Macroeconomics Final

ECO 231 CCC

What is opportunity cost and how is it calculated?

Opportunity cost: what you give up to get something

Calculating: how much do you have to give up to get the new thing

How to determine the point of most efficient production on a PPF?

The points that are on the curve are all equally efficient

What is a shortage and what is a surplus?

Shortage: demand > supply

Surplus: supply > demand

Equilibrium quantity

Supply = demand

Downward slope of demand curve

As quantity demanded rises, price decreases

A change in price results in?

movement along supply/demand curve

Excess demand

quantity demanded exceeds quantity supplied

Decrease in demand

curve shifts left

Supply shifts left

costs of production have increased

Price ceilings below equilibrium cause

shortages

What is used to compute GDP?

FINAL goods and services that are purchased by the consumer

What is consumption?

purchase of goods and services by households

When compared GDP between countries, you must use?

an exchange rate

Investments in the GDP calculation include?

investments in factories and machines

Gap between imports and exports for a country is called

trade balance

The value of what is produced per worker per hour is

productivity

How can a nation achieve higher economic growth?

focuses more resources an R&

What does the unemployment rate tell us

what percent of the labor force is unemployed

Who is included in the labor force?

those looking for jobs and those with jobs

doesn’t include those not looking for jobs without a job

What is frictional unemployment?

unemployment due to relocating or trying to find a better job

What is cyclical unemployment?

due to a recession

are students in the labor force

no

What is inflation?

the level of all prices increase

Calculating inflation based off of price index

(new CPI - old CPI) / (old C
PI)

Real value vs nominal value

real value is adjusted for inflation

If something is automatically adjusted for inflation, it is

indexed

What are the effects of inflation seen in?

goods, services, wages, income

Calculating growth rate

(current GDP - old GDP) / old GDP

GDP per capita

divide GDP by the

unemployment rate

unemployed / labor force

labor force participation rate

labor force / population

How to calculate growth in spending by using a graph

Growth in spending = Inflation rate + Real GDP Growth Rate

What is something that would shift LRAS to the right?

improvements/new tech

Solow growth model

long run steady state

saving money/increasing capital produces ZERO growth in output per worker/productivity

tech progress leads to growth

A negative real shock affects a graph how?

LRAS shifts to the left

Graph of AD (M*v), LRAS, SRAS, Growth rate, and Inflation

Inflation = AD/spending growth - growth rate

In short run, an increase in growth rate of money supply

shifts AD to the right

As reserve requirement rises

money multiplier decreases

Fed can change money supply most effectively when

banks have low reserves and money multiplier is large

If economy is growing too fast, the fed should

raise interest rates to decrease borrowing

How gov can avoid a short run recession if the AD curve is below eqm?

increase gov spending to shift AD curve to the right

Fixing a recession with fiscal policy

gov raises expenditures and lowers taxes to increase AD

Increase in gov borrowing can?

crowd out private investment in physical capital

Where do people/firms swap currency?

foreign exchange market

a large scale common currency example

euro

if currency is depreciating it is

weakening and is worth less in terms of other currencies

what equalizes the prices of international traded goods

purchasing power parity

exchange rate can be used to analyze the prices of currencies in terms of another currency using

tools of demand and supply

if a currency A depreciates against another currency B that means

less of currency B can buy the same amount of currency A

movements in exchange rate effect?

incentives to import/export

aggregate demand in the economy

if two nations merge to a single currency they give up?

the ability to determine their own national monetary policy

If the US dollar weakens

US firms selling abroad will benefit

foreign firms selling in the us will be hurt

foreign investors are hurt

countries exporting to the us are hurt