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ECON 2020 Midterm Review
Terms in this set (107)
What is scarcity?
the limited nature of society's resources.
What is economic capital?
Goods that have been produced and are used in the production of other goods and services. Typically considered to last for more than one year.
What is opportunity cost?
that which we forgo, or give up, when we make a choice or a decision.
What trade-off does the PPF represent?
It shows the opportunity costs and trade-offs that are made when production choices are made.
Which of the following is the best definition of economics?
the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided
Inflation and unemployment is a focus of..
If the slope of a straight line is -3. and if Y (the variable on the vertical axis) decreases by 6, then X (the variable on the horizontal axis) will
increase by 2.
What constitutes an act of "investment" as economists use the term?
An allocation of resources to the increase of productivity of a good or individual. ie. education seminars, equipment, fire stations. But NOT investing in the stock market.
Among prices, incomes, and quantities; what is held constant among the demand curve?
Are households suppliers or demanders in the market?
Both. They supply the market with labor and demand goods.
What is the circular flow of economic activity in reference to?
This is in reference to the circular flow of resources between households and firms.
Organizes, manages and assumes the risks of transforming the idea of a product into a business.
The consuming units of an economy. Constrained by limited incomes and prices. Are also the provides of the inputs of production
What is the "output market"
What is the input/factor market
Equilibrium is the condition that exists when ...
Quantity demanded equals quantity supplied.
The price of mozzarella cheese, which is used in making pizza, increases. In the market for pizza you would expect that
the supply of pizza would decrease and the price of pizza would increase.
A movement along the demand curve to the left may be caused by a ...
decrease in supply.
What study does microeconomics focus on?
The decision making of individual families and firms.
What study does macroeconomics focus on?
The economy or nation as a whole regarding the standard economic questions.
Define: Positive economics
An approach to economics that seeks to understand behavior and the operation of systems without making judgments. It describes what exists and how it works.
Define normative economics
economic analysis that tells what should be as opposed to what is
What four outcomes are most commonly considered to determine if an economic policy was successful?
the use of resources in such a way as to maximize the output of goods and services
Define: Economic growth
Increase in real output of an economy over time.
growing national output with low inflation and full employment of resources.
What does it mean if a curve's slope is increasing?
It means that the slope is getting higher through time. This creates a curved, non constant, line.
Define factors of production
the resources needed to produce goods and services. Another term for resources.
What are the three main factors of production?
land, labor, capital
Define comparative advantage
The ability of an individual or group to carry out an economic activity, such as production, at a lower cost and more efficiently than another entity.
Define absolute advantage
the ability to produce a good using fewer inputs than another producer
Define consumer goods
A good produced for immediate or short term consumption
Define production possibilities frontier
a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
Define marginal rate of transformation
The slope of an economy's production possibilities frontier. It tells us how much of one output the economy has to give up for the production of another.
Define the Law of Increasing Opportunity Cost
States that as capital and resources are used more intensely, the cost to which each additional unit of good is produced increases. (Think the effectiveness of your first hour of work vs your last hour)
Define output efficiency
For an economy to be considered efficient, it has to be producing on the production possibilities frontier AND on the right point on the frontier. (the right ratio of goods)
Regarding opportunity cost, what is one reason that poor countries have a difficult time becoming rich?
Countries can only increase their output, or PPF, by investing in capital. Investing in capital comes at the opportunity cost of consumer goods today; which is a difficult trade off for poorer families to bare.
Define command economy
an economy in which production, investment, prices, and incomes are determined centrally by a government.
Define laissez-faire economics
the belief that economies and businesses function best when there is no interference by the government
Define price theory
define mixed system
An economic system that's a mix between command and laissez-faire. Effectively, all systems on earth are mixed systems.
Define normal good
if income goes up, the quantity demanded for a particular good also goes up
Define inferior goods
Goods that are purchased less as income rises (ie. ramen noodles)
Define excess supply/surplus
when quantity supplied is more than quantity demanded
What are the three major concerns of macroeconomics?
1. Output growth
3. Inflation and deflation
Define sticky prices
Prices that don't always adjust rapidly to maintain equilibrium between quantity supplied and quantity demanded.
a period of temporary economic decline during which aggregate output drops
A prolonged and deep recessions
What are the three major market arenas?
1. Goods and service market
2. Labor market
3. Money market
What are the two methods in which the government can impact the economy?
Monetary and fiscal policy
Define fiscal policy
Policy dealing with the taxing and/or spending of the fed government, and the budget of the government
Define monetary policy
Process by which the government, central bank, or monetary authority of a country controls the supply of money, availability of money, and cost of money or rate of interest, in order to attain growth and stability of the economy.
What are the two ways to determine GDP and how are they conducted?
1. Expediture method: You count up the final cost of all final goods sold.
2. Income method: You count up the total income of every household in the nation.
Define Nominal GDP
All goods and services produced in the U.S. non-inflation adjusted
Define Real GDP
GDP adjusted for inflation
How do you calculate real GDP?
Define GDP Deflator
Define fixed weights
Define Gross National Income
GNP converted into dollars using an average of currency exchange rates over several years.
A person over the age of 16 who works, for pay, for at least 1 hour per week OR works 15 hours per work unpaid OR is employed but temporarily away from work.
If a person did not work during the previous week, but made efforts to find employment during the previous four weeks
Define "Not in the labor force"
A person who is not looking for a job either because they don't want a job or have given up looking.
Define labor force
The number of people employed + unemployed
Define unemployment rate,
the number of unemployed divided by the labor force.
Define labor force participation rate
The ratio of labor force individuals to the economy's population.
Define frictional unemployment
the unemployment which exists in any economy due to people being in the process of moving from one job to another.
Define structural unemployment
Unemployment in which members of the labor force are not employed because their prior types of jobs have been greatly reduced or eliminated, and/or because they lack the skills needed for available jobs.
Define cyclical unemployment
unemployment due to the natural rises and falls of the business cycle
Define consumer price index
An index that measures the prices of a fixed "market basket" of some 300 goods and services bought by a "typical" consumer.
What is the formula for marginal propensity to consume?
Change in consumption over change in income
What is the formula for aggregate savings?
Y - C where Y is equal to aggregate income and C is equal to aggregate consumption.
What is the formula for marginal propensity to save?
Change in S over change in Y
MPC + MPS = What
How would you derive the savings function from the consumption function?
Draw a 45 line on the consumption model. Where the lines cross, is where savings will equal zero. The difference between the two lines will be the aggregate savings.
Are inventories considered a part of a firms investment?
aggregate expenditure is equal to
aggregate consumption + planned investment
Define unplanned investment
Aggregate output - (aggregate consumption + planned investment)
Define equilibrium level of output
When aggregate output = aggregate consumption + planned investment
Define equilibrium level of income
When is the economy considered to be in a state of equillibrium?
When the aggregate output (Y) is equal to aggregate expenditure (AE)
What is another variable for aggreate expenditure besides AE?
Define intermediate good
The price of bonds and the interest rate are
How do you find the consumption function from the savings?
how do you find the savings function from the consumption?
If the MPS is 0.05, the MPC is
Group of answer choices
Assume that in Scandia, planned investment is $80 billion but actual investment is $60 billion. Unplanned inventory investment is
Assuming there is no government or foreign sector, if the multiplier is 10, the MPC is
Assuming no government or foreign sector, the formula for the multiplier is
If the MPC is 0.75, the government spending multiplier is
If the government spending multiplier is 5 and government spending decreases by $200 billion, output will ________ by $________ billion.
If the MPS is 0.4, the tax multiplier is
If the tax multiplier is -9 and taxes are reduced by $100 billion, output
regarding final sales; GDP is equal to
Final sales + change in inventories.
How do you calculate net investment?
gross investment - depreciation
Equation for marginal propensity to save?
change in S over change in Y OR 1 - MPC
MPS + MPC = ?
planned aggregate expenditure
is equal to aggregate consumption + planned investment
unplanned inventory is equal to...
Aggregate output - (aggregate consumption - planned investment)
Assuming no government or foreign sector, what is the formula for the multiplier?
What is the government spending multiplier?
1/(1-MPC) OR 1/MPS
What is the formula for the tax multiplier?
how would you find the change in equillibrium output with a proposed change in taxes?
change in output or income = (negative) change in taxes multiplied by the tax multiplier.
when is an economy in equillibrium?
when Y = C + I + G
what is the money multiplier?
THIS SET IS OFTEN IN FOLDERS WITH...
ECON 110: Kearl Exam #1
ECON 110: Kearl Exam #2
ECON 110: Ch. 12: Market Distortions
ECON 3640 - Descriptive Statistics
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