question
Transfer payments
answer
sums of money that individuals receive as grants from the goverment
question
optimal decision
answer
chooses the most desirable alt. among the possibilities permitted by available scare resources
question
quantity demanded
answer
number of units of a good that consumers are willing and can afford to buy over a specified period of time. there is a quantiy demanded at each possible price, other influences being held constant.
question
what happens as price of item rises?
answer
quantity demanded falls. as price falls, quantity demanded rises.
question
what does a change in price cause in the demand curve?
answer
movement along it
question
what causes a shift in the demand curve?
answer
consumers want to buy more at any given price then they wanted previously, then outward.
consumer incomes up, demand outward
population up, demand outward
consumer tastes - if in favor, than outward
decrease in price of substitue good - shift inward
consumer incomes up, demand outward
population up, demand outward
consumer tastes - if in favor, than outward
decrease in price of substitue good - shift inward
question
supply schedule
answer
how much of a product supplied at a given price. A higher price alls for greated quantity supplied
question
what causes a shift in tthe supply curve?
answer
size of the industry - if more famers enter beef industry, the qunaity supplied a a given price will increase, shifts outwards
- tech progress: if tech improvement reduces costs, shift outwards
- prices of inputs: increases in price of inputs supplieds must by will shift supply curve to left (ie drought increases price of animal feed)
- price of related outputs: a change in price of one good produced by a multiproduct industry may shift supply curves of other goods produced by that industry
- tech progress: if tech improvement reduces costs, shift outwards
- prices of inputs: increases in price of inputs supplieds must by will shift supply curve to left (ie drought increases price of animal feed)
- price of related outputs: a change in price of one good produced by a multiproduct industry may shift supply curves of other goods produced by that industry
question
effect of shift of demand curve on supply
answer
causes movement upward along supply curve (raises equilibrium price)
question
negatice effects of price ceilings
answer
shortages
black market
black market prices higher than free market
price falls to illicit supplier
idustry investment dries up because it reduces legal monetary returns
black market
black market prices higher than free market
price falls to illicit supplier
idustry investment dries up because it reduces legal monetary returns
question
negatove effects of price floors
answer
surpplus develops because not enough buyers
can not dispose easily of surplus goods
discounts offered in disguised forms
encourages over investment
can not dispose easily of surplus goods
discounts offered in disguised forms
encourages over investment
question
inflation
answer
sustained increase in the general price level (ie if aggregate demand keeps shifting out month after month)
question
recession
answer
a period when total output of economy declines
question
GDP
answer
sum of all money values of all final goods and services produced in the economoy in a period of time
question
nominal GDP
answer
calculated by valuing all outputs at current prices. rises when prices rise, even if there is no actual increase in production
question
real GDP
answer
calculated by valuing outputs of different years at common prices
question
intermediate goods
answer
good purchased for reseale or used in producing another good. not counted in GDP
question
GDP limitations
answer
not a measure well being
only market acitvity included
places no value on leisure - understates growth
wars and disasters raise gdp, though country is worse off
ecological costs are not netted out of gdp
only market acitvity included
places no value on leisure - understates growth
wars and disasters raise gdp, though country is worse off
ecological costs are not netted out of gdp
question
real GDP per capita
answer
ratio of real GDP divided by population
question
stagflation
answer
inflation that occurs while economy is growing slowly or in a recession
question
microeconomics
answer
focuses on individual markets. micro is decisions of individual units. Macro is behavior of entire economies.
question
macroeconomists study
answer
inflation
recession and unemployment
economic growth
recession and unemployment
economic growth
question
economic growth
answer
add up money value of things
goods and services (produced within year)
final goods and services
within geo boundaries of US
only organized markets
goods and services (produced within year)
final goods and services
within geo boundaries of US
only organized markets
question
recession chart
answer
increase aggregate demand
policy: increase spending or cut taxes
fed reserve: lower interest rates
increase output
reduce unemployment
raise prices
policy: increase spending or cut taxes
fed reserve: lower interest rates
increase output
reduce unemployment
raise prices
question
GDP for particular year
answer
decrease aggregate demand
policy: cut spending / increase taxes
fed: increase interest rates
decrease inflation (decrease prices)
decrease output
increase unemployment
policy: cut spending / increase taxes
fed: increase interest rates
decrease inflation (decrease prices)
decrease output
increase unemployment
question
combating unemployment
answer
labor, machinery, other resources
question
combating inflation
answer
goods and services, produced in economy
question
inputs
answer
is everything in the long run
leads to raising standards of living
small diff in rates of prod growth compound over time
- reduction of poverty
- increase in liesure time
- increase in country's ability to finance education, pub health, env improvement, arts
leads to raising standards of living
small diff in rates of prod growth compound over time
- reduction of poverty
- increase in liesure time
- increase in country's ability to finance education, pub health, env improvement, arts
question
outputs
answer
real GDP economy would prouce if labor and other resources were fully employed
question
productivity growth
answer
number of people holding or seeking jobs
question
potential GDP
answer
count up available supplies of labor, capital and other productive resources - estimate how much they could produce if ully utilized
question
labor force
answer
shows the volume of output that can be produced from given inputs.better tech or more capital shifts prod function up, raises potential GDP
question
estimate potential GDP
answer
depends on growth rate of labor force
growth rate of capital stock
rate of tech progress
GDP = hours of work output per hour - hours of work labor productivity
growth rate of capital stock
rate of tech progress
GDP = hours of work output per hour - hours of work labor productivity
question
production function
answer
rises when gdp is slower than potential, falls when GDP is faster than potential
question
growth rate of GDP
answer
= growth rate of input + growth rate of labor productivity
question
unemployment rises and falls when
answer
are similar, but fluctuate sharply in short term
question
growth rate of potential GDP
answer
employed (currently at work, including part time)
unemployed
out of labor force and not looking for work
discouraged worker - gives up looking for work, not counted as part of labor force
hidden / disguised unemployment
unemployed
out of labor force and not looking for work
discouraged worker - gives up looking for work, not counted as part of labor force
hidden / disguised unemployment
question
real and potential gdp over time
answer
people who are tempoarily between jobs or unemployed due to normal turnover
question
counting the unemployed
answer
workers displaced by automation, skills no longer in demand
question
frictional unemployment
answer
attributable to adecline in economys total production, rises during recessions
question
structural unemployment
answer
everyone who is willing and able can find a job (5%?)
question
cyclical unemployment
answer
purchasing power of wages
wage rate adjusted for inflation
= nominal wage / price index
wage rate adjusted for inflation
= nominal wage / price index
question
full employment
answer
lenders are hurt, borrowers gain (pay back dollars of much lower purchasing power then when borrowed originally)
inflation redistributes income arbitrarily
inflation redistributes income arbitrarily
question
real wage rate
answer
percentage increase in purch pwoer that the borrowerpays to the lender for privelige of pbborwin
question
inflation winners / losers
answer
nom interest rate = real rate + expected rate
question
real rate of interest
answer
undefined
question
how to calculate nominal interest rate
answer
undefined
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