Law of Increasing Opportunity CostsLaw saying that as production of a good increases, the opportunity cost of producing an additional unit risesOpportunity CostThe highest-valued alternative that must be given up to engage in an activity.Economizing Problemthe choices necessitated because society's economic wants for goods and services are unlimited but the resources available to satisfy these wants are limited (scarce)Production Possibility FrontierShows the trade-offs facing an economy that produces only two goods; shows the max quantity of one good that can be produced for any given production of the otherUnemployment of resourcesPPF point is possible but not efficientOpportunity Costslope of PPF shows the _________technology1 cause of PPF shiftresourcechange in ________ amount causes PPF shiftopportunity costsbowed out shape of PPF results from increasing _______householdperson or a group of people that share their incomemarket for goods and serviceshouseholds buy goods and services from firms in the _____factor markethouseholds sell factors of production to firms in the ________firman organization that produces goods and services for salemarket for goods and servicesfirms sell goods and services that they produce to households in ______factor marketfirms buy resources they need to produce in the _______factors of productionresources firms need to produce goods/servicesincome distributionhow total income is divided among the owners of the various factors of productionfactor marketwhat ultimately determines the economy's income distributionimports, exportsall countries must have both ______ and _____ for trade to take place (terms of trade)tarifftax levied on imports; raises domestic price above world priceimportstariffs are levied on ______quotalegal limit on the quantity of a good that can be imported; rents accrue to license holder not govtariffcauses tax revenues to be generatedGATTagreement replaced by the WTONAFTAnorth American free trade agreement; US, Canada, mexicoWTOmultinational organization seeks to negotiate global trade agreements as well as adjudicate trade disputes between member countriesworld pricecompetition among importers or exporters drives the domestic price to equilibrium with the ____ ______Ricardian model of international tradeanalyzes international trade under the assumption that opportunity costs are constantDavid Ricardointroduced the analysis of international trade under the assumption that opportunity costs are constantinvisible handrefers to the way in which the individual pursuit of self interest can lead to good results for society as a wholeadam smithwrote the wealth of nations; responsible for invisible hand theorydisposable incometotal household income minus taxesprivate savingsdisposable income that is not spent on consumptioninvestment spendingspending on productive physical capitalfalsestocks and bonds are considered investment spending- T or F?importslead to an outflow of funds to the rest of the worldexportsgenerate an inflow of funds into the country from the rest of the worldintermediatetype of goods and services bought from one firm by anotheraggregate spendingsum of consumer spending, investment spending, government purchases on goods and services, and net exportsaggregate spendingtotal spending on domestically produced final goods and servicesprivate savingsfinancial markets channel _____ and foreign lending into investment spending, government borrowing and foreign borrowingyIncluded in GDP- Y or N? domestically produced final goods and servicesyIncluded in GDP- Y or N? capital goodsyIncluded in GDP- Y or N? new construction of structuresyIncluded in GDP- Y or N? changes to inventoriesnIncluded in GDP- Y or N? intermediate goods and servicesnIncluded in GDP- Y or N? inputsnIncluded in GDP- Y or N? used goodsnIncluded in GDP- Y or N? financial assets (ex stocks and bonds)nIncluded in GDP- Y or N? transfer paymentsnIncluded in GDP- Y or N? non-market transactionnIncluded in GDP- Y or N? foreign produced goods and servicesconsumptionlargest component of the GDP in the USinvestment by firmsmost volatile component of GDPBEAcollects data to determine US national income and product accountsnational accountskeep track of flows of money between different sectors of the economyhouseholdsreceive income in the form of wages, profit, interest payments, and rent via factor marketsgovernment transferspayments by the gov to individuals for which no good or service is provided in returnvalue addedthe ________ of a producer is the value of its sales minus the value of its purchases of immediate goods and servicesvalue added= value of sales - cost of intermediate goodsGDP= C + I + G + X - IMaggregate outputeconomy's total quantity of output of final goods and servicesreal GDPtotal value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base yearnominal GDPthe value of all final goods and services produced in the economy during a given year, calculated using the prices current in the year in which the output is producedchained dollarsthe method of calculating changes in real GDP using the average between the growth rate calculated using an early based year the growth rate calculated using a late base yearGDP per capitaGDP divided by the size of the population; equivalent to the average GDP per personreal GDPGDP value that is adjust for inflationnominal GDP= price x quantityreal GDP= price(base yr) x quantityconsumptioneducation is considered _______ spendingcost of market basket in given year/cost of market basket in base year x 100calculate the price indexinflation rateyearly percentage change in a price indexconsumer price indexmost common measure of the aggregate price levelconsumer price indexmeasures the cost of the market basket of a typical urban American family(price index in current year - price index in prior year)/(price index in prior year) x 100calculate inflation rateproducer price indexmeasures the cost of a typical fixed basket of goods/services purchase by producers- does not always reflect current changes in spending patterns - new products underweighted/not included -quality improvements not taken into account - price discounting is not reflectedshortcomings of CPIbroader basket of goods and serviceshow does GDP deflator differ from CPI and PPI?100base year of any price indexsimon kuznetshelped develop an initial set of national income accountsnumber of unemployed workers/labor force x100calculate unemployment ratenumber of employed + number of unemployedcalculate labor forcelabor force/population age 16 and over x 100calculate labor force participation ratenumber of employed/ population age 16 and over x 100calculate employment population rateemploymentnumber of people currently employed in the economy, either full or part timeunemploymentnumber of people who are actively looking for work but aren't currently employedlabor forceequal to the sum of employment and unemploymentretirees students homemakers disabled institutionalizedpeople not in labor forcelabor force participation rateexplains how an increase in the unemployment rate can occur simultaneously with an increase in employmentemployment population ratioused to evaluate the economy's ability to create jobshigha _______ ratio of the employment population ratio means a substantial portion of the working age population is employedemployment population ratiodoes not provide an indication of the working conditions (ex. number of hours worked)employment population ratioalternative to measure unemployment rate allowing adjustments for distortions created by discouraged workersdiscouraged workersnonworking people who are capable of working but have given up on looking for a job given the state of the job marketmarginally attached workersdiscouraged workers who would like to be employed and have looked for a job in the recent past (12 mo) but are not currently looking for workunderemploymentthe number of people who work part time because they cannot find full time jobs qfrictionalunemployment normally short term, skilled workers who can be readily re-employedstructurallong-term unemployment, usually requires relocation or retrainingstructuralunemployment often caused by import competitionstructuralunemployment often caused by obsolete skillsstructuralunemployment often caused by new technologies (ex. robots making cars)cyclicalunemployment that is the result of recessionoutput gapdifference between actual unemployment rate and natural unemployment rateefficiency wageswages that employers set above the equilibrium wage rate as an incentive for better employee performancenatural rate of unemploymentarises from the effects of frictional + structural unemploymentnatural rate of unemploymentresult of people between jobs, searching, relocating, or retrainingactual unemploymentnatural unemployment + cyclical unemploymentstructural unemploymentminimum wages, efficiency wages, side effects of gov policies (ex. unemployment benefits) and mismatches b/t employees and employers can cause this type of unemploymentcyclicalthis kind of unemployment changes with the business cycleonehow many paid hours a week does a person have to work to be considered employed?

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