Princ. of Macroecon. Exam 1

Equilibrium

a state in which opposing forces or influences are balanced.

demand schedule

a table that shows the relationship between the price of a good and the quantity demanded

supply schedule

a table that shows the relationship between the price of a good and the quantity supplied

How to calculate GDP

GDP = C + I + G +NX

How to calculate GDP inflation rate

GDP deflator- 100/ 100

substitutes

Goods and services that can be used for the same purpose.

shortage

A situation in which quantity demanded is greater than quantity supplied

surplus

A situation in which quantity supplied is greater than quantity demanded

If orange juice and apple juice are substitutes, an increase in the price of orange juice will shift the demand curve for apple juice to the left. True or False?

False

natural resources

Materials or substances such as minerals, forests, water, and fertile land that occur in nature and can be used for economic gain

How to calculate Nominal GDP

Multiply quantity of goods produced by prices (in a given year), then add other year

How to calculate real GDP

Multiply the base year by quantity of goods produced by prices, then add another year

How to calculate the value of Net Exports

NX= Exports- Imports

How to calculate GDP deflator

Nominal GDP/Real GDP x 100

The following transactions would be included in what a) Extreme Chocolate, a Swiss chocolate company, makes chocolate chips at a plant in Hersey, PA on May 16, 2020. They were purchased later that month. b) Cheesy, a U.S. restaurant, produces a steak at one of its many Sioux Falls locations on February 24, 2020. It sells the steak to a customer that same day

The U.S. GDP of 2020

Gross Deomestic Product (GDP)

The value of the total output of goods and services produced in a country in a given time period (normally one year).

Sellers respond to a surplus by cutting their prices. True or False?

True

The equilibrium price is the same as the market clearing price. True or False?

True

inferior good

a good that consumers demand less of when their incomes increase

normal good

a good that consumers demand more of when their incomes increase

demand curve

a graph of the relationship between the price of a good and the quantity demanded

supply curve

a graph of the relationship between the price of a good and the quantity supplied

production 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

market

a group of buyers and sellers of a particular good or service

competitive market

a market in which there are many buyers and many sellers

circular flow diagram

a visual model of the economy that shows how dollars flow through markets among households and firms

Identify whether each of the following events in this scenario occurs in the market for Goods and Services or Factors of Production a) Suppose Peter earns $500 a week in the shipping department at a brewery b) Peter spends $60 to buy Patriots football tickets c) Lois buys a beer from the brewery for $5

a) Factors of Production b) Goods and Services c) Goods and Services

Which of the following flow from a firm to a household?

a) The $500 Peter receives from the brewery b) The beer Lois purchases

Which of the following expenditures would increase the consumption component of U.S. GDP? a) You buy a used book about finance b) You buy a pizza c) You buy 1,000 shares of stock d) You buy a new house

b) You buy a pizza

Which of the following is an example of human capitol? a) The comfortable chair in your dorm room where you read economic texts b) The amount you get paid each week to work at the library c) The things you learned this semester d) Any capitol goods that require a human to be present to operate

c) The things you learned this semester

Positive statements

claims that attempt to describe the world as it is

Normative statements

claims that attempt to prescribe how the world should be

catch-up effect

countries that start off poor tend to grow more rapidly than countries that start off rich

Which of the following would increase the net export component of U.S. GDP? a) A car produced in Michigan is purchased in Louisiana b) A car produced in Japan is purchased in California c) A bottle of French wine is purchased in New York d) A bottle of California wine is purchased in London

d) A bottle of California wine is purchased in London

Which of the following events must cause equilibrium prices to rise?

demand and supply both increase

Based on the circular flow model, households earn income when ___________ purchase ______________ in resource markets.

firms, labor

If an American- based firm opens and operates a new clothing factory in Honduras, then it is engaging in

foreign direct investment

For a market for a good or service to exist, there must be a

group of buyers and sellers

Greg learns how to bake from his grandmother. This is an example of

human capitol, but not technological knowledge

diminishing returns

policies that raise saving and investment

In order to promote growth in living standards, policymakers must

protect property rights and maintain political stability

Suppose that a new government is elected in Eurnesia. The new government takes steps toward improving the court system and reducing government corruption. The citizens of Eurnesia find these efforts credible and outsiders believe these changes will be effective and long lasting. These changes will probably rise

real GDP/ person and productivity in Eurnesia

technological knowledge

society's understanding of the best ways to produce goods and services

An example of a perfectly competitive market would be the

soybean market

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

government purchases

spending on goods and services by local, state, and federal governments

quantity demanded

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

quanitity supplied

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

law of supply and demand

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

Law of Supply

the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises

physical capitol

the human-made objects used to create other goods and services

human capitol

the knowledge and skills a worker gains through education and experience

equilibrium price

the price that balances quantity supplied and quantity demanded

Productivity

the quantity of goods and services produced from each unit of labor input

equilibrium quantity

the quantity supplied and the quantity demanded at the equilibrium price

Macroeconomics

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

Microeconomics

the study of how households and firms make decisions and how they interact in markets

complements

two goods that are bought and used together

Law of Demand

when price rises, quantity falls, when price falls, quantity demanded rises