Macroeconomics Midterm Exam

Macroeconomics

Study of the economy as a whole including inflation, unemployment and economic growth

Markets

 create economic wealth which allows us to trade which allows us to specialize which makes us all more productive

Business Cycle

looks at short run and long run of a nation's output of goods and services

GDP

Measures Nations output

Fiscal Policy

Tax and spending

Monetary Policy

Interest Rates and Money Supply (Run by Federal Reserve)

Marginal Analysis

Compares the costs and benefits of slightly changing things

Production Possibility Curve

Nation's consumption possibilities are limited by production possibilities, combination of goods and service a country can produce using current resources

Factors of Production

Labor, Capital, Human capital, land, natural resources, technological development, entrepreneurial abilities, institutions

Scarcity

A situation in which unlimited wants exceed limited resources available to satisfy those wants

Opportunity Cost

The highest valued alternative that must be given up to engage in that activity or is given up because of the choice or decision

Competition

compete in a self interested way to increase our ability to control scarce resources for our personal or family wants

Production Possibility Frontier

combinations of goods using resources fully 

Diminishing Returns

smaller profits or benefits derived from something as more money or energy is invested in it

Natural Resources and tradeoffs

 industrialization made everything way more productive, most vital event in human history

Systemic technological change

Technical change impacting the entire macroeconomy

Extensive Growth

increase in overall output

Intensive Growth

Increase in output per person

Absolute advantage

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

Comparative Advantage

producing a good at a lower opportunity cost compared to another entity (needs trade)

Production Possibility Frontier

shows all the combinations of goods that a country can produce given its productivity and supply of inputs

Angus Deaton

globalization is the greatness systematic reduction of poverty ever Even developed nations benefit from trade because making shitty goods is a huge cost

Mercantilism

a country's economic wealth and power is tied to gold and in the absence of gold and silver inflows maximizing net exports is the best route to national prosperity

Smithian Growth

• Need capitalism for this

• Market development allows greater specialization of labor

• Greater specialization of labor increases labor productivity

• Labor productivity is tied to market development which drives long term economic growth

First Law of Demand

Lower the price, the greater quantity demanded while holding everything else constant

Real income Effect

the change in demand for a gooSd or service due to a change in a consumer's real income

Substitution Effect

how consumers change their demand for a product in response to price changes

Substitute

product that can be used in the place of another

Compliment

product that goes will with another product

Normal Goods

increase in income increase in demand

Inferior Goods

 increase in income decrease in demand

Substitute investments

 Real estate, foreign currencies, commodities, financial assets

Primary capital market

initial sale of stocks and bonds

Secondary market

reselling of existing stock and bonds

Financial Security instrument

a document that sets forth the terms upon which the buy of the security is willing to transfer money to the seller

Bonds

are debt instruments, and the amount to be payed is fixed, it is always a certain face amount of the bond and the final payment at maturity date

Supply curve

shows relationship between the quantity supplied of a good or service at various prices, holding all other factors that impact supply constance

Supply shifters

technological change, prices of inputs/costs of resources, expectations, change in number of producers, changes in opportunity costs, natural disasters

Changes in quantity supplied

when producers are willing to supply a different quantity at a specific price level due to a price change, essentially moving along the supply curve 

Changes in supply

This happens when the entire supply curve shifts, indicating that producers are willing to supply a different quantity at every price level due to factors other than price. 

Surplus

Excess Supply

Shortage

Excess demand

Equilibrium quantity

Quantity supplied and quantity demanded at the equilibrium price

Yield curve

relationship between interest rates and the maturity date of a bond

Inverted yield curve

means short term rates are higher than long term rates, predictor of recession

Nominal GDP

the market value of all final goods and services produced in an economy during a period of time

Real GDP

Nominal GDP adjusted for inflation