macro midterm

Chapter 1: 

• Factors of production- are resource inputs used to produce goods and services (land, labor, capital, and entrepreneurship)

• Scarcity- lack of enough resources to satisfy all desired uses of those resources 

• opportunity cost- the most desired goods and services that are foregone to obtain something else

• Invisible hand- market sales and prices convey the message and dried the market 

• Laissez-faire- the doctrine of “leave it alone,” of nonintervention by the government in the market mechanism

• Market failure- a situation in which the market mechanism generates suboptimal economic outcomes

• government failure- occurs when government intervention fails to improve economic outcomes

• Ceteris paribus- is the assumption that nothing else changes

Chapter 2:

• GDP, definition, and calculation- is the total value of final goods and services produced within a nation’s borders in a given time period (usually one year) 

• Nominal vs. real GDP- nominal: the total value of goods and services produced within a nation’s borders, measured in current prices. Real: the inflation-adjusted value of GDP; the value of output measured in constant prices 

• The role of government (playing a role in what, how, and for whom- the three central economics questions)- providing a legal framework; protecting consumers; protecting labor; protecting the environment 

• Income mobility- one of the most distinctive features of the U.S. income distribution is how often people move up and down the income ladder 

Chapter 3: 

One basic price floor/ price ceiling question- 

Chapter 4: 

• Free rider dilemma- an individual who reaps direct benefits from someone else’s purchase (consumption) of a public good. Wants others to pay for the public good but still benefit from it. 

• The four causes of market failure 

  • Public goods, externalities, market power, inequity

• Market failure- is an imperfection in the market mechanism that prevents optimal outcomes. Establishes a basis for government intervention

Chapter 5: 

• GDP calculation- GDP= C+I+G+(X-M)

• GDP vs. GNP: geographically focused, including all output produced within a nation’s borders regardless of whose factors of production are used to produce it. GNP refers to the output produces by American owned factors of production, regardless of where they’re located.

Chapter 6

• Unemployment- the inability of labor force participants to find jobs 

• Types of unemployment- seasonal unemployment, frictional unemployment- brief periods of unemployment experienced by people moving between jobs or into the labor market, structural unemployment- caused by a mismatch between the skills (or location) of job seekers and the requirements (or location) of available jobs, cyclical unemployment- attributable to the lack of job vacancies- that is to an inadequate level of aggregate demand

• How unemployment is measured: 

  • actively seeking work: must be looking for a job in the last 4 weeks 

  • Available to work: read and able to start a job 

  • Currently employed: do not currently have a job 

• Unemployment calculation- number of unemployed people/ labor force 

• Labor force vs. not in the labor force- the labor force is made up of the employed and the unemployed. People who are neither employed nor unemployed are not in the labor force. 

• Defining full employment, FE goal of the government

Chapter 7:

• Inflation- is an increase in the average level of prices of goods and services 

• Deflation- is a decrease in the average level of prices of goods and services

• Nominal income vs. real income 

  • Nominal income- is the amount of money income received in a given time period, measured in current dollars

  • Real income- is income in constant dollars

• CPI- is a measure of changes in the average price of consumer goods and services

• Inflation rate- is the annual rate of increase in the average price level

• Process of measurement- inflation rate= price level year 2- price level year 1/ price level year 1 

• The market basket- identifies a market basket of goods and services the typical consumer buys

  • Housing 

  • Food 

  • Transportation 

  • Entertainment 

  • Clothing 

  • Healthcare 

  • Education and communication 

  • Miscellaneous 

• GDP inflator 

• Demand-pull inflation- results from excessive pressure on the demand side of the economy 

• Cost-push inflation- results from higher production costs putting pressure on suppliers to push up prices 

• Goal of inflation- 3%