ECO 151 Exam 1 Study

How do economists define capital?

Capital consists of human-created assets that can enhance one's power to perform economically useful work

How does the PPF illustrate efficiency?

Any point on the curve represents efficiency. If you are operating inside the curve, you are inefficient. It is impossible given current technology and resources.

The relative or real price is its value in terms of some other good, service, or bundle of goods?

The nominal price of a good is its value in terms of money, such as dollars, French francs, or yen. The relative or real price is its value in terms of some other good, service, or bundle of goods.

Why might the opportunity cost associated with studying for this exam differ across individuals? Across time for an individual?

The opportunity cost may vary due to differences in activities that each individual had to give up in order to study for the exam. For example, One person may take time off of work and lose part of their income to allow time for study, another person may just forgo the bar tonight therefore the cost of studying is lower for the person who skipped the bar tonight than it was for the person who skipped work.

Why do economists recommend that you view changes in the unemployment rate and the labor force participation rate together?

The participation rate measures the percentage of Americans who are in the labor force. The unemployment rate measures the percentage within the labor force that is currently without a job. A high participation rate combined with a low unemployment rate is a sure sign of a robust job market.

Why might the reported rate of inflation misrepresent your personal inflation experience?

The reported rate is actually an average of inflation, and the average may not reflect the same for every individual within the sample.

What are the costs of unemployment?

1. For the individual, the greatest economic cost of unemployment is lost income. 2. For society, the greatest economic cost of unemployment is the decrease in goods and services that occurs as a result of the unemployment.

How do we define a recession?

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

What has happened to the labor force participation rate over the past decade?

After trending up for more than three decades, the labor force participation rate peaked at 67.3 percent in early 2000. Over the next few years, the rate receded to about 66 percent and stayed at that level through 2008. The participation rate then dropped again, and by mid-2016, it stood at 62.7 percent.

How does the BLS measure inflation?

Consumer inflation for all urban consumers is measured by two indexes, namely, the Consumer Price Index for All Urban Consumers (CPI-U) and the Chained Consumer Price Index for All Urban Consumers (C-CPI-U).

What types of unemployment exist?

Frictional, Structural, Cyclical, and Seasonal

Why do we calculate GDP, that is, what is the purpose of making the computation?

It is because it measures the overall health of the economy

What is the difference between Physical & Human Capital?

Physical Capital refers to non-human assets such as machinery, tools, office supplies, etc. Whereas human capital refers to stock of knowledge, talent, and skills (AKA Employees)

How is unemployment depicted on the PPF?

Points inside the curve could be explained by unemployment

How does scarcity relate to trade-offs?

Scarcity exists when people want more than they can get with their limited resources. Scarcity implies that society must make trade-offs—that we must give up something to get more of another thing.

How do economists define scarcity?

Scarcity refers to a basic economic problem—the gap between limited resources and theoretically limitless wants. This situation requires people to make decisions about how to allocate resources efficiently, in order to satisfy basic needs and as many additional wants as possible.

PPF to illustrate Unemployment?

Shifting the PPF Inward (Left)

How would you use the PPF to illustrate economic growth?

Shifting the PPF outward (Right)

what are the problems that arise when we calculate GDP?

The exclusion of non-market transactions. The failure to account for or represent the degree of income inequality in society. In other words, GDP technically does not account for all business conducted within a country.

What happens to the unemployment rate as the economy expands and contracts?

The unemployment rate provides insights into the economy's spare capacity and unused resources. Unemployment tends to be cyclical and decreases when the economy expands as companies contract more workers to meet growing demand. Unemployment usually increases as economic activity slows.

What does GDP attempt to measure?

The value of all goods and products a country produces within a specific amount of time

What does it mean when real prices are rising?

There is an increase in inflation

Economists use models because....

They help you visualize economic concepts and make a complex topic more simple

How do definitions help you to know what you will study in economics?

They lay out the foundation for economic concepts including scarcity

What role does capital play in predicting economic growth?

When a society invests in human capital, it increases worker productivity and economic growth

What does it mean when real prices are Falling?

decrease in inflation

Why are there so many different definitions of economics?

economics is growing very rapidly. New ideas are being discovered and old theories are being revised. As a result, there is no one universally accepted definition for economics.,

What does it mean when real prices are Constant?

no change in inflation

What is gross domestic product?

the total value of goods produced and services provided in a country during one year.

How does the BLS define unemployment?

those who don't have a job but are available for work and have looked for work in the past four weeks

Why do we make distinctions between unemployment?

to easily define the reason people are unemployed

What does the PPF represent?

trade offs and oppurtunity costs; the only way of producing more of 1 good is to produce less of another

Seasonal Unemployment

unemployment that occurs as a result of harvest schedules or vacations, or when industries slow or shut down for a season

Frictional Unemployment

unemployment that occurs when people take time to find a job

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