Econ Exam 1

Nominal GDP

value of current prices of total income of final output of goods/services of economy

Nominal GDP

_____ = prices x quantities of goods/services

prices

Nominal GDP = ____ x quantities of goods/services

quantities of goods/services

Nominal GDP = prices x _____

Real GDP

measures only the quantities of final output goods/services

Real GDP per capita

average income per person per year

Real GDP per capita

____ = real GDP/population

Real GDP

Real GDP per capita = ____/population

population

Real GDP per capita = real GDP/___

tech

industrial revolution resulted in ____ innovations

rise

industrial revolution resulted in a ____(rise/fall) of capitalism

great divergence

some people became rich while other remained poor

increased

the great divergence ____(increased/decreased) income inequality

income

the great divergence increased ____ inequality

creative destruction

innovations result in winners(innovator) and losers(products made obsolete by innovation)

dynamic

losers of creative destruction who have political power can block technological innovation, however that makes capitalism less ___

Boom/bust cycle

economies experiencing growth “booms” must also be subject to “Busts”(recessions, depressions, slumps)

bust

recessions, depressions, and slumps are all examples of the ___ cycle

financial bubble

unsustainable increase in asset prices

financial panic

rush by wealth holders to sell risky assets for safe assets

increase

financial bubbles: unsustainable ____(increase/decrease) in asset prices

risky, safe

financial panic: rush by wealth holders to sell ________ assets for ___ assets

organizations, markets

2 institutions of the economy

hierarchy

Organizations are based on a ____ structure

markets

a way for people and organizations to exchange goods with other people and organizations

markets

voluntary transactions, subject to competition, terms depend on relative bargaining power and alternative outside options are characteristics of ____

market discipline

to survive a firm needs cash inflows(revenue) __>__ cash outflows(costs)

0

market discipline: to survive, average profits __>__ ____

cash inflow

market discipline: ____ __>__ cash outflow

cash outflow

market discipline: cash inflow __>__ ____

revenue

cash inflow represents ____

costs

cash outflow represents ____

capitalism

a system dominated by capitalist firms

capitalist firms

________ ____ are organizations characterized by owners, workers, goal of owners is to make a profit, and quest for profits creates an incentive to innovate

owners

capitalist firm consists of: ____ of capital(equipment, structures, intellectual property)

workers

capitalist firm consists of: ___ - hired/managed by owners/managers hired by owners

commands

capitalist firms: owners/managers issue ___ to workers to get them to cooperate w each other and coordinate their behavior

cooperate, coordinate

capitalist firms: owners/managers issue commands to workers to get them to __ w each other and ___ their behavior

make a profit

capitalist firm characteristic: goal of owners is to ____ *_ _____*

profit

capitalist firm characteristic: goal of owners is to make a profit, where ____ = revenue - costs

revenue

capitalist firm characteristic: goal of owners is to make a profit, where profit = ____ - costs

costs

capitalist firm characteristic: goal of owners is to make a profit, where profit = revenue - ___

innovate

capitalist firm characteristic: quest for profit creates an incentive to ___

productivity

organization of hierarchy w/ different specialized tasks at different levels helps to increase ____

capitalist

worker-owned firms, nonprofits, governments, and families are all non-____ organizations

law of diminishing returns

1st malthusian model assumption

subsistence wage

2nd malthusian model assumption: _____ & population growth

population growth

2nd malthusian model assumption: subsistence wage & ____

subsistence wage

lowest wage necessary for survival

law of diminishing returns

___ __ _______ _____assumes that as # of workers increases, output also increases at a diminishing rate

increases, increases

law of diminishing returns assumes that: as # of workers __(increases/decreases), output also _____(increases/decreases) at a diminishing rate

decreases, increases

law of diminishing returns means that(holding all else fixed): APL(y/n) ____(increases/decreases) as # of workers _____(increases/decreases)

>

IF w/p > (w/p)sub THEN population growth _ 0

>

IF w/p _ (w/p)sub THEN population growth > 0

<

IF w/p _ (w/p)sub THEN population growth < 0

<

IF w/p < (w/p)sub THEN population growth _ 0

=

IF w/p _ (w/p)sub THEN population growth = 0

=

IF w/p = (w/p)sub THEN population growth _ 0

increasing

if population growth > 0, the population is ____(increasing/decreasing/same)

decreasing

if population growth < 0, the population is ____(increasing/decreasing/same)

same

if population growth = 0, the population is ____(increasing/decreasing/same)

>

if population is increasing(>0), then the birth rate is _ the death rate

<

if population is decreasing(

=

if population is same(=0), then the birth rate is _ the death rate

increase, >, >, increase

result of a one-time tech innovation on malthusian model: y/n ___(increase/decrease) → w/p _(</>) (w/p)sub → population _(</>) → ____(increase/decrease) in population

decrease, decrease, =, =

effect of one-time tech innovation on Malthusian model: increase in APL and real wages resulting in an increased population are resolved in the model by: ____(increase/decrease) y/n → ___(increase/decrease) w/p until w/p _ (w/p)sub → population growth _ 0

higher, subsistence

result of one-time tech innovation on malthusian model: new equilibrium with a ____(higher/lower) population but wages have returned to _____

continual

____ tech advancements break the malthusian trap because diminishing returns cannot occur

demographic transition

even as income increases, economic reasons for having children decreases

demographic

____ transition breaks the malthusian trap because it can no longer hold its population growth assumptions

increases, decreases

demographic transition: even as income (increases/decreases), economic reasons for having children (increases/decreases)

increases, decreases, =

demographic transition: as w/p(increases/decreases), at some point the fertility rate(increases/decreases) → population growth _ 0

Malthusian trap

even with tech advancements - assumptions 1 & 2 work together to make w/p = (w/p)sub w/ a now higher population

increases, >,>, increases, decreases, decreases, =, =

Malthusian trap flow diagram: tech innovation → y/n(increases/decreases) →w/p _ (w/p)sub → population growth _ 0 → population(increases/decreases) → y/n(increases/decreases) due to law of diminishing returns → w/p(increases/decreases) until w/p (w/p)sub → population growth _ 0

innovation rents

high profits due to new technology(consumers & workers benefit)

increase

creative part of creative destruction: (increase/decrease) average standard of living

standard of living

creative part of creative destruction: increase average _____ __ _____

destructive

(creative/destructive) part of creative destruction: results in losses by incumbent firms, shut downs, loss of wealth, and unemployment

increase, increase

no barriers to entry: innovation rents induce adoption of new tech → (increase/decrease) output & (increase/decrease) employment → decrease prices & decrease profits

decrease, decrease

no barriers to entry: innovation rents induce adoption of new tech → increase output & increase employment → (increase/decrease) prices & (increase/decrease) profits

optimal choice

the answer to the question of how to spend the productivity dividend

productivity dividend

optimal choice is the answer to the question of how to spend the _____ ______

increase, increase

Industrial Revolution → tech innovations → (increase/decrease) y/n → (increase/decrease) opportunity for either C or FT

optimal choice

______ _____ made up of: constraint, preference, and choice

c = w(24 - FT)

Budget constraint equation

q of c

y- axis of the budget constraint

q of FT

x-axis of the budget constraint

q of y

y-axis of production function

q of n

x-axis of production function

q of w/p

y-axis of population/subsistence malthusian graph

transformation

slope of constraint = marginal rate of ______

MRT

slope of constraint abbreviation

FT, C

Moving up on MRT transforms ____(FT/C) to ___(FT/C)

C, FT

Moving down on MRT transforms ____(FT/C) to ___(FT/C)

indifference curve

curve showing combinations all resulting in the same level of utility

MRT

____ represents actual possible tradeoffs

MRS

____ represents willingness to make tradeoffs

utility

all points on an indifference curve share the same level of ____

substitution

slope of indifference curve = marginal rate of ____

MRS

abbreviated for slope of indifference curve