ECN 211 Final Exam Review (Marburger ASU)

cyclical unemployment

unemployment caused by a business cycle recession

frictional unemployment

short spells of unemployment when workers are in between jobs

structural unemployment

unemployment that results from the mismatch in skills, locations, or other important characteristics between job seekers and the available jobs

natural rate of unemployment

the unemployment rate that arises from the effects of frictional and structural unemployment

macroeconomics

The study of the economy as a whole

microeconomics

the study of the individual units that make up the economy

absolute advantage

the ability to produce more of a good than another producer

comparative advantage

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

opportunity cost

what has to be given up to do something else

circular flow model

a diagram that shows the circular movement of money, resources, and goods and services among households and producers in an economy

tariffs

Taxes on imported goods

Smoot-Harvey act

Tariff in 1930, lead to massive tariff retaliation (made the depression worse)

nominal GDP

current prices x current quantity

real GDP

base year prices x current quantity

CPI

(current price x base quantities/base prices x base quantities) x 100

inflation

increase in prices

recession

period of reduced economic activity

depression

A long-term economic state characterized by unemployment and low prices and low levels of trade and investment

unemployment rate

# of unemployed/labor force x 100

bonds

Certificates of debt that carry a promise to buy back the bonds at a higher price (IOU)

stocks

shares of ownership in a company

The Fed

Federal Reserve System

How the fed increases money supply

1) decrease required reserve ratio

2) decrease interest rate on reserves

3) decrease discount rate

4) buy bonds

How the fed decreases money supply

1) increase required reserve ratio

2) increase interest rate on reserves

3) increase discount rate

4) sell bonds

How the government reduces inflation

1) decrease government spending

2) decrease money supply

3) increase taxes

How the government eliminates a recession

1) increase government spending

2) increase money supply

3) decrease taxes

functions of money

1) medium of exchange

2) unit of account

3) store of value

Money multiplier formula

1/reserve requirement x initial deposit

What affects aggregate demand?

1. Wealth effect (consumer incomes are constant, can't buy products at a higher price level)

2. interest rate effect (higher interest rates = less demand)

3. substitution bias

Government MPC

(1/1-MPC) x government spending

Tax MPC

(-MPC/1-MPC) x tax cut or increase

Phillips Curve

a curve that shows the short-run trade-off between inflation and unemployment

Quantity theory of money

M x V = P x Y

GDP

GDP = C + I + G + X - M

GDP Deflator

Nominal GDP/Real GDP x 100

Real GDP per capita

real GDP/population

labor force participation rate

(# of people in labor force/adult population) x 100

aggregate demand

the amount of goods and services in the economy that will be purchased at all possible price levels

aggregate supply

the total amount of goods and services in the economy available at all possible price levels

demand

the quantity of a good or service that consumers are willing and able to buy

supply

The quantity of something that producers have available for sale