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Macroeconomics - C719 Study online at quizlet.com/_4dym85 1.

AD and Export and Imports

Income and output are also reflected in the diagram of AS and AD, but foreign income is not; changes in foreign income will affect demand for this country's exports. Higher foreign income will increase demand for exports, shifting AD to the right; lower foreign income will reduce demand for exports, shifting it to the left.

2.

Aggregate demand

It is the total demand for final goods and services in an economy at a given time and price level. AD= C+I+G+(X−M)

3.

Aggregate expenditure for a AE=C+I+G+(X−M) four-sector economy is the C (planned consumption spending), I (planned investment spending), G (government purchases of sum of the purchases of all sectors: goods and services), and X and M (exports and imports).

4.

an aggregate production function

This graph shows how much total real output can be produced by various amounts of labor, given the amount of capital and available technology. An increase in capital or an improvement in technology will shift the production function. A production function is normally drawn with labor (the independent variable) on the horizontal axis and real output (the dependent variable) on the vertical axis.

5.

Aggregate supply

is the total amount of goods and services that firms are willing to sell at a given price level during a specific time period in an economy.

6.

The assumption of people being rational means people:

Being rational means considering both costs and benefits.

7.

Business Sector

Purchases of final output by the business sector are called gross private domestic investment. Gross investment is measured before subtracting capital goods that have worn out or become so obsolete that they are no longer useful.

8.

Capital

is defined as all aids to production that are human creations rather than resources found in nature. includes tools, factories, warehouses, and inventories.

9.

ceteris paribus

Latin phrase that means "all else being equal." Economists assume people are rational. This means people look at the costs and benefits and do the action that gives them the greatest benefit at the lowest costs.

10.

choice curve

is a graph that shows the various combinations of choices an individual can make with the resources available.

11.

circular flow model

a mixed economy This model provides an overview of the central concerns of both macroeconomics and microeconomics. The circular flow model is a visual picture of the relationships between the resource market, in which income is earned, and the product market, in which income is used to purchase goods and services.

12.

command economy,

or planned economy, answers the basic economic questions through central command and control. A central planning authority makes all decisions regarding what and how to produce.

13.

comparative advantage

This principle states that each person, group, or country should specialize in that product or service for which the opportunity cost of production is lowest.

14.

comparative economic systems.

The study of the different ways of organizing economic activity, are answering these questions

15.

Complementary goods

are goods that are jointly consumed. If consuming two goods together enhances the enjoyment of both, the goods are called complements. a rise in the price of one will decrease demand for the other.

16.

Core inflation

is inflation that excludes food and energy prices.

17.

CPI base year

For the consumer price index, the base year is an average of the prices in 1982-1984. Will always be 100

18.

CPI calculation

CPIt= expenditures on market basket in yeart /expenditures on market basket in base year×100

19.

True A curved production possibilities curve (PPC) implies that some resources are better suited to the production of one item while other resources are more suited to the production of the second item.

20.

Cyclical Unemployment

Workers are laid off because of a fall in demand generally or specifically for the products they produce. Cyclical unemployment tends to be most severe in heavy industry (manufacturing equipment and some consumer goods, such as cars and refrigerators).

21.

Demand

is the relationship between the quantities demanded of a good or service at various prices over a certain time period.

22.

demand curve

is a graph representing a demand schedule.

23.

Directing

Market participants act on price information. All the necessary information is found in market prices.

24.

Economics

is the study of how people, individually and through institutions, make decisions about producing and consuming goods and services, and about how they face the problem of scarcity.

25.

economists most often test hypotheses

by looking at actual experiences in markets. Such experiments are often referred to by economists as ceteris paribus experiments.

26.

Entrepreneurship

consists of the activities of combining the other productive resources to produce goods and services, taking risks, and introducing new methods and new products (innovation).

27.

equation for the consumption function is

28.

Equilibrium

29.

Firms and households interact in two types of markets:

30.

following factors may shift the supply curve:

the state of technology the prices of the productive resources the number of suppliers expectations about the future the prices of related goods

31.

formula converts a nominal wage into a real wage for year t:

Real wage t = nominal waget / CPIt × 100

32.

Formulas

GDP deflator=(Nominal GDP/Real GDP)×100

C=C0+bYd the amount consumers wish to purchase is exactly equal to the amount suppliers wish to sell. the resource and product markets.

Real GDPt=(Nominal GDPt/GDP deflator)×100 who will get the goods and services produced and how much each person will receive. This is a way of asking which of many possible distributions of income will be chosen. Should the distribution be equal or unequal?

33.

for whom question

34.

fourth non-price determinant of demand is the prices of There are two classes in this category: complements and substitutes. other goods and services.

35.

frictional unemployment.

short-term unemployment is expected and natural

36.

Full Employment

means that the number of job seekers is approximately equal to the number of job vacancies— the U.S. job market index otherwise known as the help wanted index.

37.

gross domestic product (GDP).

is the total market value of all final goods and services produced within a country during a given time period. The most widely used measure of total output Both GDP and GNP figures are calculated on a per capita basis to give a snapshot of a country's economic development. GDP defines its scope according to location; GNP defines its scope according to ownership. GDP is output produced within a country, whereas GNP is output produced by a country's citizens.

38.

Headline inflation

is inflation that includes food and energy prices.

39.

the help wanted index

is an indicator of strength or weakness in the national labor markets, by providing information on how many positions need to be filled.

40.

he primary functions of prices are to

inform, direct, and motivate consumers and firms

41.

Household Sector

Sales to the household sector are called consumption expenditures. Consumer purchases are final sales, so they are all counted as part of GDP

42.

How can unemployment be recognized in the production possibilities curve (PPC)?

If the point is inside the PPC, unemployment could be a reason for underproduction.

43.

how question

asks what input combination will be used to produce the chosen goods and services. Should levees be produced by combining many workers with a few units of capital or by a more capital-intensive method?

44.

Human capital

consists of knowledge and skills that increase labor's productivity.

45.

If technology can improve or the quantity of resources, capital and technology can increase, then output

can grow beyond the limits of the production possibilities curve.

46.

inferior good.

demand falls when income rises

47.

inflation hedges

Those assets that people buy as insurance against inflation

48.

The inflation rate formula is

Inflation rate (π) = (CPIt - CPIt-1)/CPIt-1 × 100

49.

Info

The share of trade in total output is an indicator of how dependent a nation is on other nations. The higher the trade ratio, the more sensitive a country is to events in foreign markets, and the more dependent it is on foreign sources of supply.

50.

Info

The word domestic means that the investment was made in the United States, not in another country. Finally, in GDP accounting, the term investment means the purchase of a real, tangible asset, such as a machine, factory, or stock of inventories that will be used to produce more goods and services in future.

51.

Info

The larger its land area, population, and total output or income, the less dependent an economy is likely to be on trade.

52.

Info

This movement along the demand curve was entirely due to a change in price and is also referred to as change in quantity demanded A shift of the demand curve is also referred to as change in demand.

53.

Info

You might expect that demand for all goods would increase as income increases; however, this is not always true. Whether demand increases in this case depends on whether the good is a normal good or an inferior good.

54.

Info

Anticipated inflation does not cause that much harm to an economy because everyone knows it is going to happen so they take it into consideration in all their contracts including wages. The main costs from anticipated inflation are menu costs, for example the costs of changing menus and catalogs to keep up with increasing prices. Unanticipated inflation causes the most harm because people have not been able to account for it in their contracts. One reason why governments try to restrain inflation is that it causes an unintended and often undesirable redistribution of income and wealth.

55.

Info

A higher price for the dollar will make foreign goods cheaper and U.S. goods more expensive, reducing U.S. exports, increasing U.S. imports, and shifting AD to the left. If the price rises, the interest rate rises, which also raises the exchange rate. This will increase imports and reduce exports so that net exports will decline. A lower price for the dollar will increase net exports and shift AD to the right.

56.

Informing

Market prices condense a great deal of complex information into a simple form. The supplier of a product does not have to know what caused demand to change. All suppliers need to know is that the price has increased.

57.

In microeconomics, the most important tools are

demand and supply. Demand and supply help to explain prices and outputs in individual markets.

58.

labor force

consists of those who are working and those who are actively seeking work. A full-time homemaker, a child, a retiree, a full-time student, or anyone else not employed is not counted in either the numerator or the denominator of the unemployment rate. People who have looked for work in the past 6 months, but NOT in the past 4 weeks, are called discouraged workers and are also excluded from the calculations.

labor force participation rate formula is:

Labor Force / Working Age Population) * 100

60.

law of demand states

that the quantity demanded of a good or service in a given time period is negatively related to its price, ceteris paribus.

61.

the law of diminishing productivity.

principle that states that while increasing one input and keeping other inputs at the same level may initially increase output, further increases in that input will have a limited effect, and eventually no effect or a negative effect, on output.

62.

The law of increasing opportunity costs

explains how the production of larger amounts of one good leads to an increase in the sacrifice of the alternative good.

59.

Working age is btw 16 and 65

63.

law of supply

The quantity supplied of a good or service in a given time period is generally positively related to its price, ceteris paribus. ith all else held constant, suppliers usually will supply less of a good or service at lower prices. As prices rise, the quantity supplied will increase because it becomes more profitable to produce and sell the good.

64.

Leakage

Leakages are flows out of the circular pattern that occur when resource income is received but not spent directly on purchases from domestic firms. Examples of leakages are saving, taxes, and purchases of imported goods. Injections are flows added into the circular pattern that represent spending not paid for out of resource income. Examples of injections are business investment, government expenditures, and sales of exported goods. If leakages are greater than injections, the size of the income flow will shrink.

65.

Macroeconomics

is concerned with the aggregate (total) effect across many markets. It is calculated by adding the output of these markets so that we have a total (summation).

66.

market demand curve shows

what quantities will be demanded by all consumers in a certain market at various prices. Sellers, however, are more interested in this curve

67.

market economy

relies on incentives and the self-interested behavior of individuals to direct production and consumption through market exchanges. Consumers, "voting" with their dollars, determine what is produced. The result of this market process determines what goods and services are available. market system has advantages over command and traditional economies in flexibility and capacity for dealing with change.

68.

market supply curve

is the sum of all the individual supply curves.

69.

market system

is an economic system that relies primarily on market transactions to answer the three basic economic questions.

70.

Microeconomics

focuses on the choices made by individuals and businesses. It describes the interactions of producers and consumers in individual markets, such as the market for cars.

71.

mixed economy

the basic decision method is the market, but some economic choices are made by government. The goal is to leave economic decisions to the market when it works well, but to intervene in the economy when the market outcome is not acceptable.

72.

The more common way of reporting GDP is by the buyers rather than the sellers.

This is called the expenditure approach. A basic assumption behind this approach to measuring GDP is that everything that is produced is also sold to someone.

73.

The most widely known index and the one used to determine consumers' inflation rate is the

consumer price index (CPI)

74.

Motivating

The for whom question is also a reminder that price is a powerful motivator. People pursue certain activities because they perceive those activities to be in their own self-interest.

75.

negative externalities

When people or firms consume certain goods or engage in certain activities, they pass some of the costs of production or consumption along to others.

76.

net domestic product (NDP).

NDP=GDP-Depreciation

77.

Net Exports and the Price Level

When there is a change in the exchange rate such that the domestic currency becomes relatively cheaper (for the United States, you can buy more U.S. dollars with foreign currency), usually exports fall and imports rise. The resulting change in net exports (X−M) will change real quantity demanded.

78.

normal good

is a good for which demand increases as income increases, ceteris paribus.

79.

One measure of a nation's standard of living is calculated as GDP per capita, or average income per person.

Real GDP per capita=Real GDP/Population

80.

opportunity cost

denote the full value of the next best alternative that is not selected. This opportunity will cost you something: Time, money, other opportunity What you give up in order to do something else

81.

Opportunity cost formula

Opportunity cost of 1 unit of good A=number of good B/number of good A

82.

other influences on consumption besides income. The most important of these influences are

wealth (consumers' assets such as stocks, bonds, houses, cars, and savings deposits). interest rates (which affect the cost of consumer borrowing). the price level. expectations (including expectations about future prices, income, and employment).

83.

The payments to capital are called

interest. Interest is a reward for giving up present consumption in order to make resources available for the creat

84.

positive externalities. (spillover benefits to third parties)

public goods could even be extended to include goods with weak rivalry or high costs of exclusion. Examples of such "almost" public goods include firefighting, education, and highways.

85.

primary variables that can shift the aggregate demand curve include

interest rates, expectations, and other familiar demand shifters.

Problems with the Consumer Price Index

One of these is the fact that the market basket is fixed or changed very infrequently on the basis of extensive consumer surveys.

86.

An increase in consumption spending because of an increase in wealth or population, a change in tastes, more positive expectations, or lower interest rates will shift aggregate demand to the right. Changes in any of these variables in the...