question
Define the "labor force".
answer
working people (and people actively looking for work) 16+ years old
question
What causes an increase in the labor force?
answer
-population growth
-People are working longer.
-immigration
-women
-People are working longer.
-immigration
-women
question
What is the unemployment equation?
answer
number of unemployed people divided by the labor force
question
What is the current U.S. unemployment rate?
answer
7.6%
question
What is China's current unemployment rate?
answer
4%
question
Define "discouraged worker".
answer
one who has been in the labor force, but has given up; s/he is not actively seeking, but would take a job if it came to them and met his/her needs
question
Define "underemployment".
answer
not using skills to his/her highest potential
question
What are some costs of unemployment?
answer
-stress
-no income (and no disposable income)
-health (lost health benefits)
-no income (and no disposable income)
-health (lost health benefits)
question
What are some examples of seasonal unemployment?
answer
-holidays . . . retail stores will higher more workers
-farmers . . . harvest time vs. off-season
-farmers . . . harvest time vs. off-season
question
What is frictional unemployment?
answer
moving in between jobs, just entering the labor force (out of school, etc.); There are available jobs for the labor force and the people have the right skills for the job.
question
What is structural unemployment?
answer
mismatch of skills or location
question
What is cyclical unemployment?
answer
loss of a lot of jobs with remaining high demand; especially during the recession
question
What [percent of unemployment] is considered to be "full employment"?
answer
4-6%
question
What are some signs that unemployment is decreasing?
answer
-less people claim unemployment benefits
-prices increase
-prices increase
question
Define "inflation".
answer
the increase in average* prices
question
Define "deflation".
answer
decrease in average* prices
question
Define "hyperinflation".
answer
200% increase in average prices over at least one year
question
Define "nominal income".
answer
income right now
question
Define "real income".
answer
income adjusted for inflation; also known as purchasing power (what you can buy)
question
What are the two concepts of inflation?
answer
1. Not all prices rise with inflation.
2. Inflation does not hurt everyone.
2. Inflation does not hurt everyone.
question
What are the three effects of inflation?
answer
1. Prices increase. (bad for consumers)
2. Income Effect - income stays the same; these people are worse off
3. Wealth Effect - value of assets are either the same or declining
2. Income Effect - income stays the same; these people are worse off
3. Wealth Effect - value of assets are either the same or declining
question
What is the consumer price index (CPI)?
answer
government regulated; what most citizens buy on a day-to-day basis; *how you measure inflation
question
What is the producer's price index (PPI)?
answer
government regulated; *prices from producers that consumers are paying for
question
What are the two causes of inflation?
answer
1. Cost Push
2. Demand Pull
2. Demand Pull
question
What does Says Law state?
answer
If you supply it, the demand will be there. If you have a supply and it's not being demanded, prices will decrease.
question
What does Keynes say?
answer
There is not enough demand from our consumers. He argues for government spending/intervention to help the economy recover.
question
What is the average GDP Growth Rate?
answer
3%
question
Define "recession".
answer
two consecutive quarters of GDP decline (negative)
question
What are the determinants of the economy [3]?
answer
1. Internal Market Forces (technology, population, consumer spending)
2. External Shocks (wars, natural disasters, terrorist attacks)
3. Policy
2. External Shocks (wars, natural disasters, terrorist attacks)
3. Policy
question
What are the outcomes of the economy [5]?
answer
1. Output - Real GDP
2. Jobs - Unemployment
3. Prices - Inflation/Deflation
4. Growth - GDP
5. International - Exports, Imports, Exchange Rate
2. Jobs - Unemployment
3. Prices - Inflation/Deflation
4. Growth - GDP
5. International - Exports, Imports, Exchange Rate
question
What is the Law of Demand?
answer
As prices increase, quantity demanded decrease. This is an inverse relationship.
question
What is the Law of Supply?
answer
As prices increase, quantity supplied increase. This is a direct relationship.
question
What is the Foreign Trade Effect? (AD)
answer
As prices decrease, exports increase. As prices increase, imports increase and exports decrease. This is an inverse relationship.
question
What is the Real Balances Effect? (AD)
answer
As prices increase, quantity demanded goes down because you cannot afford it.
question
What is the Interest Rate Effect? (AD)
answer
As prices decrease, loans increase. (Because interest rates are high, loans are not in high demand. When the rates go down, loans increase.)
question
What is the Profit Effect? (AS)
answer
As prices [of the product] increase, supply increases. This is more profit for your business. This is a direct relationship.
question
What is the Cost Effect? (AS)
answer
At lower prices, costs are minimal. Therefore you will produce more.
question
What are the Demand Side Theories [2]?
answer
1. Keynesian - not enough aggregate demand
2. Monetary - interest rates are too high
2. Monetary - interest rates are too high
question
What are the Supply Side Theories [2]?
answer
1. high factor costs (resource shortages)
2. taxes too high
2. taxes too high
question
What does Keynesian say is the solution/cure to the recession?
answer
There should be government intervention (government spending).
question
What do the Supply Side Theories say are the solutions to the recession?
answer
lowered taxes
question
What does the Monetary Theory say is the solution to the recession?
answer
lowered interest rates
question
What are the components of GDP and Demand [4]?
answer
1. Consumption
2. Investment
3. Government Spending
4. Net Exports
2. Investment
3. Government Spending
4. Net Exports
question
What is the equation for the average propensity to consume?
answer
Total Consumption divided by Total Disposable Income
question
What is the equation for the average propensity to save?
answer
Total Savings divided by Total Disposable Income
question
Define "marginal propensity to consume".
answer
the change in your consumption based on the change in your disposable income
question
What is the equation for marginal propensity to consume?
answer
Change in Total Consumption divided by Change in Total Disposable Income
question
What is the equation for marginal propensity to save?
answer
Change in Total Savings divided by Change in Total Disposable Income
question
Define "autonomous consumption".
answer
consumption not based on disposable income
question
What are the components of autonomous consumption [4]?
answer
1. Expectations
2. Wealth
3. Credit
4. Taxes
2. Wealth
3. Credit
4. Taxes
question
What are some injections?
answer
Injections are added into the circular flow. They include government spending, investment, and exports.
question
What are some leakages?
answer
Leakages are not put back into the circular flow. They include savings, taxes, and imports.
question
What is the multiplier process?
answer
Based on the economy, there are always going to be increases and decreases in the circular flow.
question
What is the equation for the amount in reduction in spending?
answer
previous drop in income X MPC
question
What is the equation for the total change in spending?
answer
multiplier X initial change in investment
question
What are the three aspects of Fiscal Policy?
answer
1. Taxes
2. Government Spending
3. Income Transfers
2. Government Spending
3. Income Transfers
question
What is a Fiscal Stimulus?
answer
an increase in government spending or income transfers or decrease in taxes
question
What is a Fiscal Restraint?
answer
the opposite of fiscal stimulus; when the economy is doing well or inflation is high and growth is rapid
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