question
Employed
answer
Anyone 16 and older who worked for pay in the last week even if unsatisfied with job
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Unemployed
answer
16 and older who did not recieve pay for previous week and is actively looking for work
question
Labor force
answer
includes unemployed & employed, discouraged worker
question
Not in Labor force
answer
People who are not actively seeking employment
question
Labor force Participation Rate
answer
100* # in labor force / population age 16 and older
question
Unemployment rate
answer
100* #of unemployed workers / # in labor force
question
Discouraged workers
answer
have given up on looking for a job
question
U-6 (measure of labor underutilization)
answer
unemployed+marginally attached+underemployed / employed + unemployed + marginally attached
question
Excluding discouraged workers from the official unemployment rate may cause the official rate to ____ the true extent of underemployment.
answer
understate
question
Structual Unemployment
answer
persistent unemployment that occurs when the number of jobs available is less than the number of jobs demanded.
Also happens with technological change and people need to be re-trained
Also happens with technological change and people need to be re-trained
question
Efficiency Wages
answer
Firms voluntarily pay workers a wage above market equilibrium
question
Cyclical Unemployment
answer
Form of unemployment due to recessions and expansions
question
Frictional Unemployment
answer
This kind of unemployment is brief (due to move to different state etc)
question
Natural State of Unemployment
answer
structual + frictional
question
Three of the most improtant factors that can cause changes in the natural state of unemployment are:
answer
changes in market institutions, changes in government policies, and changes in labor force.
question
Menu Costs of Inflation
answer
costs associated with changing price tags, price lists, website content, catalogs, and menus. (Cost a firm incurs by changing its prices)
question
The Rule of 70
answer
tells you approx. how long it takes real GDP per capita to double. Can only be applied to a positive growth rate.
Formula= 70/annual growth rate
Formula= 70/annual growth rate
question
Real GDP per capita=
answer
real GDP in year / population in same year
question
Labor Productivity=
answer
real GDP in year / labor force in same year
question
Population Growth Rate=
answer
population 2 - population 1 / population 1
question
Real GDP=
answer
labor force * Labor productivity
question
Anything that increases the numerator or decreases the denominator will...
answer
increase real GDP per capita
question
Physical Capital
answer
stock of tools, machinery, equipment, and structures that are used to produce goos and services
question
Technology (in terms of productivity)
answer
society's understanding of the best ways to produce goods and services.
question
Thomas Malthus predicted that...
answer
improvements in productivity are temporary.
question
Paul David attempted to explain
answer
inventions will not improve productivity until innovative methods become widespread to make their use more efficient
question
China is the ...
answer
Fastest-growing major economy
question
What can poor countries do to promote economic growth?
answer
Provide the lagal and regulatory environment necessary for the functioning of a sound bamking system
Fund research and development by government angencies
Enact good laws and ensure that they are enforces equitably
Fund research and development by government angencies
Enact good laws and ensure that they are enforces equitably
question
Growth Rate of GDP =
answer
new GDP - initial GDP / Initial GDP
question
Convergence Theory predicts that..
answer
Poor countries will grow more quickly than rich contries because copying existing technologies is less expensive than developing them independently
question
Economists are optimistic economies will continue to grow because..
answer
Resources scarcity provides incentices for conservation and the development of alternatives.
question
Marginal Propensity to Save (MPS)
answer
1 - Marginal Propensity to Consume
question
Multiplier=
answer
1 / (1-MPC)
question
Marginal Propensity to Consume is
answer
whatever the household spends of each additional dollar
question
Total Change in Output=
answer
initial change in spending * Multiplier
question
The most fundamental assumptiong behind the income-expenditure model is that prices in the economy are...
answer
fixed
question
Unplanned changes in inventories play a significant role in moving..
answer
the economy towards equilibrium.
question
Y* (income-expeidenture model of closed economy)=
answer
autonomouse consumer spending + planned investment spending / 1 - MPC
question
Y* will ____ move in the same direction as the change in aggregate autonomous consumer spending.
answer
always
question
If the money in economy is fixed people will need ____ money to carry out day-to-day transactions if the ______ price level rises.
answer
more; aggregate
question
Changes needed to DECREASE aggregate demand are:
answer
consumer expectations to worsen, government spending to decrease, expected rate of return on investment to decrease, and the value of domestic currency relative to the foreign currency to appreciate.
question
A decrese in consumption causes the planned aggregate spending line to...
answer
shift downward and equilibrium output falls.
question
Short-run aggregate supply curve shows
answer
what happens to output in an economy as the price level changes, holding all other determinants of real GDP constant
question
Which remains unchanged along a given short-run supply curve?
answer
technology available to firms
question
Potential Output
answer
the quantity of output produced when all prices are fully flexible
question
Short-run refers to
answer
A period of time in which SOME input prices and wages are fixed
question
Determinates of aggregate supply curve to increase
answer
DECREASE commodity prices, IMPROVE productivity
question
The HORIZONTAL axis of a diagram of the AD and AS curve measures
answer
An economy's aggregate output
question
The VERTICAL axis of a diagram of the AD and AS curve measures
answer
An economy's aggregate price level
question
Why does the aggregate demand curve slope downward
answer
as aggregate price level rises, money demand rises, interest rates rise, and investment declines.
As the aggregate price level rises, households' real wealth decreases
As the aggregate price level rises, households' real wealth decreases
question
why does the short-run aggregate supply curve slope upwards?
answer
As the aggregate price level rises, firms expand their production because they can sell their output at a higher unit profit.
question
Positive Supply Shock
answer
Firms producing more output at any given price level. Causes real GDP to rise
question
output gap=
answer
actual aggregate output - potential output / potential output * 100
question
At some point during the great depression, unemployment reached
answer
25%
question
Inflation
answer
rise of the price level of goods and services over a period of time
question
Shoe-leather costs
answer
the time and effort people put forth from trying to couter-act the effects of inflation
question
Unit of account costs
answer
dollar being worth a different amount due to inflation
question
Winners from unexpected inflation
answer
Individuals whose incomes rise faster than inflation, debtors (who will pay their debts in dollars of
reduced purchasing power).
reduced purchasing power).
question
Costs of disinflation (higher unemployment)
answer
high inflation that needs to be brought down due to high unemployment
question
3 basic ways for an economy to grow
answer
Add physical capital (more machines, factories), add human capital (education), and improve technology
question
How gov. can help economy
answer
education, infrastructure, rule of law
question
How gov. can hinder economy
answer
too much planning, corruption, lack of stability
question
East Asia growth rate
answer
grow fast because of high investment in human capital
question
US growth rate and western europe
answer
most developed, grow slow and steady
question
latin america g
answer
fairly low savings and investment rates
question
sub saharan africa
answer
bad maps etc have hindered infrastructure and investments, growth difficult
question
MPC
answer
change in consumption / income
question
Consumption function
answer
c= A + mpc * income
question
Investment=
answer
planned invest. + unplanned investment
question
Automonous planned=
answer
C + planned invest. = A + invest. planned + MPC * Y
question
Unplanned investment=
answer
income - automonous planned
question
What shifts Aggregate expenditure curve
answer
investment
wealth
expectations
wealth
expectations
question
Aggregate Demand=
answer
consumption+investment[demand]t+gov. spending+exports-imports
question
nominal wages do not..
answer
change easily, they are sticky
question
Losers from unexpected inflation
answer
Individuals on fixed incomes, retirees, all creditors (who will have their loans paid back in dollars of
reduced purchasing power.)
reduced purchasing power.)
question
Marginally attached workers
answer
not in labor force
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