ECON202 Study Checklist Exam 1

What role does abstraction play in economics?

Abstraction simplifies complex real-world situations to create models that can help analyze economic behavior.

What is the difference between positive and normative statements?

Positive statements are objective and can be tested, while normative statements are subjective and based on opinions or beliefs.

What are the key assumptions that differ between Classical and Keynesian AD/AS models?

Classical models assume flexible prices and full employment, while Keynesian models assume prices are sticky and can lead to unemployment.

Why did Keynesian ideas gain prominence during the Great Recession?

The economic downturn highlighted the need for government intervention to stimulate demand and support the economy.

What is GDP?

GDP (Gross Domestic Product) measures the total economic output of a country within a specific time period.

What are the three ways GDP can be calculated?

The three methods are the output (production) method, income method, and expenditure method.

What is the difference between real and nominal GDP?

Real GDP is adjusted for inflation, providing a more accurate reflection of an economy's size, while nominal GDP is not adjusted.

What is a price index?

A price index measures the average change over time in the prices paid by consumers for goods and services.

What is the CPI and why do some say it overstates inflation?

The Consumer Price Index (CPI) measures inflation based on a basket of goods, and some argue it overstates inflation due to substitution bias.

What types of unemployment are there and how do they differ?

Frictional unemployment occurs during transitions, structural unemployment is due to changes in the economy, and cyclical unemployment is caused by economic downturns.

What is the Natural Rate of Unemployment?

It's the level of unemployment consistent with a stable economy, where all unemployment is frictional or structural, with no cyclical unemployment.

Why is GDP per capita a more useful measure for describing growth?

GDP per capita provides insight into the average income and economic well-being of individuals in a country.

What is the rule of 70?

The rule of 70 is a formula used to estimate the number of years required for a variable to double, by dividing 70 by the annual growth rate.

What are the main sources of productivity growth?

The main sources are technological advancements, increased capital stock, and improved labor skills.

What is the convergence hypothesis?

The convergence hypothesis suggests that poorer economies will tend to grow at faster rates than richer ones, leading to a reduction in income disparities.

How do East Asian, Latin American, and African countries differ in terms of growth?

East Asia often shows high sustained growth due to export-led strategies, Latin America varies greatly due to commodity reliance, and Africa often faces structural challenges impacting growth.

How do ecological economists differ from mainstream macroeconomists?

Ecological economists prioritize environmental sustainability and believe markets may not effectively address ecological issues, unlike mainstream economists who may be more optimistic about market solutions.