Macro Exam 1 (Chapter 6-11)

McDonald's hires 10 new workers to staff a new restaurant. Where does this transaction take place?

input market

What is the Solow model?

jointly consider the production function and capital accumulation

What is comparative advantage?

lower opportunity costs

What is GDP (Gross Domestic Product)?

market values of all final goods and services produced within a country in a year market value X quantity produced

What is relative poverty?

measure of adequacy of resources relative to the material living standard of your society -what is essential depends on what other have (ex: essential that everyone has a phone or computer) -can change over time

What is absolute poverty?

measure that adequacy of resources relative to an absolute standard of living -focus on basic needs being met -does not change over time

Aiden recently graduated from college without a job. He hasn't started looking for one yet, but he plans to start searching for a job next month after he has moved back to his family's house and had time to catch up with his friends. Aiden is considered

not in the labor force

A prediction market is a market where:

payoffs are linked to whether an uncertain event occurs.

What is to be consisted the working-age population?

-16 yrs or older -not in the military -not institutionalize

What do markets do?

-connect buyers and sellers to trade -allocate goods and services based on price (value of WTP- willingness to pay) able to pay -goods and services are scarce -price helps determine how resources should be used

What does GDP not include?

-intermediate goods and services -second hand sales -production in other countries by domestically owned businesses

What are costs of redistubution?

-reduce incentive to work -administrative cost -tax avoidance, evasion, fraud

What do new ideas lead to?

-resources toward creating new ideas -freely shared -do not depreciate -ideas promote more ideas

How is GDP measured?

-total spending (add up very dollar of spending) -total output -total income

What are the causes of comparative advantage?

1) abundant inputs (geography, climate natural resources, people, business) 2) specialized skills (better production techniques) 3) mass production (economics of scale- specialized production lines, bargaining power) -opposites attract

What are some ways to promote economic growth?

1) more workers = more output 2) highly skilled worker = more output 3) accumulate more physical capital = more output

What are some of that arguments against trade?

1) national security 2) protection for infant industry 3) unfair competition + dumping 4) enforcing minimum standards 5) restrict trade to save jobs

What are the limitations of GDP?

1) prices are not values -market power distorts prices -externalities -public goods 2) nonmarket activities are not included 3) shadow economy is missing (illegal markets not shown to the government) 4) environemtnal degration is exldued 5) leasure doens't count 6) GDP ignore distribution

What are some points about government and economic growth?

1) property rights 2) governments stability- corruption/ political instability decrease investment 3) efficient regulation (red tape, excessive oversight) 4) policy to encourage innovation

How should roommates Danielle and Nick allocate tasks in their household? ▪ Danielle says that she can clean a bathroom in 30 minutes or mow the lawn in 2 hours. ▪ Nick says that he can clean a bathroom in 1 hour or mow the lawn in 3 hours.

Danielle Opportunity Cost (mow): 4 clean bathrooms Danielle Opportunity Cost (bathrooms): 1/4 mowed lawn Nick Opportunity Cost (mow): 3 bathrooms Nick Opportunity Cost (bathrooms): 1/3 lawn *Nick as the comparative advantage for mowing

What is the formula to calculate net exports?

Exports - Imports

What are trade costs?

Extra costs incurred as a result of buying or selling overseas, rather than domestically - Shipping costs, taxes paid on imports or exports, language barriers

Suppose that it takes you two hours to complete your economics homework and four hours to complete your philosophy homework. What is your opportunity cost of completing your economics homework?

Opportunity Cost of Philosophy: 2 econ homework's Opportunity Costs of Econ: 1.2 philosophy homework

What are transfer payments?

Payments that transfer income from one person to another.

What is the formula to calculate the GDP per capita?

GDP / population

What is nominal GDP?

GDP measure by the price of the year of production

What is the formula to calculate GDP

GDP= C + I + G + (X-M) C: consumption (household spending) I: investment (business spending) G: government purchase NX: net exports (Exports - Imports)

What does each letter represent in the production function formula?

L: labor -hours worked (increase population = increase total GDP) H human capital -productivity of labor (quantity of goods and survives that each produces prices per hour of work) K: physical capital -total quantity of physical capital (machinery, equipment), used in the production of goods and services -investment

Suppose the government changes the minimum working age to 21. Which inputs into the production function changed?

Labor

What are some examples of US Social Safety Net?

Medicaid Earned Income Tax Credit (EITC) Supplemental Nutrition Assistance Program (SNAP) Supplemental Security Income (SSI) Housing assistance Welfare

What is the difference between microeconomics and macroeconomics?

Micro: study of individual decisions and their implication or specific markets Macro: study of the economy as a whole

What is the formula for production function?

y= F(L,H,K)

What are the effects of imports domestically?

Price: falls Quantity demanded: rises Quantity supplied: falls Total Surplus: increase

Whare the the effects of exports domestically?

Price: increases Quantity Demanded: decrease Quantity supplied: increase Total Surplus: increase

What are some examples of US Social Insurance?

Social Security Unemployment Insurance Disability Insurance Workers' Compensation Medicare

Who are the winners and losers of imports domestically?

Winners- consumers Losers- producers

Who are the winners and losers of exports domestically?

Winners- producers Losers- consumers

What is progressive tax?

a tax here those with more income tend to pay a higher share of their income in taxes

What are imports?

buy from a foreign seller

_________ can't sustain long-term economic growth

capital accumulation

The moral of the story of the Solow growth model is that:

capital accumulation alone cannot lead to sustainable economic growth

Pauline's Plumbing Services are considered?

consumption

What does nominal GDP capture?

effect of price increase and effect of increase in production

Louise opened her own Etsy shop while she finishes her final year of college. She has time to commit only five hours per week to the business. Louise is considered

employed

What is the formula for labor force participation rate

employed + unemployed / working age population X 100

What is the formula for labor force?

employed +unemployed

Wat is comprehensive measurment?

everything bough and sold in market excludes nonmarket goods and services

How should one know when to a import a good?

foreign price + trade costs < domestic price

How should one know when to export a good?

foreign price - trade costs > domestic price

What is social insurance?

government provided insurance against bad outcome such as unemployment, illness disability, or outliving your savings

What is production function?

have inputs are turned into outputs

What is equality?

how the pie is divided

What is comparative advantage?

produce (specializing) what you are relatively good at and buy what you are relatively bad at

What does the circular flow diagram show?

relationship between -output -spending -income -will all be equal

What are exports?

sell to a foreign buyers

What is efficiency?

size of the economic pie

What is a discouraged worker?

someone who wants to work but can't find a job and give up

What are tariffs

tax on imported product

What is a proportional tax?

tax rate is the same for everyone

What is absolute advantage?

the ability to produce a good using fewer inputs than another producer

What is social safety net?

the cash assistance, goods, and services provided by the government to better the lives of those at the bottom of the income distribution

What is regressive taxes?

the higher your income the lower your tax rate

What is the formular to calculate unemployment rate?

unemployed / labor force X 100

What is the formula to calculate value added?

value added= total sales - cost of intermediate inputs