Macro midterm- missed concepts

What could cause a reduce aggregate demand (shift the AD curve to the left)

An appreciation of the U.S. dollar.

command system

An economic system in which the allocation of resources is heavily controlled by government instead of free market forces. Uses Central planning

Social Security / Unemployment and GDP

This is NOT calculated when determining GDP

Complementary goods

Two goods are complements if a rise in the price of one of the goods leads to a decrease in the demand for the other good. • These are usually goods which are consumed together. IE computers and software. Milk and cookies, gas and cars DECREASE in the price of one will INCREASE the DEMAND FOR THE OTHER

When price goes up, demand goes?

down The quantity being supplied declines as a result of subsequent raise in price

real interest rate formula

real interest rate = nominal interest rate - inflation rate For example if a loan carries a nominal interest rate of 8% bt the inflation rate is 5%, the real interest rate is 8%-5%=3%

decrease in quantity demanded

results in a movement UPWARD and to the LEFT along a demand curve.

income effect

the change in the quantity of a goof demanded that results from a change in the consumers purchasing power when the price of the good changes p. 460.

real interest rate

the interest rate corrected for the effects of inflation

The market system's answer to the fundamental question "What will be produced?" is essentially:

"Goods and services that are profitable." because under this concept it is about making a profit for the private owner. NOT about central good like under command economy which is controlled by government.

AD curve

A decline in prices and leads to a movement along a given AD curve. A change in some factor other than prices and leads to a shift in the AD curve.

market economy

I. Limited government II. Private ownership III. Freedom of choice and free enterprise IV. Motive of self interest V. Competition Key Characteristic--> OWNERSHIP OF RESOURCES

The damend and supply curve assumes the primary variable inflating decisions about whether or not to purchase items is?

PRICE of the item

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 Under this type of good, the consumption varies directly with INCOME.

Consumer Price Index (CPI)

a measure of the overall cost of the goods and services bought by a typical consumer It is intended to show how the cost of all purchases made by a typical urban family has changed over time. It is calculated by surveying market prices for a market basket that is constructed to represent the consumption of a typical family of four living in a typical American city. Rather than having a single base year, the CPI has a base period

price index

a number that compares prices in one year with some earlier base year This helps to measure the change sin the overall price level. It is always cited along with the year for which the aggregate price level is being measured and the base year This can also measure inflation.

Productive Efficiency

achieved by an economy if it produces at a point on its Production Possibilities curve (pg. 18) this happens when you use the least- cost method of production

increase of real GDP indicate

an economy is producing MORE

Price Index Formula

basket price/basket price in base year x 100

An increase in the quantity demanded means that

price has declined and consumers therefore want to purchase more of the product.

Allocative efficiency is concerned with:

producing the combination of goods most desired by society. The optional distribution of output