Macro ECON 2020 midterm 1 - Assignment Essays

question

Specialization

answer

A focus on a particular activity or area of study

question

absolute advantage

answer

the ability to produce a good using fewer inputs than another producer

question

Opportunity cost

answer

whatever must be given up to obtain some item. Measures trade offs between the two goods that each producer faces

question

comparative advantage

answer

the ability to produce a good at a lower opportunity cost than another producer. Reflects the relative opportunity cost

question

principle of comparative advantage

answer

each good should be produced by the individual that has the smaller opportunity cost of producing that good

question

You Specialize according to

answer

Comparative advantage

question

One person can have ________ in both goods, but can not have __________ in both goods

answer

Absolute advantage, comparative advantage

question

gains from specialization and trade are based on

answer

comparative advantage

question

Trade benefits who

answer

Everyone

question

Imports

answer

goods produced abroad and sold domestically

question

Exports

answer

goods produced domestically and sold abroad

question

Opportunity cost formula

answer

what you give up/what you gain

question

consumer surplus formula

answer

willingness to pay - price

question

producer surplus formula

answer

amount received by sellers - cost to sellers

question

Total surplus

answer

Total benefits from trade

question

answer

the world price of a good, the price that prevails in world markets

question

answer

domestic price without trade

question

If Pd < Pw

answer

Domestic country has comparative advantage, country exports the good

question

If Pd > Pw

answer

Domestic country does not have comparative advantage, country imports the good

question

A small economy is a

answer

A Price Taker in the world markets. Actions have no effect on Pw.

question

Tariff

answer

a tax on goods produced abroad and sold domestically. Tax on imported goods

question

Free trade

answer

domestic price = world price

question

Tariff on imports

answer

Raises domestic price above world price. By the amount of the tariff

question

A tariff raises revenue for

answer

Government

question

Benefits from international trade

answer

- increases variety of goods for consumers
- allows firms to take advantage of economies of scale
- makes markets more competitive
- makes the economies more productive
- facilitates the spread of technology

question

Effects of free trade can be determined by comparing

answer

Domestic price before trade with the world price

question

A low domestic price indicates

answer

that the country has a comparative advantage in producing the good and that the country will become an exporter

question

A high domestic price indicates

answer

that the rest of the world has a comparative advantage in producing the good and that the country will become an importer

question

When a country allows trade: if it's an exporter

answer

Producers of the good are better off, and consumers of the good are worse off

question

When a country allows trade: if it becomes an importer

answer

Consumers are better off, and producers are worse off

question

When a country allows trade: gains from trade exceed

answer

The losses

question

A tariff reduces

answer

Gains from trade

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

Gross Domestic Product (GDP)

answer

Measures the total income of everyone in the economy. Also the total expenditure on the economy's output of goods and services

question

GDP formula

answer

Y=C+I+G+NX

question

Income =

answer

expenditure

question

GDP is the market value of:

answer

All final goods and services produced in an economy in a given period of time

question

Households

answer

-own the factors of production, sell/rent them to firms for income
-buy and consume goods and services

question

Firms

answer

buy/hire factors of production, use them to produce goods and services; sell goods and services

question

GDP includes

answer

All items produces in the economy and sold legally in markets

question

GDP excludes

answer

most items produced and sold illicitly. It also excludes most items that are produced and consumed at home

question

Final goods are intended for the

answer

end user

question

Intermediate goods

answer

used as components or ingredients in the production of other goods

question

GDP only includes what type of good

answer

Final goods

question

GDP includes

answer

Tangible goods (food, mountain bikes, beer), and intangible services (dry cleaning, concerts, haircuts)

question

GDP includes _________ produced goods, not goods produced in the ____

answer

currently, past

question

Given time period of GDP is

answer

3 months or a year

question

GDP formula: C

answer

Consumption

question

GDP formula: I

answer

Investments

question

GDP formula: G

answer

Government purchases

question

GDP formula: NX

answer

Net exports

question

Consumption

answer

total spending by households on goods and services. Does not include purchases of new housing

question

Investment

answer

total spending on goods that will be used in the future to produce more goods. Business capital, residential capital, inventory capital. (Not purchase of stocks or bonds)

question

Government purchases

answer

All spending on the goods and services purchases by the government (federal, local and state). Includes transfer payments. NOT purchases of of goods and services

question

Net exports

answer

exports - imports. Exports- foreign spending on the economy's goods and services. Imports- are the portions of C, I, and G that are spent on goods and services produced abroad

question

Nominal GDP

answer

values output using current prices, not corrected for inflation

question

Real GDP

answer

values output using the prices of a base year, corrected for inflation

question

For the base year, nominal GDP =

answer

Real GDP

question

Change in nominal GDP reflects

answer

prices and quantities

question

Change in real gdp is the amount

answer

That gdp would change if prices were constant

question

GDP deflator formula

answer

Nominal GDP/Real GDP x 100

question

GDP deflator measures

answer

The current level of prices relative to the level of prices in the base year

question

Inflation rate in year 2 formula

answer

GDP deflator year 2- GDP deflator year 1/ GDP deflator year 1 X 100

question

Real GDP per capital

answer

Main indicator of the average persons standard of living

question

GDP is the main indicator for the countries

answer

Economic well being

question

Consumer Price Index (CPI)

answer

a measure of the overall cost of the goods and services bought by a typical consumer. Monitors changes in the cost of living over time

question

Core CPI

answer

a measure of the overall cost of consumer goods and services excluding food and energy

question

Producer Price Index (PPI)

answer

a measure of the cost of a basket of goods and services bought by firms

question

CPI formula

answer

(Basket cost Current year)/ Basket Cost Base Year) X 100

question

Inflation Rate Formula

answer

(Current year CPI ) - (Earlier Year CPI) / (Earlier Year CPI) x100

question

Substitution bias

answer

consumers may change their purchasing habits away from goods that have increased in price

question

Fix the basket

answer

The Bureau of Labor Statistics (BLS) surveys consumers to determine what's in the typical consumer's "shopping basket."

question

Imported consumer goods

answer

included in CPI, excluded from GDP deflator

question

Capital goods

answer

Excluded from CPI but included in GDP deflator

question

The basket

answer

CPI: fixed basket; prices of all goods and services bought by consumers
GDP deflator: prices of all goods and services currently produced domestically

question

Amount in today's dollars formula

answer

Amount in year T dollars x (price level today/ price level in year T)

question

Indentation

answer

A dollar amount is indexed for inflation if it's automatically corrected for inflation by law or in a contract

question

Nominal interest rate

answer

Not for inflation. Rate of growth in the dollar value of a deposit or debt

question

Real interest rate

answer

Correct for Inflation. Rate of growth in the purchasing power of a deposit or debt.

question

Real interest rate formula

answer

nominal interest rate - inflation rate

question

CPI is used to measure

answer

The overall prices in the economy

question

Percent change in CPI measures the

answer

inflation rate

question

A country's standard of living depends on

answer

Ability to produce goods and services

question

Productivity is represented as

answer

Y/L

question

Productivity

answer

the quantity of goods and services produced from each unit of labor input

question

Productivity: physical capital

answer

question

Physical capital per worker

answer

K/L

question

An increase in K/L causes an increase in

answer

Y/L

question

Productivity: Human Capital

answer

question

Productivity: human capital per worker

answer

H/L

question

An increase in H/L causes an increase in

answer

Y/L

question

Productivity: natural resources

answer

question

Productivity: natural resources per worker

answer

N/L

question

An increase in N/L causes an increase in

answer

Y/L

question

Technological knowledge

answer

Refers to society's understanding of how to produce goods and services

question

human capital

answer

Results from the effort ppl expend to acquire this knowledge

question

Production function formula

answer

Y = AF (L, K, H, N)

question

Productivity: level of technology

answer

question

Societies Standard of Living depends on

answer

Ability to produce a good or service

question

Financial system

answer

the group of institutions in the economy that help to match one person's saving with another person's investment

question

Financial Institutions

answer

Savers can directly provide funds to borrowers

question

Financial markets

answer

financial institutions through which savers can directly provide funds to borrowers

question

Bond market

answer

a bond is a certificate of indebtedness

question

The stock market

answer

a stock is a claim to partial ownership in a firm

question

Principle

answer

The amount of money borrowed

question

Date of maturity

answer

the time at which the loan will be repaid

question

Rate of interest

answer

That the borrower will pay periodically until the loan matures

question

Bond buyer is a lender

answer

Can hold the bond until maturity, or he can sell the bond at an earlier date to someone else

question

Debt finance

answer

the sale of bonds to raise money

question

Term

answer

the length of time until the bond matures

question

Credit risk

answer

Probability of borrower default

question

Tax treatment

answer

Way the tax laws treat the interest earned on the bond

question

Equity finance

answer

sale of stock to raise money

question

National saving formula

answer

S = Y - C - G

question

Public saving formula

answer

= T - G

question

Private Savings Formula

answer

Y-C-T

question

Deficit

answer

T-G <0

question

Surplus

answer

T - G > 0

question

National saving =

answer

question

National savings =

answer

private savings + public savings

question

Budget surplus if

answer

T > G (tax revenue) (government spending)

question

Budget deficits reduce

answer

National savings

question

Budget surplus increases

answer

Increases national saving

1 of 124

question

Specialization

answer

A focus on a particular activity or area of study

question

absolute advantage

answer

the ability to produce a good using fewer inputs than another producer

question

Opportunity cost

answer

whatever must be given up to obtain some item. Measures trade offs between the two goods that each producer faces

question

comparative advantage

answer

the ability to produce a good at a lower opportunity cost than another producer. Reflects the relative opportunity cost

question

principle of comparative advantage

answer

each good should be produced by the individual that has the smaller opportunity cost of producing that good

question

You Specialize according to

answer

Comparative advantage

question

One person can have ________ in both goods, but can not have __________ in both goods

answer

Absolute advantage, comparative advantage

question

gains from specialization and trade are based on

answer

comparative advantage

question

Trade benefits who

answer

Everyone

question

Imports

answer

goods produced abroad and sold domestically

question

Exports

answer

goods produced domestically and sold abroad

question

Opportunity cost formula

answer

what you give up/what you gain

question

consumer surplus formula

answer

willingness to pay - price

question

producer surplus formula

answer

amount received by sellers - cost to sellers

question

Total surplus

answer

Total benefits from trade

question

answer

the world price of a good, the price that prevails in world markets

question

answer

domestic price without trade

question

If Pd < Pw

answer

Domestic country has comparative advantage, country exports the good

question

If Pd > Pw

answer

Domestic country does not have comparative advantage, country imports the good

question

A small economy is a

answer

A Price Taker in the world markets. Actions have no effect on Pw.

question

Tariff

answer

a tax on goods produced abroad and sold domestically. Tax on imported goods

question

Free trade

answer

domestic price = world price

question

Tariff on imports

answer

Raises domestic price above world price. By the amount of the tariff

question

A tariff raises revenue for

answer

Government

question

Benefits from international trade

answer

question

Effects of free trade can be determined by comparing

answer

Domestic price before trade with the world price

question

A low domestic price indicates

answer

that the country has a comparative advantage in producing the good and that the country will become an exporter

question

A high domestic price indicates

answer

that the rest of the world has a comparative advantage in producing the good and that the country will become an importer

question

When a country allows trade: if it's an exporter

answer

Producers of the good are better off, and consumers of the good are worse off

question

When a country allows trade: if it becomes an importer

answer

Consumers are better off, and producers are worse off

question

When a country allows trade: gains from trade exceed

answer

The losses

question

A tariff reduces

answer

Gains from trade

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

Gross Domestic Product (GDP)

answer

Measures the total income of everyone in the economy. Also the total expenditure on the economy's output of goods and services

question

GDP formula

answer

Y=C+I+G+NX

question

Income =

answer

expenditure

question

GDP is the market value of:

answer

All final goods and services produced in an economy in a given period of time

question

Households

answer

-own the factors of production, sell/rent them to firms for income
-buy and consume goods and services

question

Firms

answer

buy/hire factors of production, use them to produce goods and services; sell goods and services

question

GDP includes

answer

All items produces in the economy and sold legally in markets

question

GDP excludes

answer

most items produced and sold illicitly. It also excludes most items that are produced and consumed at home

question

Final goods are intended for the

answer

end user

question

Intermediate goods

answer

used as components or ingredients in the production of other goods

question

GDP only includes what type of good

answer

Final goods

question

GDP includes

answer

Tangible goods (food, mountain bikes, beer), and intangible services (dry cleaning, concerts, haircuts)

question

GDP includes _________ produced goods, not goods produced in the ____

answer

currently, past

question

Given time period of GDP is

answer

3 months or a year

question

GDP formula: C

answer

Consumption

question

GDP formula: I

answer

Investments

question

GDP formula: G

answer

Government purchases

question

GDP formula: NX

answer

Net exports

question

Consumption

answer

total spending by households on goods and services. Does not include purchases of new housing

question

Investment

answer

total spending on goods that will be used in the future to produce more goods. Business capital, residential capital, inventory capital. (Not purchase of stocks or bonds)

question

Government purchases

answer

All spending on the goods and services purchases by the government (federal, local and state). Includes transfer payments. NOT purchases of of goods and services

question

Net exports

answer

exports - imports. Exports- foreign spending on the economy's goods and services. Imports- are the portions of C, I, and G that are spent on goods and services produced abroad

question

Nominal GDP

answer

values output using current prices, not corrected for inflation

question

Real GDP

answer

values output using the prices of a base year, corrected for inflation

question

For the base year, nominal GDP =

answer

Real GDP

question

Change in nominal GDP reflects

answer

prices and quantities

question

Change in real gdp is the amount

answer

That gdp would change if prices were constant

question

GDP deflator formula

answer

Nominal GDP/Real GDP x 100

question

GDP deflator measures

answer

The current level of prices relative to the level of prices in the base year

question

Inflation rate in year 2 formula

answer

GDP deflator year 2- GDP deflator year 1/ GDP deflator year 1 X 100

question

Real GDP per capital

answer

Main indicator of the average persons standard of living

question

GDP is the main indicator for the countries

answer

Economic well being

question

Consumer Price Index (CPI)

answer

a measure of the overall cost of the goods and services bought by a typical consumer. Monitors changes in the cost of living over time

question

Core CPI

answer

a measure of the overall cost of consumer goods and services excluding food and energy

question

Producer Price Index (PPI)

answer

a measure of the cost of a basket of goods and services bought by firms

question

CPI formula

answer

(Basket cost Current year)/ Basket Cost Base Year) X 100

question

Inflation Rate Formula

answer

(Current year CPI ) - (Earlier Year CPI) / (Earlier Year CPI) x100

question

Substitution bias

answer

consumers may change their purchasing habits away from goods that have increased in price

question

Fix the basket

answer

The Bureau of Labor Statistics (BLS) surveys consumers to determine what's in the typical consumer's "shopping basket."

question

Imported consumer goods

answer

included in CPI, excluded from GDP deflator

question

Capital goods

answer

Excluded from CPI but included in GDP deflator

question

The basket

answer

CPI: fixed basket; prices of all goods and services bought by consumers
GDP deflator: prices of all goods and services currently produced domestically

question

Amount in today's dollars formula

answer

Amount in year T dollars x (price level today/ price level in year T)

question

Indentation

answer

A dollar amount is indexed for inflation if it's automatically corrected for inflation by law or in a contract

question

Nominal interest rate

answer

Not for inflation. Rate of growth in the dollar value of a deposit or debt

question

Real interest rate

answer

Correct for Inflation. Rate of growth in the purchasing power of a deposit or debt.

question

Real interest rate formula

answer

nominal interest rate - inflation rate

question

CPI is used to measure

answer

The overall prices in the economy

question

Percent change in CPI measures the

answer

inflation rate

question

A country's standard of living depends on

answer

Ability to produce goods and services

question

Productivity is represented as

answer

Y/L

question

Productivity

answer

the quantity of goods and services produced from each unit of labor input

question

Productivity: physical capital

answer

question

Physical capital per worker

answer

K/L

question

An increase in K/L causes an increase in

answer

Y/L

question

Productivity: Human Capital

answer

question

Productivity: human capital per worker

answer

H/L

question

An increase in H/L causes an increase in

answer

Y/L

question

Productivity: natural resources

answer

question

Productivity: natural resources per worker

answer

N/L

question

An increase in N/L causes an increase in

answer

Y/L

question

Technological knowledge

answer

Refers to society's understanding of how to produce goods and services

question

human capital

answer

Results from the effort ppl expend to acquire this knowledge

question

Production function formula

answer

Y = AF (L, K, H, N)

question

Productivity: level of technology

answer

question

Societies Standard of Living depends on

answer

Ability to produce a good or service

question

Financial system

answer

the group of institutions in the economy that help to match one person's saving with another person's investment

question

Financial Institutions

answer

Savers can directly provide funds to borrowers

question

Financial markets

answer

financial institutions through which savers can directly provide funds to borrowers

question

Bond market

answer

a bond is a certificate of indebtedness

question

The stock market

answer

a stock is a claim to partial ownership in a firm

question

Principle

answer

The amount of money borrowed

question

Date of maturity

answer

the time at which the loan will be repaid

question

Rate of interest

answer

That the borrower will pay periodically until the loan matures

question

Bond buyer is a lender

answer

Can hold the bond until maturity, or he can sell the bond at an earlier date to someone else

question

Debt finance

answer

the sale of bonds to raise money

question

Term

answer

the length of time until the bond matures

question

Credit risk

answer

Probability of borrower default

question

Tax treatment

answer

Way the tax laws treat the interest earned on the bond

question

Equity finance

answer

sale of stock to raise money

question

National saving formula

answer

S = Y - C - G

question

Public saving formula

answer

= T - G

question

Private Savings Formula

answer

Y-C-T

question

Deficit

answer

T-G <0

question

Surplus

answer

T - G > 0

question

National saving =

answer

question

National savings =

answer

private savings + public savings

question

Budget surplus if

answer

T > G (tax revenue) (government spending)

question

Budget deficits reduce

answer

National savings

question

Budget surplus increases

answer

Increases national saving

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