ECON CH 1, 2 6 - Assignment Essays

question

Economics

answer

the study of how society manages its scarce resources

question

Adam Smith

answer

introduced division of labor in "The Wealth of Nations"

question

Specialization

answer

the development of skills in a specific kind of work

question

Economies of Scale

answer

as level of production increases, avg cost/unit decreases

question

Microeconomics

answer

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

question

Macroeconomics

answer

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

question

monetary policy

answer

Determined by federal govt, altering levels of interest rates, the availability of credit, and extent of borrowing

question

Fiscal Policy

answer

Involves govt spending (G) and taxes (T), determined by congress

question

John Maynard Keyes

answer

His ideas about the causes of unemployment revolutionized the macroeconomic theory and profoundly altered the government's involvement in the economy

question

Traditional Economy

answer

An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.

question

Command Economy

answer

An economic system in which the government controls a country's economy.

question

market economy

answer

Economic decisions are made by individuals or the open market.

question

True of False: there is no such thing as an "absolutely free" economy

answer

True

question

Globalization

answer

Actions or processes that involve the entire world and result in making trade worldwide in scope.

question

Imports

answer

produced abroad, sold domestically

question

Exports

answer

produced domestically, sold abroad

question

Gross Domestic Product (GDP)

answer

size of total production in an economy

question

Circular Flow Diagram

answer

a visual model of the economy that shows how dollars flow through markets among households and firms in the labor and goods and services market

question

labor market (circular flow diagram)

answer

households provide labor and recieve payments from firms though wages, salaries, and benefits

question

goods and services market (circular flow diagram)

answer

households recieve goods and services and pay firms for them

question

Budget constraint

answer

all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set

question

Opportunity set

answer

all possible combinations of consumption that someone can afford given the prices of goods and the individual's income

question

Opportunity cost

answer

the most desirable alternative given up as the result of a decision

question

marginal analysis

answer

examines benefits of choosing a little more or less of a good

question

Utillity

answer

satisfaction or usefulness gained from goods and services

question

Law of Diminishing Marginal Utility

answer

the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time

question

Sunk Costs

answer

costs that have already been incurred and cannot be recovered

question

Production Possibilities Frontier (PPF)

answer

a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available

question

law of diminishing returns

answer

as more increments of resources to product a good or service are added, marginal benefit from those additional increments decline

question

Objections to economic approach

answer

-people dont act the way economics say they do
-people shouldn't act the way ecenomics says they do

question

Invisible Hand

answer

concept that individuals' self-interested behavior will lead to positive social outcomes

question

Difference between budget constraint and PPF

answer

1. budget constraint is a straight line, prices are fixed, slope doesnt change
2. PPF has a curved shape due to law of diminishing returns, so slope is different at each point

question

productive efficiency

answer

when it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service)

question

allocative efficiency

answer

when the mix of goods being produced represents the mix that society most desires

question

Comparative Advantage

answer

when a country can produce a good at a lower opportunity cost than another country
i.e. it is cheaper for jamaica to produce bananas than canada

question

Goals of Macroeconomics

answer

economic growth, low unemployment, low inflation

question

Framework of the macroeconomic perspective

answer

aggregate supply/demand, keynesian model, neoclassical model

question

Policy Tooks of macroeconomics

answer

fiscal and monetary

question

GDP is measured by

answer

Components of demand: total $ value of what consumers purchase and total $ value of what country produces
GDP= C + I + G + (X-M)

question

Components of Demand 4 main parts

answer

1. consumer spending (C)
2. Business spending/ investment (I)
3. Government spending (G)
4. Spending on net exports (NX=eXport-iMport)

question

Net Export component (trade balance) equation

answer

(NX=eXport-iMport)

question

Trade balance

answer

gap between exports and imports (X-M)

question

Trade surplus

answer

when exports exceed imports (X-M)

question

Trade deficit

answer

When imports exceed exports (M-X)

question

5 components of production

answer

1. durable goods
2. nondurable goods
3. services
4. structures
5. changes in inventories

question

Problem of double counting

answer

counting intermediate goods that are not for final users, or counting goods that have been produced but not sold and are sitting in factories
GDP IS THE VALUE OF ALL FINAL GOODS AND SERVICES

question

Final goods and services

answer

goods and services sold to the final, or end, user

question

Intermediate goods and services

answer

goods and services bought from one firm by another firm to be used as inputs into the production of final goods and services

question

Double counting

answer

counting a good more than once when computing GDP

question

Gross National Product (GNP)

answer

The total value of goods and services, including income received from abroad, produced by the residents of a country within a specific time period, usually one year.

question

Net National Product (NNP)

answer

Gross national product minus depreciation; a nation's total product minus what is required to maintain the value of its capital stock.

question

Depreciation

answer

process of how capital ages and loses value

question

Nominal value

answer

the face value of an amount of money, not adjusted for inflation

question

Real value

answer

The value of an economic variable, taking account of changing prices through time

question

GDP Deflator

answer

Price index measuring avg price of goods and services
=Nominal GDP/Real GDP x 100

question

GDP growth over time

answer

govt reports growth annually. if the average growth is counted each quarter, you x4 as long as the economy was growing that same rate the whole year

question

Recession

answer

period of reduced economic activity

question

Depression

answer

A long-term economic state characterized by unemployment and low prices and low levels of trade and investment

question

Peak

answer

the highest point in the business cycle before recession begins

question

Trough

answer

lowest point before economic recovery begins

question

A recession lasts:

answer

peak to trough

question

Business cycle

answer

economy's short-term movement in and out of recession

question

Converting GDP to a Common Currency

answer

GDP in countries currency/ Exchange rate (other countries currency/ USD)

=Other country's GDP/exchange rate (dollars per foreign dollars)

question

GDP per capita

answer

GDP divided by population

question

What makes up over 60% of the demand side of GDP?

answer

Consumption

question

What makes up over 60% of the production side of GDP?

answer

services

question

How to calculate real GDP growth rate?

answer

example: 2018 r. GDP - 1998 r. GDP/ 1998 gdp x 100 = % of change
GDP 1 minus GDP 2 divided by GDP 2, x 100

1 of 67

question

Economics

answer

the study of how society manages its scarce resources

question

Adam Smith

answer

introduced division of labor in "The Wealth of Nations"

question

Specialization

answer

the development of skills in a specific kind of work

question

Economies of Scale

answer

as level of production increases, avg cost/unit decreases

question

Microeconomics

answer

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

question

Macroeconomics

answer

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

question

monetary policy

answer

Determined by federal govt, altering levels of interest rates, the availability of credit, and extent of borrowing

question

Fiscal Policy

answer

Involves govt spending (G) and taxes (T), determined by congress

question

John Maynard Keyes

answer

His ideas about the causes of unemployment revolutionized the macroeconomic theory and profoundly altered the government's involvement in the economy

question

Traditional Economy

answer

An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.

question

Command Economy

answer

An economic system in which the government controls a country's economy.

question

market economy

answer

Economic decisions are made by individuals or the open market.

question

True of False: there is no such thing as an "absolutely free" economy

answer

True

question

Globalization

answer

Actions or processes that involve the entire world and result in making trade worldwide in scope.

question

Imports

answer

produced abroad, sold domestically

question

Exports

answer

produced domestically, sold abroad

question

Gross Domestic Product (GDP)

answer

size of total production in an economy

question

Circular Flow Diagram

answer

a visual model of the economy that shows how dollars flow through markets among households and firms in the labor and goods and services market

question

labor market (circular flow diagram)

answer

households provide labor and recieve payments from firms though wages, salaries, and benefits

question

goods and services market (circular flow diagram)

answer

households recieve goods and services and pay firms for them

question

Budget constraint

answer

all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set

question

Opportunity set

answer

all possible combinations of consumption that someone can afford given the prices of goods and the individual's income

question

Opportunity cost

answer

the most desirable alternative given up as the result of a decision

question

marginal analysis

answer

examines benefits of choosing a little more or less of a good

question

Utillity

answer

satisfaction or usefulness gained from goods and services

question

Law of Diminishing Marginal Utility

answer

the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time

question

Sunk Costs

answer

costs that have already been incurred and cannot be recovered

question

Production Possibilities Frontier (PPF)

answer

a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available

question

law of diminishing returns

answer

as more increments of resources to product a good or service are added, marginal benefit from those additional increments decline

question

Objections to economic approach

answer

-people dont act the way economics say they do
-people shouldn't act the way ecenomics says they do

question

Invisible Hand

answer

concept that individuals' self-interested behavior will lead to positive social outcomes

question

Difference between budget constraint and PPF

answer

1. budget constraint is a straight line, prices are fixed, slope doesnt change
2. PPF has a curved shape due to law of diminishing returns, so slope is different at each point

question

productive efficiency

answer

when it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service)

question

allocative efficiency

answer

when the mix of goods being produced represents the mix that society most desires

question

Comparative Advantage

answer

when a country can produce a good at a lower opportunity cost than another country
i.e. it is cheaper for jamaica to produce bananas than canada

question

Goals of Macroeconomics

answer

economic growth, low unemployment, low inflation

question

Framework of the macroeconomic perspective

answer

aggregate supply/demand, keynesian model, neoclassical model

question

Policy Tooks of macroeconomics

answer

fiscal and monetary

question

GDP is measured by

answer

Components of demand: total $ value of what consumers purchase and total $ value of what country produces
GDP= C + I + G + (X-M)

question

Components of Demand 4 main parts

answer

1. consumer spending (C)
2. Business spending/ investment (I)
3. Government spending (G)
4. Spending on net exports (NX=eXport-iMport)

question

Net Export component (trade balance) equation

answer

(NX=eXport-iMport)

question

Trade balance

answer

gap between exports and imports (X-M)

question

Trade surplus

answer

when exports exceed imports (X-M)

question

Trade deficit

answer

When imports exceed exports (M-X)

question

5 components of production

answer

1. durable goods
2. nondurable goods
3. services
4. structures
5. changes in inventories

question

Problem of double counting

answer

counting intermediate goods that are not for final users, or counting goods that have been produced but not sold and are sitting in factories
GDP IS THE VALUE OF ALL FINAL GOODS AND SERVICES

question

Final goods and services

answer

goods and services sold to the final, or end, user

question

Intermediate goods and services

answer

goods and services bought from one firm by another firm to be used as inputs into the production of final goods and services

question

Double counting

answer

counting a good more than once when computing GDP

question

Gross National Product (GNP)

answer

The total value of goods and services, including income received from abroad, produced by the residents of a country within a specific time period, usually one year.

question

Net National Product (NNP)

answer

Gross national product minus depreciation; a nation's total product minus what is required to maintain the value of its capital stock.

question

Depreciation

answer

process of how capital ages and loses value

question

Nominal value

answer

the face value of an amount of money, not adjusted for inflation

question

Real value

answer

The value of an economic variable, taking account of changing prices through time

question

GDP Deflator

answer

Price index measuring avg price of goods and services
=Nominal GDP/Real GDP x 100

question

GDP growth over time

answer

govt reports growth annually. if the average growth is counted each quarter, you x4 as long as the economy was growing that same rate the whole year

question

Recession

answer

period of reduced economic activity

question

Depression

answer

A long-term economic state characterized by unemployment and low prices and low levels of trade and investment

question

Peak

answer

the highest point in the business cycle before recession begins

question

Trough

answer

lowest point before economic recovery begins

question

A recession lasts:

answer

peak to trough

question

Business cycle

answer

economy's short-term movement in and out of recession

question

Converting GDP to a Common Currency

answer

GDP in countries currency/ Exchange rate (other countries currency/ USD)

=Other country's GDP/exchange rate (dollars per foreign dollars)

question

GDP per capita

answer

GDP divided by population

question

What makes up over 60% of the demand side of GDP?

answer

Consumption

question

What makes up over 60% of the production side of GDP?

answer

services

question

How to calculate real GDP growth rate?

answer

example: 2018 r. GDP - 1998 r. GDP/ 1998 gdp x 100 = % of change
GDP 1 minus GDP 2 divided by GDP 2, x 100

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