ECON first 1/4

National Activity Index

A weighted average of 85 indicators of economic activity. Recession likely if index falls below -0.7

Business cycle

Alternating periods of economic expansion and economic recession (look on notes for accurate graph)

Exports

Goods and Services sold to other countries

Production efficiency (PE)

Goods and services are produced at their lowest possible source

Autarky

a situation in which a country does not trade with other countries

10. Goods and services such as _____ are included in the calculation of GDP. used goods raw materials intermediate goods final goods

final goods

When the National Activity Index is at zero, the economy is growing at _____ rates. Negative values imply _____ trends. Positive values imply that growth is _____ the long-term trend. historical; slowing; faster than historical; accelerating; slower than slow; accelerating; equal to rapid; slowing; equal to

historical; slowing; faster than

Types of GDP

nominal real

PPC

-Fixed resources = the availability quantity of productive factors is fixed, but can be shifted. - Efficiency - Fixed tech. = tech does not change in time of analysis - Two products/service = simplifies illustration

Factors of production

-Resource- anything USED to produce something that can be bought in an economy - 4 types labor capitol land entrepreneurship

Specialization decisions

-absolute advantage: ability of one producer to produce more than another with the same quantity of resources - comparative advantage: ability to produce a good at a lower opportunity cost than another producer.

Law of demand

-inverse (negative) relationship between price and quantity demanded, ceteris paribus -illustrated by downward sloping curve

allocative efficiency

A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it

equation for GDP

C+I+G+(X-M)

Determinants of Demand

Change in income inferior good change in taste and preferences change in price of related goods changes in expectations about future prices, quantities, availability, etc. Change in population size (# of buyers)

"Chapter 2"

Econ growth and trade

informal economy

Economic activity that is neither taxed nor monitored by a government; and is not included in that government's Gross National Product; as opposed to a formal economy both pos. and negative effects

Gross private domestic investment

Expenditures for newly produced capital goods (such as machinery, equipment, tools, and buildings) and for additions to inventories.

GDP per capita

GDP divided by population

real GDP

GDP expressed in constant, or unchanging, prices

GDP

Gross Domestic Product- the total market value of all final goods and services produced annually in an economy -final goods and services -"during a given year" -"production in the economy"

Primary causes of ECON growth

Innovation and number of resources Division of labor and specializations

Which statement describes the informal economy? It does not include transactions dealing with illegal goods and services. It does not include income earned by undocumented residents. It accounts for 20% of U.S. GDP. It is largely unmeasured.

It is largely unmeasured.

"Chapter 3"

Supply and Demand!!

Determinants of Supply

Technology Recourse prices Change of price of related good Change in number of suppliers Changes of # of suppliers Change in expectations about future prices

interest rates

The cost of borrowing money

Opportunity Costs

The quantity of other goods and/or service that must be given up to obtain an addition good and/or service.

Equilibrium

The relationship of demand and supply

National Income

This refers to all income, including compensation of employees, profits, rental income, net interest, and taxes on production and imports collected by the government.

Which statement is TRUE in the case of the simple circular flow model with no savings? Total spending equals total income only at full employment. Total spending equals total income. Total spending is less than total income. Total spending is greater than total income.

Total spending equals total income.

productions possibilities frontier

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

increasing opportunity cost

a situation in which producing more of one good requires giving up an increasing amount of production of another good

Which of the following is an example of monetary policy? a) A rise in short-term interest rates b) A new bridge being built by the government c) A reduction in the federal income tax d) An increase in Social Security payments

a) A rise in short-term interest rates

Calculate the GDP of Dinoland using the expenditures approach given the following data: personal consumption expenditures = $10 billion; gross private domestic investment = $5 billion; government spending = $3 billion; exports = $2 billion, imports = $1 billion. a) $21 billion b) $19 billion c) $18 billion d) $17 billion

b) $19 billion

Change in Demand

caused by a factor OTHER than the price of good/service

Change in Supply

caused by factors other than a change in the price of the good

Change in Q demanded

change in price leads to this Factor that changed is the price, price only

The largest component of GDP is

consumption

7. What items are included in the calculation of GDP using the income approach? employee compensation, gross private domestic investment, government spending, and net exports. employee compensation, proprietors' income, corporate profits, rental income, and net interest. profits, personal consumption expenditures, domestic investment, and government purchases. personal consumption expenditures, gross private domestic investment, government purchases, and

employee compensation, proprietors' income,

Land

ex. real estate, grasses, forests, metals, and minerals

The two approaches used by the government in estimating GDP are

expenditure and income.

imports

goods and services purchased from other countries

There are two ways to measure GDP: expenditures and

income

Which of these would NOT be included in official GDP measures? lost wages from taking time off work due to bad air pollution purchase of books on how to live a healthier life cost of installing environmentally friendly solar panels value of a country's exports

lost wages from taking time off work due to bad air pollution

Capital

manufactured capital: Human capitol: the knowledge and skills acquired by labor, principality, education etc.

Labor

mental or physical exertion of Human effort directed toward producing goods and services

The goals of macroeconomic policy are to: eliminate short-term fluctuations in the economy and sustain high economic growth. minimize the effects of recessions and ensure that the economy grows over time. ensure that the economy doesn't become depressed and wages remain high. increase employment and grow incomes.

minimize the effects of recessions and ensure that the economy grows over time.

If the opportunity cost of producing a good increases....

more of the good is produced

The sum of all income, including wages, salaries and benefits, profits, rental income, and interest, is called _____ income.

national

The _______ is a weighted average of 85 indicators of aggregate economic performance, designed to pinpoint signs of a recession in a reasonable time frame.

national Activity index

Which component is the smallest part of U.S. GDP? net exports personal consumption expenditures government purchases of goods and services gross private domestic investment

net exports

6. The components of GDP as measured by the expenditures approach are: employee compensation, gross private domestic investment, government spending, and net exports. employee compensation, proprietors' income, corporate profits, rental income, and net interest. profits, personal consumption expenditures, domestic investment, and government purchases. personal consumption expenditures, gross private domestic investment, government purchases, and net exports.

personal consumption expenditures, gross private domestic investment, government purchases, and net exports.

Parative advantage

producing a good if it's opportunity cost is lower than another country's opportunity cost for that good.

The simple circular flow diagram shows that economic aggregates can be calculated either by the _____ flows in the product market or by the _____ flowing to households in the resource market.

spending: income

Suppose the National Activity Index of the Federal Reserve Bank of Chicago drops to -0.83 this month after being above +0.36 for the previous three months. This movement in the index indicates that the rate of economic growth has slowed, but not enough to suggest that a recession is imminent. the economy is at its peak this month but will move into the recession stage in the near future. the economy has probably moved into a recession. the rate of economic growth has dropped below the historical trend rate of growth, and the economy has reached a trough.

stage in the near future. the economy has probably moved into a recession.

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

absolute advantage

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

production possibilities

the alternative combinations of final goods and services that could be produced in a given time period with all available resources and technology

quantity demanded

the amount of a good that buyers are willing and able to purchase for a certain price

Quantity supplied

the amount of a good that sellers are willing and able to sell at different prices

Demand

the desire to own something and the ability to pay for it

Entrepreneurship

the process of starting, organizing, managing, and assuming the responsibility for a business -risky

Market demand

the sum of all the individual quantities demanded for a particular good or service by a consumer

1. A recession occurs when: the total level of economic output falls for several months. unemployment increases. incomes are increasing. manufacturing output declines

the total level of economic output falls for several months.

Supply

the willingness and ability of producers to offer a good or service for sale

The effects of the informal economy are all negative. true flase

true....? i dunno

Supply is illustrated...

upward curve (direct) positive relationship between price and quantity supplied (law of supply)

opportunity cost

whatever must be given up to obtain some item