Principles of Macroeconomics - Chapter 2
Terms
undefined, object
copy deck
-
What do economists use as a substitute for a laboratory when applying the scientific method.
Give an example. -
Natural experiments offered by history.
An example is the war in the middle east which interrupted the flow of crude oil, causing oil prices to skyrocket around the world. - What is the Circular-Flow diagram?
- The circular flow diagram is a visual model of the economy. It includes only two types of decision-makers: households and firms.
- In the Circular-flow diagram, what role do firms play?
- Firms produce and sell goods and services. Firms hire and use factors of production.
- In the circular-flow diagram, what role do households play?
- Households buy and consume goods and services. Households own and sell factors of production.
- In the circular-flow diagram, what are factors of production?
- Factors of production include labor, land and capitol ( buildings and machines ).
- In the circular flow diagram, what are the two markets in which households and firms interact?
- The market for goods and services and the market for factors of production.
- What does the inner loop of the circular flow diagram represent?
- The flow of inputs and outputs. Inputs and outputs are the use of factors of production and goods and services.
- What does the outer loop of the circular flow diagram represent?
- The flow of dollars
- In the circular flow diagram, in what form do dollars flow from firms to households?
- Dollars flow from firms to households as income ( wages ), rent ( use of land & capital ), and profit ( paid to owners of firms who are members of households ).
- What is the production possibilities frontier?
- The production possibilities frontier is a graph that shows various combinations of output that the economy can produce given the constraints of raw material and production technology.
- What is an efficient outcome?
- An efficient outcome is one in which the economy is getting all it can from the scarce resources it has available.
- In the production possibilities frontier, what characterizes an efficient outcome?
- An efficient outcome is represented by a point that lies on the production possibilities frontier ( rather than inside the frontier ).
- In the production possibilities frontier, what characterizes an inefficient outcome?
- An inefficient outcome is represented by a point that lies inside the production possibilities frontier.
- What is microeconomics?
- Microeconomics is the study of how households and firms make decisions and how they interact in specific markets.
- What is macroeconomics?
- Macroeconomics is the study of economy wide phenonoma.
- How is "positive analysis" different from "normative analysis" ?
- Positive analysis consists of descriptive statements that say how the world is. Normative analysis consists of prescriptive statements that tell how the world ought to be.
- In addition to facts, what is needed to evaluate normative statements?
- Evaluating normative statements involves values as well as facts.
- What is the Council of Economic Advisers?
- The Council of Economic Advisers consists of three members and a staff of several dozen economists. Its only duties are to advise the president and to write the annual "Economic Report of the President"
- What do economists at the Department of the Treasury do?
- Economists at the Department of the Treasury help design tax policy.
- What do economists at the Department of Labor do?
- Economists at the Department of Labor analyze data on workers and those looking for work in order to help formulate labor-market policies.
- What do economists at the Department of Justice do?
- Economists at the Department of Justice help enforce the nation's antitrust laws.