economics
max happiness (utility); how you attain your goal

scarcity
unlimited wants & limited needs

Adam Smith
father of economics; classical economist (no government intervention); buyer and seller can handle their own problems; the government is there only to provide the basic needs (military, rules and regulations); until 1930’s we only have one type of economics

micro
Alfred Marshall- demand in supply, elasticity, individual decision making

macro
John Maynard Keynes- believed in government intervention, aggregates

positive economics or postive statement
prove with facts

normative economics or normative statement
opinion, value added judgement

resources or factors of production
land, labor, capital, entrepreneurship

capital- physical
tools and equipment, machinary

capital- human
education, experience

key principles of economics
(notebook)

ceths paribus
other things constant

3 basic economic questions
what goods and services, how are these goods and services produced, who will receive these goods and services

What goods and services are produce?
consumption goods and services, capital goods, government goods and exports

How are these goods and services produced?
capital intestive method, labor intestive method

capitalistic economy or market economy
what-market
how- firm
who- whoever is willing to pay the price

socialistic economy or planned economy
what and how to produce is decided by the economy
who- everyone

mixed economy
do whatever you want but there’s boundaries set by the government

production possibilities frontier
-a model that shows the combinations of two goods a society can produce at full employment
-max combination can be produced at full employment
-the PPL shows the combinations of goods that can be produced
-points under the PPF are attainable but inefficient
-points outside the PPF are unattainable

assumptions
two goods- consumer goods and capital goods, full employment of resources, technology remains constant, technical know how remains constant, rules of the game remain constant

law of increasing opportunity cost
-land, labor, and capital cannot easily be shifted from producing one good to another
-opportunity cost increases as we specialize

PPF and economic growth
-PPF shifts to the right as an economy grows as a result of -expanding resources, improving technologies
(able to produce more output with the given scarce resources, sustained expansion), labor force increases, new resources are identified, rules of the game are in favor of business sectors
-PPF shifts to the left-decline economic growth (something goes wrong, opposite direction)

reason for trade
absolute advantage and comparative advantage

absolute advantage
one country can produce more of a good than other countries

comparative advantage
one country’s opportunity cost is lower than another country’s

National Income and Product Accounts (NIPA)
-measure our nation’s economic performance
-compare US income and output to those of other nations
-track the economy’s condition throughout the business cycle

how our economy is doing
GDP, unemployment, inflation

Simon Kuznets
GDP

GDP
final value of all goods and services produced within the borders of the country during a given period of time
-Bureau of Economic Analysis
-checked every quarter (last is most important)

intermediary goods
ones final product is another’s raw product, should be produced in the country, has to be produced in the year

included
final value of goods

not included
intermediary goods, household productions, used goods are not taken into account, financial transfers

core of the Nipa
the economy can be measured in two ways (by adding both)
-expenditure approach
-income approach

4 economics decision makers
-householders, firms, government, international trade

GDP formula
GDP= C + I + G + NX

gross product domestic investment
investment in structures, equipment and software purchases, changes in business inventory

national income equation
-(compensation to employees=wages)+ proprietor income+ corporate profits+ rental income+ net interest+ misc. = national income
-consumption of fixed capital+ statistical discrepancy

real GDP (RGDP)
take one year as a base year and then calculate the GDP for the rest of the years

RGDP equation (real)
current year output * base year prices

NGDP equation (nominal)
current year output * current year prices

GDP per capita equation
real GDP/population

drawbacks of GDP
-household productions are not taken into account
-type of good produced doesn’t matter
-environmental effects
-not a true measure of standard of living

business cycle
-ups and downs of economic activity
-measures how real GDP fluctuates around the potential GDP
-economic fluctuations of the economy
-the periodic fluctuation of economic activity

potential GDP
output produced at full employment

peak/boom
-economy is making more, over-utilizing our resources
-real GDP is greater than potential GDP
-prices go up in the economy

recession
-real GDP starts falling
– National Bureau of Economic Research says the GDP has to fall for at least 6 months to be in recession

trough
economy has hit rock bottom, when there is no more decline in the GDP

expansion
real GDP starts going up, unemployment rate starts going down, consumers start spending more

what causes the business cycle?
-irregular innovations
-creative destructions- when a new product comes, the old must stop being produced
-changes in the level of spending (most agreed upon)
– durable good industries are most affected by the business cycle (retail)

allocative effeciency
producing the products the consumer want

circular flow model
householders, firms, no leakages

product market or goods market
final goods are sold

resource market or factor market
raw materials are sold

Gross National Product (GNP)
market value of all goofs and services produced domestically and a brought using resources supplied by US

Net Domestic Product (NDP)
output an economy can produce after adjusting for consumption for fixed capital used up in the process

NDP equation
GDP- consumption of fixed capital

Personal Income (PI)
income earned by the householders

PI equation
(wages, salaries, and other income)+ rented income+ proprietors income+ transfer of payments+ personal interest and dividends – social security contribution

Disposable Income (DI) euqation
PI- Personal Taxes
DI= consumption (c) + savings (s)

what event was a major influence on the development of marcoeconomics
the great depression

US business cycles since 1950 have shown
expansions to be longer than recessions

Bureau of Labor Statistis
-in charge of calculating unemployment
-takes the current population survey

working age in the labor force
-employed (full time or part time)
– volunteer work in a family owned business (15 hrs/week)
-unemployed (actively looking for a job for the past 4 weeks )

working age not in the labor force
– less than 16 years old
– homemaker
– retired
-full time students
-discouraged workers
-marginally attached worker

discouraged workers
giving up in finding a job because nothing is open in your field

marginally attached worker
sometime in the past, you were looking for a job, currently not working but are willing to work

labor force participation rate equation
working age population * 100

types of unemployment
-frictional unemployment or search unemployment
– structional employment or wait unemployment
– cyclical unemployment

frictional unemployment and search unemployment
able to find a job that matches your still

structional employment or wait unemployment
with your existing skills, you will not be able to find a job, you have to gain other skills

cyclical unemployment
unemployment caused because of the business cycle

different household surveys
-household survey (60,000 houses taken into account)
-payroll survey (400,000 companies & government institutes)

weekly job reports
how many employees are fighting for unemployment benefits

natural rate of unemployment
non-accelerated inflation rate of unemployment, inflation rate is low at full employment

GDP Gap equation
actual (real) GDP- potential GDP

positive GDP gap
actual GDP is greater than potential GDP
-current unemployment is below the natural rate of unemployment

negative GDP gap
actual GDP is less than potential GDP
-current unemployment rate is greater than the natural rate of unemployment

Okun’s Law
the higher the unemployment, the higher the suffering
-every 1% change in the current unemployment rate over the NRU, GDP gap changes 25

inflation
overall increase in prices

causes of inflation
-stronger demand for goods or demand full inflation
-hyper inflation
-supply shock on key inputs or cost push inflation
-government printing more money

Milton Friedman
“too much money chasing too few goods”

hyper inflation
overall prices in the economy increases 50% a week

supply shock on key inputs or cost push inflation
caused because of the increase in the cost of production

stagflation
combo of inflation and unemployment of inflation and recession

consumer price index (CPI) or cost of living index
-calculated by BLS
-measures the expenditures patterns of the urban house holders on a fixed market basket of goods
-updated every 3 years
-quantity is fixed but price changes

Negative demand shocks to the economy can come from:
reductions in consumer demand.

If disposable income is $3,000 and saving is $1,200, how much is the average propensity to consume?
0.6

Generally, economists believe that monetary policy should focus on price stability in the _____ run and output or income in the _____ run.
long; short

Demand-pull inflation is caused by:
increases in aggregate demand.

A depression economy has considerable slack, so:
unemployment is high.

Most economists think the Fed should target:
price stability in the long run.

If disposable income is $250 and saving is $50, how much is the average propensity to consume?
0.8

Federal spending that is authorized by permanent laws and does not go through the annual appropriation process is called ________ spending.
mandatory

Assume that the economy is at equilibrium at $12 trillion, with a marginal propensity to consume of 0.75. If exports rise by $0.1 trillion and imports increase by $0.1 trillion, equilibrium income will:
not change

__________ government spending, _____ transfer payments, and ____ taxes are all examples of expansionary fiscal policy.
Increasing; increasing; lowering

If the unemployment rate is 10% and the inflation rate is 2%, the Fed will most likely:
buy bonds.

The aggregate demand curve is positively sloped.
false

Vanessa has a checking account at Empathy State Bank. If she writes a check for $5,000 to pay for her new car and if the bank has a reserve requirement of 5%, this bank’s excess reserves will be:
$250

The Fed announced in September 2013 that it would postpone winding down its monetary stimulus until the economic recovery was stronger. When the Fed does finally begin to reduce bond purchases:
interest rates will rise.

The twin goals of monetary policy are:
economic growth with low unemployment and stable prices with moderate long-term interest rates.

Assume the reserve requirement is 10% and all banks are fully loaned up. If a new deposit of $10,000 is made into Bank X, with this deposit Bank X can make new loans of:
$9,000.

Which measure is NOT a channel through which the government can influence aggregate demand?
regulation on businesses

The Fed uses its tools to counteract:
booms and recessions.

What would cause the price level to decrease and employment to increase?
a shift to the right of the SRAS curve

The discount rate is the rate that banks charge their best customers.
false

The discount rate is the rate that banks charge their best customers.
false

Assume that the economy is at equilibrium at $12 trillion, with a marginal propensity to consume of 0.75. If exports rise by $0.1 trillion and imports increase by $0.1 trillion, equilibrium income will:
not change

Demand-pull inflation is caused by:
increases in aggregate demand.

A depression economy has considerable slack, so:
unemployment is high.

Most economists think the Fed should target:
price stability in the long run.

Demand-pull inflation is caused by:
increases in aggregate demand.

A depression economy has considerable slack, so:

Demand-pull inflation is caused by:

If disposable income is $3,000 and saving is $1,200, how much is the average propensity to consume?
A. 0.6

If Abigail withdraws $300 cash from her checking account, then her bank’s assets:
fall by $300, and its liabilities fall by $300

Products that would be used in calculating GDP include? Intermediate goods, durable goods, non durable goods An example of a durable good would be? Used car WE WILL WRITE A CUSTOM ESSAY SAMPLE ON ANY TOPIC SPECIFICALLY FOR YOU FOR …

According to the demand pull theory, what is responsible for inflation? demand for goods and services exceeds existing supply An accurate statement about the Great Depression would be that it ended largely because of an increase in defense spending related …

What are durable goods? goods that have a life expectance of 1-3 years What are nondurable goods? items such as food, clothing, soap, and gasoline because they are considered used up or consumed less than 3 yrs WE WILL WRITE …

An example of a durable good would be? a used car Compared with the expenditure approach to calculating GDP, the income approach is? more accurate WE WILL WRITE A CUSTOM ESSAY SAMPLE ON ANY TOPIC SPECIFICALLY FOR YOU FOR ONLY …

In an economy, when the price level falls, consumers and firms buy more goods and services. This relationship is represented by the… Aggregate demand curve Compared with the income approach to calculating GDP, the expenditure approach is… More practical WE …

Products that would be used in calculating US GDP in 2014 would include… Cars manufactured in Tennessee in 2014 at a factory owned by a Japanese automobile company and sold in 2015 in Canada What is the general impact of …

David from Healtheappointments:

Hi there, would you like to get such a paper? How about receiving a customized one? Check it out https://goo.gl/chNgQy