EC211 All Test Qs

circular flow diagram

firms and households, market for goods and services. market for factors and projection.

production possibilities frontier (ppf)

2 goods, on the curve=efficent, below the curve=inefficent, above=impossible.

Microeconomics

Households and firms interacting and making decisions.

Macroeconomics

Economy-wide phenomenon. deals with unemployment, inflation, interest rates, andeconomic grants.

positive statement

statement of fact

statement of fact

proven or disproven

Normative statement

Subjective

Ceteris Paribus

other things remain constant

post hoc ergo propter hoc

follows, therefore, because of

Absolute advantage

the ability to produce a good using fewer inputs than another producer

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

absolute advantage (party)

one party can have absolute advantage

Rare

relatively few

scarse

Have to give something up

Market

Interaction of buyers and sellers

Lots of buyers and sellers

Lots of buyers and sellers

How are price and quantity determined?

interaction of buyers and sellers

perfectly competitive market

All goods the same, cant sell for more than market price.

quantity demanded

amount of a good that a buyer purchases

variables that shift demand

income, price of related goods, tastes, expectations, number of buyers.

normal good

steak and lobster

inferior good

ramen

substitute

gatorade/powerade

complement

hot dog/hot dog bun

demand

every possible QD

variables that shift supply curve

input prices, technology, expectations, number of sellers

More sellers

=more supply

Good

somethng we want more of

bad

something we want less of

economics assumes people:

are rational thinkers, self interested.

Efficiency

size of the economic pie

equality

how the pie is divided

Methods of rationing:

Divide equal, first come first serve, need, lottery, survival of the fittest, merit, money prices

marginal

extra, additional, incremental

Adam Smith

father of economics, the invisible hand

market failure causes

market power and externalities

externalities

impact of a persons actions on the well being of a bystander

Equalibrium

qs=qd

steps to graphing

1. set up graph 2. if possible do what question says 3. use acronym 4. determine direction

InPorTEN

income, price of related goods, tastes, expectations, number of buyers. -shifts demand

InPrTEN

Input prices, technology, expectations about future, # of sellers. -shifts supply

Elasticity

Responsiveness

price elasticity of demand

how much the quantity demanded responds to a change in price

elastic

responsiveness

Inelastic

unresponsive

unit ellastic

sweet spot

Do you understand the concept of consumer surplus? Where is it found on a graph?

The value customers het from participating in a market

Consumer surplus is the area above D and above P

Do you understand the concept of producer surplus? Where is it found on a graph?

How much it costs a producer to make it compared to how much they are willing to sell

Producer surplus is below P and above S

Can you explain who benefits and who is harmed from importing, exporting and tariffs?

Imports: Domestic consumers benefit, domestic producers are harmed

Exports: Domestic producers, domestic consumers are harmed

Tariffs: Domestic government/producers, domestic consumers are harmed

Can you explain the results of tariffs?

A tax on imported goods, prices go up

Can you explain the benefits of international trade?

Increased variety of goods

Lower cost through economies of scale

Increased competition

Enhanced flow of ideas

1. Can you explain some arguments for restricting trade?

Protects local jobs

National security

Infant industry

Unfair comparison

1. Can you explain NAFTA, GATT, WTO and TPP and when each came about?

NAFTA: (North American Free Trade Agreement) Came about in the 1990s (Clinton Administration)

GATT: (General Agreement on Tariffs and Trades) Created at the end of WWII

WTO: (World Trade Organization) Oversees GATT

USMCA: Replaced NAFTA during the Trump Administration

TPP: (Trans Pacific Partnership) Created during the Obama administration

1. How would you define transaction costs?

Costs of arranging agreements between buyers and sellers

1. Do you like middlemen? Why / Why not?

Middlemen lowers our costs

1. Describe the three basic forms of business organization including advantages/disadvantages of each.

Sole Propritorship

· Advantage: Simple Disadvantage: Unlimited liability

Partnership

· Advantage: More exports, more funding Disadvantage: Unlimited liability, dealing with partners

Corporation

· Advantage: Limited liability Disadvantage: Expensive, double taxation

1. Explain the difference between primary and secondary financial markets.

Primary: Corporations issue new equity

Secondary: Person to person buying stocks

1. Describe the two financial intermediaries described in your textbook.

Banks and Mutual funds

1. Name the five financial calculator keys and explain the meaning of each and when they are used.

N = Number of periods

I = Interest rates

PV = Present Value

PMT = Payment

FV = Future value

1. Can you explain the advantages of an open economy vs. a closed economy?

Open: Trading with others

Closed: Not trading with others

1. Can you define the terms import and export?

Import is bringing in goods from another country

Exports is sending out goods to another country

1. Can you explain the terms trade surplus and trade deficit?

Trade surplus: Export more than you import

Trade deficit: Import more than you export

1. What is the current unemployment rate in the U.S.? What was this rate in 2009? In 1933?

Current: 4%

2009: 10%

1933: 25%

1. What is another term that means "net exports?"

Trade Balance

1. Is the U.S. currently a net importer or a net exporter?

The U.S. is currently a net importer

1. Can you fully explain the concept of purchasing-power parity?

An economic theory used to estimate exchange rates

1. According to the most recent CPI data, what is the current year-on-year inflation rate in the U.S.?

3.5%

1. What is the Fed's current target rate of inflation?

2.0%

1. According to our roleplay, who benefits directly from an increase in the minimum wage and who does not directly benefit?

The government and minimum wage workers if they don't get fired

1. What kind of costs always happened in the past and are always non-recoverable?

Sunk cost ( should never ever enter decision making)

· Always happened in the past

· Non-recoverable

Basics of Keynesian Economics

-Aggregate Demand

-Demand > Supply

-Government Intervention is necessary

-Prices and wages are not always flexible

Why should we aggregate demand

inadequate demand can lead to unemployment and recession

What is a price ceiling? Give examples

The maximum amount that a seller is allowed to charge for a product

Price gouging laws, rent control

1) What is a price floor? Give an example.

How low a price can be. Minimum wage

1) What is the difference between binding and non-binding price controls?

Binding is takes effect, non-binding is no effect

1) Fully explain the concept of tax incidence.

How the tax burden is shared between buyer and seller.

There is zero correlation between who writes the check and who bears the burden

1) What is the difference between macroeconomics and microeconomics?

Macro is the economy wide phenomenon, micro is households and firms

1) Fully explain the concept of GDP.

(Gross Domestic Product) The market value of all final goods and services. The single best measure we have of the economic well being of a society

1) What is the equation for GDP and what do the components represent?

Y=C+I+G+NX

Y= GDP

C= Consumption

I= Investment

G=Government purchases

NX = Net Exports

1) What is the difference between real GDP and nominal GDP?

Real GDP is adjusted for inflation, Nominal isn't

1) What is the CPI and how is it calculated?

Consumer Price Index, The current cost of the basket is compared to its cost in the prior year, and then multiplied by 100 to determine the percentage.

1) What is the PPI? How does it relate to the CPI?

Producer Price Index, Good indicator for predicting CPI

1) What is the difference between the nominal interest rate and the real interest rate?

Nominal is the actual price

Real takes into account inflation

1) Fully explain the types of unemployment described in your text.

Structural (Not enough jobs)

Frictional (takes time)

1) Fully explain the concepts of labor unions described in your text.

Collective bargaining

Typically earn 10-20% more

1) Fully explain the concept of efficiency wages.

Above equilibrium wages paid by firms to increase productivity

1) Fully explain the functions of money.

A medium of exchange

A unit of account

A store of value

1) Explain the difference between commodity money and fiat money.

Commodity money has intrinsic value

Fiat money is by decree

1) Describe the components of M1 money supply discussed in lecture.

The most liquid measure of money supply

Currency

Demand deposits/Checking deposits

Savings deposits

1) Explain the two main jobs of the U.S. central bank discussed in this course.

Oversee commercial banks

Control money supply

Mandate (Price stability and maximum employment)

1) Explain the difference between monetary policy and fiscal policy.

Monetary policy is setting the money supply

Fiscal policy is the budget supply

1) Fully explain the tools of the Federal Reserve.

Open market operations

Lending to banks

Reserve requirements

Paying interest on reserves

1) Explain the difference between the discount rate and the federal funds rate.

Discount rate the interest rate that the central banks lend to banks

Federal funds rate is the interest rate that banks charge to other banks

1) Traditionally (in your lifetime), how has the Fed most often raised or lowered interest rates?

Through open market operations

1) How do you identify binding vs. non-binding floors and ceilings on a graph?

Only a floor above equilibrium and a ceiling under equilibrium is binding

1) What is the formula given in this course to calculate the unemployment rate?

Unemployed/Labor force x 100

1) Fully explain the concept of a fractional-reserve banking system.

banks that take deposits from the public keep only part of their deposit liabilities in liquid assets as a reserve, typically lending the remainder to borrowers.

1) Who is the current chairperson of the Federal Reserve?

Jerome Powell

1) Who is the current Treasury Secretary?

Janet Yellen

1) What is the current, approximate inflation rate in the U.S.?

3-4%