Macro Exam 1
CPI equation
(total cost this period/total cost base period) X 100
Specialization
A focus on a particular activity or area of study
Adam Smith's Invisible Hand
A hidden hand of the market operating in a competitive market through the pursuit of self-interest allocated resources in society's best interest.
Scientific Method
A series of steps followed to solve problems including collecting data, formulating a hypothesis, testing the hypothesis, and stating conclusions.
Sources of Competitive Advantage
Innovation, Quality, Service, Speed, Cost Competitiveness
GDP deflator equation
Nominal GDP/Real GDP x 100
Nominal vs Real GDP
Nominal: GDP not adjusted for inflation Real: GDP adjusted for inflation
Positive vs. Normative
Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic statements do not have to be correct, but they must be able to be tested and proved or disproved. Normative economic statements are opinion based, so they cannot be proved or disproved.
opportunity cost equation
Price/Quantity
Command vs. Market Economy
A command economy is one in which a central authority decides on supply and demand issues. This is typical of communist/socialist governments. A market economy is one in which demand and supply is guided by people's preferences and choices. This approach is typical of capitalist democracies.
shortage
A situation in which quantity demanded is greater than quantity supplied
surplus
A situation in which quantity supplied is greater than quantity demanded
what does the term "market" refer to?
a group of buyers and sellers of a product and the arrangement by which they come together to trade
the minimum wage is an example of....
a price floor
National Income
total income earned by everyone in the economy
frictional unemployment
unemployment that occurs when people take time to find a job
The law of demand implies, holding everything else constant, that as the price of yogurt...
increases, the quantity of yogurt demanded will decrease.
Ceteris Paribus
all other things held constant
What does not shift the demand curve?
an increase in the price of a good
marginal analysis
analysis that involves comparing marginal benefits and marginal costs
what PPF shape indicates increasing opportunity costs as more and more of one good is produced?
bowed outward
Normal vs. Inferior Goods
*Normal goods* are goods that the individual wants; e.g. steak, nice car, computer, etc. *Inferior goods* are goods that the individual uses because they have to, e.g. public transit. As individual's *income rises*, the individual *uses fewer inferior goods* - not gonna use public transit if you can afford a car.
If the number employed is 190 million, the working-age population is 230 million, and the number unemployed is 10 million, then the unemployment rate is..
5%
disposable personal income is defined as...
personal income less personal taxes
what is a critical function of the government in facilitating the operation of a market economy?
setting up and enforcing private property rights
consumption
spending by households on goods and services, with the exception of purchases of new housing
investment
spending on capital equipment, inventories, and structures, including household purchases of new housing
The most widely used measure of inflation is based on which of the following price indices?
the consumer price index
which of the following is counted in GDP?
the cost of a speed boat purchased by drug smugglers
According to the production possibility model, if more resources are allocated to the production of physical and human capital, then all of the following are likely to happen except....
the country's total production will fall
which of the following is a positive economic statement?
the minimum wage law causes unemployment
labor force participation rate
the percentage of the population aged 16 or older that is in the labor force
what does the term "trade" refer to?
the ratio at which a country can trade exports for imports from other countries
economics
the study of the choices people make to attain their goals, given their scarce resources
If the United States lifted the embargo on Cuban products, what would happen in the U.S. market for Cuban cigars?
the supply curve would shift to the right
Gross domestic product understates the total production of final goods and services because of the omission of...
the underground economy
structural unemployment
unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one
cyclical unemployment
unemployment that rises during economic downturns and falls when the economy improves
Nominal GDP equation
units of output x price per unit
Scarcity refers to the situation in which...
unlimited wants exceed limited resources
If Norwegian workers are more productive than Albanian workers, then trade between Norway and Albania.....
will take place so long as each country has a comparative advantage in a good or service that buyers in the other country want
What is included in GDP?
Domestically produced final goods and services, including capital goods, new construction of structures, and changes to inventories
Which of the following is a positive economic statement?
Due to a decrease in state funding, university tuition has risen.
GDP per capita
GDP divided by population
Personal Income
Salaries and wages as well as investment income and government payments to individuals
comparative advantage
The ability of a country to produce a good at a lower cost than another country can.
Rationality Assumption
The assumption that people do not intentionally make decisions that would leave them worse off.
In recent years the cost of producing wines in the U.S. has increased largely due to rising rents for vineyards. At the same time, more and more Americans prefer wine over beer. Which of the following best explains the effect of these events in the wine market?
The supply curve has shifted to the left and the demand curve has shifted to the right. As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.
Fundamental Questions
What to produce? How to produce? For whom to produce?
which of the following is the best example of a tariff?
a $5,000 per-car fee imposed on all sports utility vehicles imported into the United States
When Sophie, a French citizen, purchases a Dell computer in Paris that was produced in Texas, the purchase is...
a U.S. export and a French import
When Tesla, a U.S. company, purchases Italian-made Pirelli tires for its automobiles, the purchase is....
a U.S. import and an Italian export
Which of the following would cause a decrease in the equilibrium price and decrease in the equilibrium quantity of papayas?
a decrease in demand
production possibilities curve
a graph that shows alternative ways to use an economy's productive resources
Consumer Price Index (CPI)
a measure of the overall cost of the goods and services bought by a typical consumer
circular flow diagram
a visual model of the economy that shows how dollars flow through markets among households and firms
Which of the following would cause an increase in the supply of cheese?
an increase in the number of firms that produce cheese
Income Approach to GDP
calculating GDP by adding up all earnings from resources used to produce output in the nation during the year
in a market economy, who decides what goods and services will be produced?
consumers and producers
If you have trouble finding a job because of a slowdown in the overall economy, we would say that you are...
cyclically unemployed
Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to understate the true extent of joblessness?
discouraged workers
Gross domestic product in the economy is measured by the....
dollar value of all final goods and services produced in the economy
What economic decisions do consumers, firms, and the government have to make?
each faces the problem of scarcity which necessitates trade-offs in making economic decisions
The natural rate of unemployment is the amount of unemployment...
equal to frictional plus structural unemployment.
net exports
exports - imports
disposable personal income
income remaining for people to spend or save after all taxes have been paid
labor force participation rate formula
labor force/working age population x 100
standard of living
level of economic prosperity
Someone who is available for work but has not actively looked for work in the previous four weeks would be classified as...
not in the labor force
unemployment rate formula
number of unemployed/labor force x 100
at market equilibrium...
quantity demanded equals quantity supplied
If the quantity demanded for a product exceeds the quantity supplied, the market price will rise until.....
quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.
why does increasing opportunity cost along a bowed out production possibilities frontier occur?
some factors of production are not equally suited to producing both goods or services
What are menu costs?
the costs to firms of changing prices
full employment
the level of employment reached when there is no cyclical unemployment
Government expenditure
the market value of government purchases of goods and services
what best describes an assumption economists make about human behavior?
they assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time
opportunity cost is defined as...
the highest-valued, next-best alternative that must be given up to obtain something.
law of increasing opportunity cost
to produce more of one good, a successively larger amount of the other good must be sacrificed
Examples of comparative advantage show how trade between two countries can make each better off. Compared to their pre-trade positions, trade makes both countries better off because in each country...
total consumption of goods is greater
Examples of comparative advantage show how trade between two countries can make each better off. Compared to their pre-trade positions, trade makes both countries better off because in each country....
total consumption of goods is greater
budget line
A line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products' prices.
Expenditure Approach
A method of computing GDP that measures the total amount spent on all final goods and services during a given period.
Entrepreneurship
Accepting the risk of starting and running a business.
Determinants of Demand
Anything other than price of the current item that influences consumer buying decisions, including income, tastes and preferences, price of related items (substitutes and complements), number of consumers in the market, and expected future price.
Gross National Product
The total value of goods and services, including income received from abroad, produced by the residents of a country within a specific time period, usually one year.
Efficiency vs. Equity
Total benefits vs distribution of benefits.
