Marco Final Review

scarcity

the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.

factors of production

the resources used to produce goods and services

rival goods

goods that cannot be consumed by more than one person at the same time, the consumption of one person reduces availability for others.

non-rival goods

goods that can be consumed by multiple people simultaneously without reducing availability for others.

trade-offs

the alternatives that must be given up when making a decision.

opportunity costs

the value of the next best alternative that is forgone when making a decision.

circular flow model

a visual representation of the interactions between households and businesses in an economy

capitalism (market economy)

an economic system where private individuals or businesses own capital goods.

communism (command economy)

an economic system in which the government owns and controls all means of production and resources

PPC curve

a graph that depicts the maximum feasible amounts of two goods that an economy can produce with available resources.

absolute advantage

the ability of a party to produce more of a good or service with the same amount of resources compared to others.

comparative advantage

the ability of a party to produce a good or service at a lower opportunity cost than another party

marginal analysis

evaluating the additional benefits of an action compared to its additional costs.

law of diminishing marginal utility

as a person consumes more of a good or service

total utility

the overall satisfaction or benefit derived from consuming a good or service.

marginal utility

the additional satisfaction or benefit received from consuming one more unit of a good or service.

explicit costs

the direct

implicit costs

the opportunity costs of resources already owned

accounting profit

the difference between total revenue and explicit costs incurred in production.

economic profit

the difference between total revenue and total costs

business cycle

4 parts: expansion, peak, resscession, tough

GDP

the market value of all final goods and services produced in a country

final goods

goods and services sold to the final user.

intermediate goods

goods and services that are inputs into the production of final good/service.

what´s included in GDP

CIGNx

not included in GDP

items that are not counted as final goods

net exports

exports-imports (may be negative)

nominal GDP

uses current prices during the year they were produced

real GDP

measures a country's economic output adjusted for inflation

price index

indicates how the prices have changed over time compared to a base year.

GDP deflator

a measure of the level of prices of all new

output growth

the increase in the quantity of goods and services produced by an economy over time

real GDP per capita

take real GDP and divide by population size; allows you to compare countries´ economic growth.

employed

refers to individuals who are actively engaged in work and receiving compensation for their labor.

unemployed

refers to individuals who are actively seeking work but cannot find employment; they are part of the labor force.

labor force

the sum of all employed and unemployed individuals actively seeking work.

not in labor force

refers to individuals who are not actively seeking employment and are therefore excluded from the labor force.

unemployment rate

the percentage of the labor force that is unemployed

labor force participation rate

the percentage of the working-age population that is either employed or actively seeking employment.

cyclical unemployment

a type of unemployment that occurs during economic downturns

frictional unemployment

the temporary unemployment that occurs when people are in between jobs or entering the workforce for the first time.

structural unemployment

a type of unemployment that arises when there is a mismatch between the skills workers possess and the skills needed for available jobs

discouraged worker

a person who is eligible to work but has stopped looking for employment due to a belief that no jobs are available for them.

underemployed worker

a worker who is employed part-time or in a job that does not fully utilize their skills and abilities.

natural rate of unemployment

no cyclical unemployment!

inflation

the loss of purchasing power! each dollar of income will now buy fewer goods/services than before.

demand pull inflation

so much demand for products

cost push inflation

occurs when production costs rise

consumer price index (CPI)

for an average family of four

substitution bias

occurs when consumers change their purchasing habits due to price changes

measurement bias

occurs when the method used to calculate inflation does not accurately reflect the true costs consumers face

producer price index (PPI)

a measure that examines the average changes in prices received by domestic producers for their output

expected inflation

the rate at which consumers and businesses anticipate prices to rise in the future

unexpected inflation

occurs when the actual inflation rate differs from what people anticipated

disinflation

the process of slowing down inflation

deflation

the decline in the general price level of goods and services

hyperinflation

a rapid and excessive increase in prices

classical economics

emphasizes the importance of free markets

keynesian economics

an economic theory that advocates for government intervention to stabilize the economy during recessions.

aggregate demand shifters

anything that moves CIGNX.

money multiplier

1 / MPS (remember MPS + MPC = 1)

tax multiplier

always 1 less than the money multiplier.

investment demand

high interest rates —> decrease in investment spending; low interest rates —> increase in investment spending.

short run in macroeconomics

wages are sticky

long run in macroeconomics

prices are flexible (vertical)

aggregate supply shifters

changes in production costs

long run supply shifters

any change in technology

recessionary gap

operating below full output (need to inc. gov spending

inflationary gap

operating above full output (need to dec. gov spending

problems with fiscal policy

3 types of lag; takes time to get things going.

fiscal policy

changing government spending or taxes to fix recessionary and inflationary gaps; inc/dec. government spending or dec/inc. taxes.

discretionary fiscal policy

is government spending and taxation that is implemented at the discretion of policymakers.

non-discretionary fiscal policy

automatically adjusts taxes and spending without new legislation

medium of exchange

is an item that is widely accepted as a method of payment for goods and services

unit of account

is a standard numerical monetary unit of measure that provides a consistent measure of value

store of value

is an asset that can be saved

liquidity

is the ease with which an asset can be converted into cash without affecting its market price (not=house

M1 money supply

refers to the most liquid forms of money

M2 money supply

less liquid

M3 money supply

includes M2 plus large time deposits

stocks

ownership in a company.

bonds

a loan to a company

bond pricing

inverse relationship between price of bonds and interest rates (if you´re holding onto a bond

required reserves

the required dollar value of deposits a bank must keep in their vault.

excess reserves

the amount of reserves that banks hold beyond the required minimum

asset

anything with monetary value.

liability

a debt with a monetary value

equity

what is left over (assets - liabilities)

money mulitplier

1 / reserve ratio (take initial deposit into account when calculating new money made)

monetary base

includes money sitting in bank reserves and money in circulation (often called M0)

monetary policy

what the FED does to change economy.

fiscal policy

what the GOV does to change economy.

money market graph

shows relationship between nominal IR and quantity of money; supply line moves when FED intervenes, changing the IR.

limited reserves monetary policy

buy/sell bonds

ample reserve monetary policy

dec/inc. IORB.

loanable funds market graph

shows the relationship between the interest rate and the quantity of loanable funds.

phillips curve

shows the inverse relationship between inflation and unemployment rates

quantity theory of money formula

MV=PY where MV is nominal GDP

crowding out

occurs when more government spending reduces private sector investment by raising interest rates

budget deficit

government spends more than they make.