Unit 1 Macroeconomics Exam

Ceteris Paribus

________- A Latin phrase that means while certain variables change, all other things remain unchanged.

Rational Ignorance

________- The voters choice to remain uniformed because the marginal cost of obtaining information is higher than the marginal benefit from knowing it.

Peak

________- The phrase of the business cycle in which real GDP reaches its maximum after rising during a recovery.

Scarcity

________- The condition in which human wants are forever greater than the available supply of time, goods, and resources.

Trough

________- The phase of the business cycle in which real GDP reaches its minimum after falling during a recession.

Unemployment Rate

________- The percentage of people in the civilian labor force who are without jobs and are actively seeking jobs.

Labor

________- The mental and physical capacity of workers to produce goods and services.

Investment

________- The accumulation of capital, such as factories, machines, and inventories, used to produce goods and services.

Macroeconomics

________- The branch of economics that studies decision making for the economy as a whole.

Stagflation

________- The condition that occurs when an economy experiences the twin maladies of high unemployment and rapid inflation simultaneously.

Gross Domestic Product (GDP)

________ - The market value of all final goods and services produced in a nation during a period of time, usually a year.

Long-run Aggregate Supply Curve (LRAS)

________- The curve that shows the level of real GDP produced at different possible price levels during a time period in which nominal income change by the same percentage as the price level changes.

Model

________- A simplified description of reality used to understand and predict the relationship between variables.

Crowding-out Effect

________- A reduction in the private-sector spending as a result of federal budget deficits financed by U.S. Treasury borrowing.

Recession

________- A downturn in the business cycle during which real GDP declines, and the unemployment rate rises.

Capital

________- A human- made good used to produce other goods and services.

Entrepreneurship

________- The creative ability of individuals to seek profits by taking risks and combining resources to produce innovative products.

Full Employment

________- The situation in which an economy operates at an unemployment rate equal to the sum of the frictional and structural unemployment rates.

National Income (NI)

_______- The total income earned by resource owners, including wages, rents interest, and profits. NI is calculated as gross domestic product minus deprecation of the capital worn out in a producing output.

Laffer Curve

________- A graph depicting the relationship between tax rates and total tax revenues.

Expansion

________- An upturn in the business cycle during which real GDP rises.

Public Choice Theory

________- The analysis of the governments decision- making process for allocating resources.

Marginal Analysis

________- An examination of the effects of additions to or subtractions from a current situation.

Proportional

________ or Flat Tax- A tax that charges the same percentage of income, regardless of the size of income.

Marginal Propensity

________ to Save (MPS)- The change in saving from a given change in real disposable income.

Technology

________- The body of knowledge applied to how goods are produced.

real GDP

Lagging Indicators- Variables that change after ________ changes.

Microeconomics

________- The branch of economics that studies decision making by a single individual, household, firm, industry, or level of government.

Opportunity Cost

________- The best alternative sacrificed for a chosen alternative.

Discretionary Fiscal Policy

________- The deliberate use of changes in government spending or taxes to alter aggregate demand and stabilize the economy.

Economic Growth

________- The ability of an economy to produce greater levels of output, represented by an outward shift of its production possibilities curve.

Classical Range

________- The VERTICAL SEGMENT of the aggregate supply curve, which represents an economy at full- employment output.

National Income

________ (NI)- The total income earned by resource owners, including wages, rents interest, and profits.

US Treasury

Crowding- in Effect- An increase in private- sector spending as a result of federal budget deficits financed by ________ borrowing.

Budget Multiplier

Balanced ________- An equal change in government spending and taxes, which changes aggregate demand by the amount of the change in government spending.

Flow

________- A rate of change in a quantity during a given time period, such as dollars per year.

Any natural resource

Land- ________ provided by nature that is used to produce a good or service.

Indicators

Leading ________- Variables that change before real GDP changes.

Circular Flow Model

________- A diagram showing the exchange of money, products, and resources between households and businesses.

Aggregate Supply Curve

________ (AS)- The curve that shows the level of real GDP produced at different possible price levels during a time period, ceteris paribus.

Resources

________- The basic categories of inputs used to produce goods & services.

Positive Economics

________- An analysis limited to statements that are verifiable.

Keynesian Range

________- The HORIZONTAL SEGMENT of the aggregate supply curve, which represents an economy in a severe recession.

Automatic Stabilizers

________- Federal expenditures and tax revenues that automatically change levels in order to stabilize an economic expansion or contraction; sometimes referred to as nondiscretionary fiscal policy.

government expenditures

Benefits- received Principle- The concept that those who benefit from ________ should pay the taxes that finance their benefits.

Fiscal Policy

Supply- side ________- A(n) ________ that emphasizes government policies that increase aggregate supply in order to achieve long- run growth in real output, full employment, and a lower price level.

Multiplier

Spending ________ (SM)- The change in aggregate demand (total spending) resulting from an initial change in any component of aggregate expenditures, including consumption, investment, government spending, and net exports.

final goods

Expenditure Approach- The national income accounting method that measures GDP by adding all the spending for ________ during a period of time.

Business Cycle

________- Alternating periods of economic growth and contraction, which can be measured by changes in real GDP.

Nominal GDP

________- The value of all final goods based on the prices existing during the time period of production.

Chapter 1

Introduction to Economics

Scarcity 

The condition in which human wants are forever greater than the available supply of time, goods, and resources

Resources 

The basic categories of inputs used to produce goods & services

Economists divide resources into three categories

land, labor, and capital

Land 

Any natural resource provided by nature that is used to produce a good or service

Labor 

That mental and physical capacity of workers to produce goods and services

Entrepreneurship 

The creative ability of individuals to seek profits by taking risks and combining resources to produce innovative products

Capital 

 A human-made good used to produce other goods and services

Economics 

The study of how society chooses to allocate its scarce resources to the production of goods and services to satisfy unlimited wants

Macroeconomics 

The branch of economics that studies decision making for the economy as a whole

Microeconomics 

The branch of economics that studies decision making by a single individual, household, firm, industry, or level of government

Model 

A simplified description of reality used to understand and predict the relationship between variables

Ceteris Paribus 

A Latin phrase that means while certain variables change, all other things remain unchanged

Positive Economics 

An analysis limited to statements that are verifiable

Normative Economics 

An analytics based on subjective value judgements

Chapter 2

Production Possibilities, Opportunity Cost, and Economic Growth

Opportunity Cost 

The best alternative sacrificed for a chosen alternative

Marginal Analysis 

An examination of the effects of additions to or subtractions from a current situation

Production Possibilities Curve 

A curve that shows that maximum combinations of two outputs an economy can produce in a given period of time with its available resources and technology

Technology 

The body of knowledge applied to how goods are produced

Law of Increasing Opportunity Costs 

The principle that the opportunity cost increases as production of one output expands

Economic Growth 

The ability of an economy to produce greater level of output, represented by an outward shift of its production possibilities curve

Investment 

The accumulation of capital, such as factories, machines, and inventories, used to produce goods and services

Chapter 5

Gross Domestic Product

Gross Domestic Product (GDP) 

The market value of all final goods and services produced in a nation during a period of time, usually a year

Transfer Payment 

A government payment to individuals not in exchange for goods or services currently produced

Final Goods 

Finished goods and services produced for the ultimate user

Intermediate goods 

Goods and services used as inputs for the production of final goods

Circular Flow Model 

A diagram showing the exchange of money, products, and resources between households and businesses

Flow 

A rate of change in a quantity during a given time period, such as dollars per year

Stock 

A quantity measured at one point in time

Expenditure Approach 

The national income accounting method that measures GDP by adding all the spending for final goods during a period of time

Income Approach 

The national income accounting method that measures GDP by adding all incomes during a period of time, including compensation of employees, rents, net interest, and profits

Indirect Business Taxes 

Taxes levied as a percentage of the prices of goods sold and therefore collected as part of the firms revenue

National Income (NI) 

The total income earned by resource owners, including wages, rents interest, and profits

Personal Income (PI) 

 The total income received by households that is available for consumption, saving, and payment of personal taxes

Disposable Personal Income (DI) 

 The amount of income that households actually have to spend or save after payment of personal taxes

Nominal GDP 

The value of all final goods based on the prices existing during the time period of production

Real GDP 

The value of all final goods produced during a given time period based on the prices existing in a selected base year

GDP Chain Price Index 

A measure that compares changes in the prices of all final goods during a given time period relative to the prices of those goods in a base year

Chapter 6

Business Cycles & Unemployment

Business Cycle 

 Alternating periods of economic growth and contraction, which can be measured by changes in real GDP

Peak 

 The phrase of the business cycle in which real GDP reaches its maximum after rising during a recovery

Recession 

A downturn in the business cycle during which real GDP declines, and the unemployment rate rises

Trough 

 The phase of the business cycle in which real GDP reaches its minimum after falling during a recession

Expansion 

An upturn in the business cycle during which real GDP rises

Economic Growth 

The ability of an economy to produce greater levels of output, represented by an outward shift of its production possibilities curve

Leading Indicators 

Variables that change before real GDP changes

Coincident Indicator 

Variables that change at the same time real GDP changes

Lagging Indicators 

 Variables that change after real GDP changes