA name: Compensation of employees Consumption of fixed capital Net operating surplus Net taxes on production and imports(indirect taxes) Difference between GDI and GDP
The implementation of complete and consistent accounting techniques for measuring the economic activity of a nation.
National accounts
The sum of all past federal deficits, minus any surpluses.
National debt
#The difference between the monetary value of a nation's exports and imports over a certain period.
Net exports
The difference between the monetary value of a nation's exports and imports over a certain period.
Net exports
Total assets minus total outside liabilities of an individual or a company.
Net worth
A value that is measured in dollars (or other currency) in current prices. It is not adjusted for inflation.
Nominal
What happened to Adam's leisure-consumption choice when I doubled the price, wage, and wealth levels?
Nothing.
The gain from alternative choices sacrificed when a current choice is decided upon.
Opportunity cost
Quantity of goods or services produced in a given time period, by a firm, industry, or country, whether consumed or used for further production.
Output
Conditions under which a market will reach an equilibrium in which the quantity supplied for every product or service, including labor, equals the quantity demanded at the current price and in which this equilibrium is efficient.
Perfect competition
Fisher Ideal Price Index that measures the percentage change in the cost of the personal consumption expenditures component of GDP.
Personal Consumption Expenditures Price Index (PCE or PCEPI)
The goods and services purchased by persons.
Personal consumption expenditures
The quantity of payment or compensation given by one party to another in return for goods or services. In modern economies, prices are generally expressed in units of some form of currency.
Price
Over time: measure of price at a particular point in time, t, relative to that in a base period, b, i.e. Pt/Pb. It is an index because it does not measure the price level but instead the cumulative growth in the price level between t and b. Across regions/countries Instead of comparing a period with a base period, a bilateral price index across regions or countries measures the price in a country or region relative to the price in a base country.
Price Index
Firm that makes up only a small part of the market and therefore has to take the prevailing price in the market as given. Its production decisions do not affect the overall market and therefore the prevailing price level.
Price taker
Amount due and owing to satisfy the payoff of the underlying obligation, less interest or other charges.
Principal balance
What is the link between Households to Financial Institutions called?
Private savings
A variable that moves together with the overall state of the economy. For example, employment that goes up when output growth is strong and declines during recessions.
Procyclical
Which of the following most correctly classifies the cyclicality of the labor input?
Procyclical (moves together with output).
A price index that measures the average changes in prices received by domestic producers for their output.
Producer price index
Process of combining various material inputs and immaterial inputs (plans, know-how) in order to make something for consumption (the output).
Production
Relationship that describes how the level of physical output of a production process depends on the levels of physical inputs, or factors of production, that are being used.
Production function
The study of production, or the economic process of converting inputs into outputs.
Production theory
An average measure of the efficiency of production. It can be expressed as the ratio of output to inputs used in the production process, i.e. output per unit of input.
Productivity
The difference between the revenue received from the sale output and the cost of the inputs used in production.
Profit
Functional relationship that describes how the level of profits a firm makes depends on the level of its input choices.
Profit functional
Income earned by individuals who are self-employed, part of a partnership, or a cooperative.
Proprietors' income
A value that is relative to other commodities or goods. It is adjusted for inflation, enabling comparison of quantities as if prices had not changed.
Real
The return to investing/saving measured in terms of units of consumption. It is the nominal interest rate corrected for inflation.
Real interest rate
A business cycle contraction which results in a general slowdown in economic activity.
Recession
Holding all else equal an increase in households eagerness to smooth consumption will ______.
Rotate the consumption curve clockwise.
A stock variable is measured at one specific time, and represents a quantity existing at that point in time, which may have accumulated in the past. A flow variable is measured over an interval of time. Therefore a flow would be measured per unit of time (say a year). It is roughly analogous to rate or speed in this sense.
Stock and flow
Inputs: Borowing and Taxes Outputs: Purchases and Transfers
The Government
Solve for the Marginal Rate of Substitution
The Marginal rate of substitution (MRS) = Increase in ice cream consumption/Reduction in hours of leisure = Marginal utility of leisure (MUL)/Marginal utility of consumption (MUC)
GDP split into price and quantity
The Quantity bought (Real GDP) MULTIPLIED Price per unit (GDP deflator(GDP price index)) EQUALS Total Expenditures (Nominal GDP)
What factors determined Adam's optimal choice of ice cream and leisure?
The price of ice cream. The amount of money in Adam's piggy bank. Adam's wage. How much Adam likes ice cream. How much Adam likes leisure.
Which of the following would be areas of study in international economics?
The trade balance Exchange rates Globalization The migration of workers between countries
A group of linked ideas intended to explain something. It provides a framework for explaining observations. The explanations are based on assumptions. From the assumptions follows a number of possible hypotheses which can be tested to provide support for, or challenge, it.
Theory
A variable which accounts for effects in total output growth relative to the growth in the inputs of labor and capital.
Total factor productivity
Suppose that at a certain level of the labor input both marginal revenue and marginal cost are positive. However, marginal REVENUE is LESS than marginal COST. What would happen if the firm increased its labor input?
Total revenue will increase, cost will increase, and profit will decrease.
Suppose that at a certain level of the labor input both marginal revenue and marginal cost are positive. However, marginal COST is LESS than marginal REVENUE. What would happen if the firm increased its labor input?
Total revenue will increase, cost will increase, and profit will increase.
If Adam changes the amount of labor he hires from 100 hours to the profit maximizing amount, what will happen to his total revenue?
Total revenue will increase.
The difference between the monetary value of a nation's exports and imports over a certain period. See also "net exports". When this is negative it is called a trade deficit and when positive a trade surplus.
Trade balance
Did ambiguous or unambiguous components of GDI make up the majority of GDI in 2016Q3?
Unambiguous
#We assume that households choose optimal amounts of consumption, leisure, and saving in an attempt to maximize ______ or happiness.
Utility
Monetary compensation paid by an employer to an employee in exchange for work done. Payment may be calculated as a fixed amount for each task completed (a task wage or piece rate), or at an hourly or daily rate, or based on an easily measured quantity of work done.
Wage
Firm that only hires a small fraction of workers in the labor market. Therefore its labor demand decision has no effect on the prevailing wage. For this reason, the firm takes the prevailing wage as given when it makes its decisions.
Wage taker
A measure of the value of all of the assets of worth owned by a person, community, company or country.
Wealth
The provision of a minimal level of well-being and social support for all citizens.
Welfare
In the labor market...
Workers supply time and Firms demand time.
Which of the following are examples of economic decisions we make in our daily lives?
You decide to go out for dinner rather than cook at home... You take a day off and go to the beach rather than to work... You sign up for an overtime shift at your job to earn more income to spend on your vacation...
Condition that occurs when an industry or type of business has an extremely low (near-zero) cost of entry. In this situation, many people tend to join the industry, seeing the opportunity to make money, until there is no more money to make. The resulting large amount of competition limits each person's share of the market, as well as their ability to pursue a large profit margin.
Zero-profit condition
If the labor supply elasticity increases, then the ........
labor supply becomes more sensitive to changes in the (real) wage.
The two main markets in the macroeconomy are ________, and the, ________. The law of _________ determines ________ in both.
the product market the labor market supply and demand prices
% Profit function
% How much you are willing to pay to receive a possible profit is called *profit function*.
% Intertemporal elasticity of substitution
% How willing I am willing to save money today over tomorrow due to the price being different tomorrow is a form of *intertemporal elasticity of substitution*.
% Labor supply curve
% How willing I'm willing to work due to real wage is called *labor supply curve*.
%Barrow
% I *barrow* money from the bank and the bank expects the money I barrowed and a little more (Interest).
Adam can sell a single cup of ice cream for $5, and must pay his workers $15 an hour. If Adam decides to hire his workers for 50 hours total in order to make 250 cups of ice cream , and he sells all 250 cups, what is his total profit?
$5 X 250 Cups = $1250 $15 hr X 50 hrs= $750 $1250- $750= $500 total profit
% Buy
% I *buy* a pie to eat it.
% Intertemporal substitution
% I am willing to substitute pie for ice cream in the desert summers and a warm pie during the winter which is a form of *intertemporal substitution*.
% Allocative or Pareto efficiency
% *Allocative or Pareto efficiency* is any changes made to assist one person would harm another.
% Producer price index
% *Producer price index* measures the average changes in prices received from the country for their output.
% Production theory
% *Production theory* follows the production of inputs into outputs.
% Productive efficiency
% *Productive efficiency* is no additional output can be obtained without increasing the number of inputs, and production proceeds at the lowest possible average total cost.
% Technology
% *technology* is goods or services that can be used to create revenue and profit.
% Business cycle
% A *business cycle* follows a period of ups and downs a item's final cost (GPD) over time.
% Friction
% A *friction* is a force that slows down the adjustment of the market to its efficient outcome.
% Market
% A *market* is a place where you can exchange final products to a customer for a certain price.
% Stylized fact
% A general idea of the statistics of economics but may be proven inaccurate in the finer details is called a *stylized fact*.
% Distortion
% A market clearing price for an item that is substantially different from the price that a market would achieve in case of an efficient market outcome is a *distortion*.
% Supply curve
% A relationship of how much product the company has and how much they are willing to sell the product is the *supply curve*.
% Demand curve
% A relationship of how much something is and how much I would be willing to pay is a *demand curve*.
% Elasticity
% An *elasticity* focuses in a change from one variable if another changes,
% Returns to scale
% An increase to output needs an equal increase to input which is called *returns to scale*.
% Market power
% Companies profit raise the market price of a good or service over marginal cost.
% General equilibrium
% Demand equal supply at the same time in all markets in *general equilibrium*.
% Capital Deepening
% Differences in the amount of capital per person in a country is *capital deepening*.
% National debt
% Due to the high spending of the U.S. government and politics the country experiences a level of *national debt*.
% Asset
% For a worker their *asset* is the ability to do the required job for a set wage.
% Leisure
% For me, I tend read for my *leisure* time.
% Market Failure
% Gathering of items and services in the market is not efficient.
% Intermediate Good
% Graphite, made in pencils are a form of *intermediate goods*.
% Marginal utility of leisure (MUL)
% Happiness (utility) that rises or falls in the increase or decrease of leisure is called *marginal utility of leisure (MUL)*.
% Utility
% Happiness in economic terms is called *utility*.
% Labor supply
% How long I am willing to work us *labor supply*.
% Output
% How many goods or services are produced is an *output*.
% Labor demand
% How many hours a Boss would hire me for a specific price that is agreeable for the *labor demand*.
% Real wage
% How much I can buy a product is a *real wage*.
% Labor Income
% How much I earn in a job is my *labor income*.
% Personal Consumption Expenditures Price Index (PCE or PCEPI)
% How much an item or service is in a period of time is a *personal consumption expenditure*.
% Wealth
% How much money I have is my *wealth*.
% Cost
% How much something is worth in price this is called *cost*.
Adam's preference weight of consumption to .5, willingness to substitute to 1.02, price to 2, wage to 10, and wealth to 40. If the price of ice cream were to increase which of the following would happen?
Adam will work less, will consume less ice cream, and Adam's budget constraint flattens.
Which of the following are benefits of saving?
Interest payments and consumption smoothing.
Amount of interest due per period, as a proportion of the amount lent, deposited or borrowed.
Interest rate
Goods, such as partly finished goods, used as inputs in the production of other goods.
Intermediate good
The branch of economics that is concerned with the effects upon economic activity from international differences in productive resources and consumer preferences and the international institutions that affect them. It seeks to explain the patterns and consequences of transactions and interactions between the inhabitants of different countries, including trade, investment and migration.
International economics
Inputs: Imports Outputs: Borrowing and Exports
International/foreign/ rest of the world
Measure of responsiveness of consumption to changes in the real interest rate.
Intertemporal elasticity of substitution
Substitution is the willingness to switch between different beneficial alternative choices of which the benefits occur at different points in time. Intertemporal means "between" points in time in Latin.
Intertemporal substitution