question
What does the study of macroeconomics entail?
answer
The study of economy at the large scale level, examining total output, the price level, and other aggregate measures in the economy. (Think macro as the forest and micro as the trees)
question
What is the capital? What are some examples of capital?
answer
1 out of 4 resources. The tools, machinery, infrastructure, and knowledge used to produce goods and services.
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Resources are: A) Relatively plentiful in all countries. B) Relatively evenly distributed in all countries. C) Relatively scare in all countries. D) Identical in all countries.
answer
C) Relatively scare in all countries.
question
Attainable and unattainable in the PPC
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Attainable and efficient in the PPC is anything that falls on the PPC. Anything below the PPC is possible but inefficient and means the economy is working below capacity or under using resources. Anything unattainable or impossible in the PPC is outside of the PPC
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Opportunity Costs
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Equals what you give up to pursue something else.
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Law of Increasing Opportunity Cost
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Most productive resources are used first
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Increasing Marginal Cost means what?
answer
The more of a good or service produced the higher the marginal cost. As quantity goes up, each additional unit is more costly to create. And with more production you have to use less productive resources to create your good or service.
question
MB_>_MC
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Do it!
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MB<MC
answer
Don't do it!
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Michelle wants to purchase a new phone. Michelle will purchase the phone if?
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The marginal benefit of the phone is greater than its marginal cost.
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The main significance of the equilibrium between marginable benefit and marginal cost it?
answer
A rational decision has been made
question
A production possibilities frontier (PPF) illustrates what concept?
answer
Opportunity Cost
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Inferior Goods as they relate to changes in income:
answer
As income increases demand will fall and as income decreases, demand for inferior goods will rise. Examples of inferior goods would be rice, used clothing, canned food, top ramen.
question
Changes in quanitity demanded vs changes in demand ***
answer
Increases in demand come from non price changes that increase the quanitity demanded at every price. Increases in quanitity demanded come from a lowering of the price.
Decreases in demand come from nonprice changes that decrease the quantity demanded at every price. Decreases in quantity demanded come from a raising of the price.
Decreases in demand come from nonprice changes that decrease the quantity demanded at every price. Decreases in quantity demanded come from a raising of the price.
question
Non-price determinates of demand
answer
1) Consumer Preferences/Tastes.
[Seasonal Change-i.e.Fashion-Food Industry]
2) Price of Related Goods. [Substitutes/Compliments]
3) Real Income Changes/Purchasing Power. [Normal/Inferior Goods]
4) Expectations.
[Making Decisions Based on Future Prices]
5) Population/# of Buyers.
[Less Buyers=Decrease Demand. More buyers=Increase Demand]
[Seasonal Change-i.e.Fashion-Food Industry]
2) Price of Related Goods. [Substitutes/Compliments]
3) Real Income Changes/Purchasing Power. [Normal/Inferior Goods]
4) Expectations.
[Making Decisions Based on Future Prices]
5) Population/# of Buyers.
[Less Buyers=Decrease Demand. More buyers=Increase Demand]
question
Normal Goods as they relate to changes in income:
answer
As income increases, demand increases too. With more income, the quanitity of steaks you demand at every price goes up. Likewise, as income decrease, demand also decreases for normal goods. With less income, the quanitity of steaks you demand at every price goes down. (Steaks, Organic Food, Cell Phones)
question
There is an excess demand in a market for a product when?
answer
Quanitity demanded is greater than quanitity supplied
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Graphically an increase in demand is represented how?
answer
A rightward shift of the demand curve.
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Graphically a decrease in demand is represented how?
answer
A leftward shift of the demand curve.
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Non Price Determinants of Supply:
answer
1) Technology
2) Costs of Inputs
3) Government Regulations
(Taxes=decrease in supply)
(Subsidies=increase in supply)
4) Expectations
2) Costs of Inputs
3) Government Regulations
(Taxes=decrease in supply)
(Subsidies=increase in supply)
4) Expectations
question
Changes in supply vs changes in quanitity supplied ***
answer
Increases in Supply come from non price changes that increase the quantity supplied at every price. Increases in quantity supplied come from a raising of the price.
Decreases in supply come from non price changes that decrease the quanitity supplied at every price. Decreases in quantity supplied come from a lowering of the price.
Decreases in supply come from non price changes that decrease the quanitity supplied at every price. Decreases in quantity supplied come from a lowering of the price.
question
Shortages in the market. What causes them?
answer
Shortages occur when the quanitity of output demanded is greater than the quanitity of output supplied at the current market price. Market = Qs-Qd if negative, we have a shortage.
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Surplus in the market. What causes them?
answer
When the quantity of output supplied is greater than the quanitity of output demanded at the current market price. Market = Qs-Qd if positive, we have a surplus.
question
Price Ceiling
answer
A maximum legal price at which a good, service, or resource can be sold. Set by the government when they believe that the price of the good is unfairly high and there is an ethical principal to keep the price below a certain threshold.
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For a price ceiling to be binding it must:
answer
Be lower than the equilibrium price
question
Price Floors
answer
A minimum legal price at which a good, service, or resource can be sold. Limits how low the price can go. A binding price floor puts a floor on the price above the equilibrium price and limits the price from going any lower to the market clearing amount.
question
Changes in equilibrium price and quantity which shifts in either demand or supply.
answer
When demand increases, the entire market is affected and must change. If the price were to remain the same, you would see a shortage also equals quanitity demanded is greater than quantity supplied. But for suppliers to make more, the consumers have to be willing to pay more. Therefore, the equilibrium will change.
question
Define GDP
answer
The market value of all final goods and services produced in an economy in a fixed period of time.
question
What is the equation for GDP?
answer
C + Ig + G + (X-M)
question
Classifying GDP Expenditures:
answer
(C) Consumption
(Ig) Gross Private Domestic Investment
[net invest=depreciation]
(G) Government Purchases
(X) Exports
(M) Imports
(Ig) Gross Private Domestic Investment
[net invest=depreciation]
(G) Government Purchases
(X) Exports
(M) Imports
question
Nominal GDP
answer
A measure of GDP in which quantities produced are valued at CURRENT-YEAR prices. Measures the current dollar value of production during a time period (usually a year). [UNADJUSTED]
question
Real GDP
answer
A metric used to keep prices constant and compare production across time. Inflation-adjusted GDP. [ADJUSTED]
question
Real GDP is calculated as:
answer
The output in each year multiplied by the prices in the base year.
question
Formula for Calculating Real GDP
answer
Real GDP=Nominal GDP/Price Index
question
Market Equilibrium: Surplus is?
answer
ABOVE Equilibrium
question
Market Equilibrium: Shortages is?
answer
BELOW Equilibrium
question
Why are strong property rights important in economic development?
answer
You can invest without fear that someone is going to take your land.
question
How do you measure the growth rate of real GDP?
answer
Real GDP/Capita = Real GDP/Population
question
Rule of 72
answer
Estimated time for a value to double. Time for growth rate to double in yrs. = 72/Growth Rate.
question
Calculate Growth Rate for Percentage Change
answer
Growth Rate = GDP2-GDP1/GDP1x100
question
Explain how economic growth is measured and use the growth formula to give an example of economic growth measurement. Describe what can happen to real GDP per capita when population changes
answer
Answer: The growth formula is used to measure changes in the growth of GDP (and other things as well). The formula measures a percentage change in real GDP or real GDP per capita between 2 periods. The percentage change = (new − old)/old × 100. For example, if GDP was 200 in year 1 and 210 in year 2 then the percentage change would be (210 − 200) = 10/200 = 0.05 × 100 = 5%. This would be interpreted as a 5% growth rate. If GDP per capita was 35 in year 1 and 55 in year 2, then the percentage change would be (55 − 35) = 20/35 = 0.57 × 100 = 57%. This is the increase in real GDP per capita between years 1 and 2. As long as population growth is less than real GDP growth, real GDP per capita will rise.
question
Whos included in the labor force?
answer
Unemployed + Employed
question
What are the types of Unemployment?
answer
Structural - Skills are obsolete
Frictional - In between jobs
Cyclical - Associated with reduced economic activity
Frictional - In between jobs
Cyclical - Associated with reduced economic activity
question
What is the unemployment rate formula/How is it measured?
answer
Unemployment Rate = Unemployed/Labor Force x 100
*Remember Labor Force = Unemployed + Employed
*Remember Labor Force = Unemployed + Employed
question
What is the labor force participation rate formula/How is it measured?
answer
Labor Force/Population 16 or Older x 100
question
Consumer Price Index (CPI)
answer
An economic indicator used to measure over time the average price of a market basket of goods and services purchased by the typical consumer.
question
Compare and contrast the GDP price index and CPI
answer
The CPI consists of the average prices of a group of goods and services purchased by the typical consumer. The CPI does not impact all consumers in the same manner. Consumers who do not purchase many of the items in the index will be impacted more or less, depending on the items they purchase and the changes in those items' prices. Unlike the GDP price index, the CPI does not include all goods and services. The major categories of goods and services contained in the CPI are: food and beverage, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services
question
Calculating CPI
answer
𝐶𝑃𝐼1=(𝑀𝑎𝑟𝑘𝑒𝑡 𝐵𝑎𝑠𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒1)/(𝑀𝑎𝑟𝑘𝑒𝑡 𝐵𝑎𝑠𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒1) × 100
𝐶𝑃𝐼2=(𝑀𝑎𝑟𝑘𝑒𝑡 𝐵𝑎𝑠𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒2)/(𝑀𝑎𝑟𝑘𝑒𝑡 𝐵𝑎𝑠𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒1) × 100
𝐶𝑃𝐼2=(𝑀𝑎𝑟𝑘𝑒𝑡 𝐵𝑎𝑠𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒2)/(𝑀𝑎𝑟𝑘𝑒𝑡 𝐵𝑎𝑠𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒1) × 100
question
CPI and Inflation Measurement
answer
The CPI measures price changes over time, and inflation is an increase in prices.
We can compare the CPI across time to measure inflation.
We can compare the CPI across time to measure inflation.
question
Formula for measuring CPI:
answer
We can measure inflation with the CPI using the equation shown. The inflation rate for time period t is equal to the CPI for time period t minus the CPI for the previous time period, divided by the CPI for that previous time period, and that calculation multiplied by 100.
CPI Specific Yr=Prices in Specific Yr/ Prices in base Yr x 100
CPI Specific Yr=Prices in Specific Yr/ Prices in base Yr x 100
question
Nominal Vs. Real Income
answer
Nominal Income: The actual # of dollars received in exchange for different resources available in the economy. [NOT ADJUSTED]
Real Income: Represents the amount of goods and services that you can purchase with nominal income.
[ADJUSTED TO THE RATE OF INFLATION]
Real Income: Represents the amount of goods and services that you can purchase with nominal income.
[ADJUSTED TO THE RATE OF INFLATION]
question
Formula for calculating Real Income:
answer
𝑅𝑒𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒=(𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒)/(𝐶𝑃𝐼 (ℎ𝑢𝑛𝑑𝑟𝑒𝑡ℎ𝑠))
question
Demand Pull Vs. Cost Push Inflation:
answer
Increases in the money supply, increases in government spending and foreign demand and growth are a few things that cause this supply and demand imbalance; ultimately pulling prices higher. Cost-push inflation is a result of increased production costs, such as wages and raw materials and decreased aggregate supply.
question
Inflation Rate Formula:
answer
Inflation Rate = (CPI Specific Yr - CPI Previous Yr/CPI Previous Yr) x 100
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