ECON 201 Midterm Terms PDF

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Three forms of unemployment Cyclical, structural and frictional Cyclical Unemployment Those who are unemployed because the entire economy is in a downturn Cyclical unemployment = actual rate - natural rate Structural Unemployment Those who are unemployed because of some 'structural shift' in the economy that has rendered their current skills obsolete or no longer valued by society. Duration is temporary? Frictional Unemployment Those who are unemployed while searching for (available) jobs that best match their skills Duration is temporary Inflation A sustained increase in the overall level of prices of goods and services in an economy over a period of time Disinflation A slowdown in the inflation rate Deflation A decrease in the overall level of prices of goods/services in an economy over a period of time Official formula for price elasticity of demand Ed = % change Qd/% change P Midpoint formula for price elasticity of demand Ed = [change Qd/ average Qd] / [change P / average P] Externalities A side effect or consequence of an industrial or commercial activity that affects other parties without this being reflected in the cost of the goods or services involved Negative Externality A cost that is suffered by a third party as a result of an economic transaction When people end up worse of Example: When the person next to you is smoking, which makes you cough Positive Externality When people end up better off Example: More education Truths about market failure For various reasons, sometimes markets, on their own, cannot find the socially efficient level of quantity (Q*) It is extremely difficult to provide some goods that people value because of their nature, it is hard to collect money from everyone who uses it Sometimes, the behavior of market participants affect parties not involved in the market Market failure and government attempts to help are generally controversial topics In terms of market failure, we did NOT talk about... When the market price of a new care in more than you can afford Free-rider Problem When those who benefit from resources, goods, or services do not pay for them, which results in an under-provision of those goods or services. Private Costs A producer's or supplier's cost of providing goods or services. It includes internal costs incurred for inputs, labor, rent, and depreciation but excludes external costs incurred as environmental damage Example: In the mining and burning coal industry, their private costs are the costs of labor and equipment Total Costs Refers to the total expense incurred in reaching a particular level of output; if such total cost is divided by the quantity produced, average or unit cost is obtained Example: In the mining and burning coal industry, their total costs are the costs of labor, equipment, tree replanting and installing pollution control devices

Public Good A commodity or service that is provided without profit to all members of a society, either by the government or a private individual or organization Example: Kingston Pike Public goods are often best provided (supplies) by Governments Why can't normal, private businesses provide public goods? Because of the properties of public goods, private businesses can't stop those who don't pay from enjoying their use Lack of competition (price fixing) The maintaining of prices at a certain level by agreement between competing sellers To say that demand for a good is ELASTIC, it means that A 1% rise in price results in a drop in quantity demanded by more than 1% If a good has a price elasticity of demand of 0.5, this mean that if price changes by 6%, quantity demanded would change by 3% If a good has a price elasticity of demand of 3, this means that if price changed by 6%, quantity demanded would change by 18% A good generally tends to be more elastic (elasticity of demand) If the good is a luxury If a good is a necessity with no close substitutes, then demand will most likely be Very inelastic If demand for a good or service is ELASTIC, then an increase in price will lead to A decrease in revenue because the increase in price will be outweighed by the loss in quantity demand Absolute Advantage The ability of an individual or group to carry out a particular economic activity more efficiently than another individual or group Comparative Advantage The ability of an individual or group to carry out a particular economic activity (such as making a specific product) more efficiently than another activity Opportunity Cost The loss of potential gain from other alternatives when one alternative is chosen Gross Domestic Product (GDP) is The value of all final goods and services produced within an economy in a given year When policy-makers and news organizations talk about "the economy" or "the size of the economy", what are they generally referring to? GDP Which country has the largest economy in the world? The United States What agency is in charge of calculating/reporting the U.S. GDP? Bureau of Economic Anaylsis How many measures of GDP are there? Two: nominal GDP and real GDP What is the difference between nominal and real GDP? Nominal GDP is affected by price changes while real GDP is not A nation's standard of living is usually measured as Real GDP per person

Components of GDP Consumption + Investment + Government Spending + X (Net Exports (which is imports - exports)) When policy-makers and the news reports that "the economy is expanding", this means that during the last period Real GDP increased at the potential rate or faster When policy-makers and the news reports that "the economy contracted", this means that during the last period Real GDP increased slower than the potential rate or decreased Which of the following shows the stages of the business cycle in correct order? Peak, contraction, trough, expansion Which government agency is in charge of calculating and reporting the unemployment figures? Bureau of Labor Statistics What category are children under 16 placed in by the BLS when calculating the unemployment figures? They aren't counted at all What category are retired people places in by BLS when calculating unemployment? Not in the labor force What are the three categories used by the BLS to classify the civilian, adult population? Employed ( all - full and part time) Not in the labor force Unemployed The total civilian, non-institutionalized adult population (16 and over), according to the BLS, is equal to The employed plus the unemployed plus those not in the labor force The labor force is defined as The employed plus the unemployed The unemployment rate (as calculated by the BLS) is the Unemployed divided by the labor force When someone becomes unemployed because of a slowdown in the growth of real GDP, we say in general that the person is Cyclically unemployed When someone is unemployed because they haven't found the job that best matches their skills, then we say in general that the person is Frictionally unemployed When someone becomes unemployed because their current set of skills are no longer in demand by society, then we say that the person is Structurally unemployed When someone wants a full-time job, but can only find part-time work, we say the person is Under-employed The natural rate of unemployment is equal to Frictional plus structural unemployment The actual rate of unemployment is equal to Cyclical plus frictional plus structural unemployment What does the term 'full-employment' mean? It means that cyclical unemployment is 0, but we still have frictional and structural It means that the country is currently producing as many goods and services as it sustainably can Which government organization is in charge of calculating and reporting the consumer price index? Bureau of Labor Statistics

What are the two main measures of inflation used in the U.S.? The Consumer Price Index and the GDP chain price index What is the formula for the real interest rate (r)? r = i - inflation rate Which of the following is NOT a component of aggregate demand? Stocks and bonds Components of aggregate demand include Consumer expenditure Investment expenditure Government expenditure Net exports The real balances effect, the interest-rate effect and the net export effect all explain why Aggregate demand is downward sloping...