Macroeconomics Midterm
Terms
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- What are some reasons for a shift in demand?
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1. Income
2. Prices of related goods in consumption (substitutes, compliments)
3. Expected change in future prices (ex. gas)
4. # of buyers
5. Other non-monetary factors - Law of Demand
- As Price increases, demand with decrease
- Why the demand curve points down?
- substitution, income effect, and law of diminishing marginal utility
- Why the supply curce faces upwards?
- Profit motives, and methods of production
- What are some reasons for a shift in supply?
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1. technological change
2. input prices
3. prices of related goods (ex. automobile companies, with different models, still use same materials)
4. # of suppliers
5. other non-monetary factors
*govt actions, weather, strikes, war, etc. - What is Market Equilibrium?
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Where Quantity supplied equals Quantity demanded
(supply and demand curves intersect here) - 2 different ways to measure national output
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GDP - gross domestic, total market value of all goods and services produced in the domestic economy of a geographic border
GNP - gross national, total market value of all goods and services produced by the citizens of an economy - GDP
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= C + I + G + ( X - M )
*exports raise GDP
*imports drop GDP
- not a measure of social welfare, only of production -
GDP = c + i + g + (x-m)
what does each stand for? -
Gross Domestic Product =
consumption (household sector)
investment (business sector)
govt spending (govt sector)
exports (foreign sector)
imports - Final Goods vs. Value Added
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Final Goods: you only count the final product, for ex. dont count steel, you would count the cars using the steel
Value Added: in each stage of production
**both eliminate double counting - What is economics?
- The study of the allocation of scarce resources among competing uses so as to maximize satisfaction
- the idea of scarce resources
- problem - people's wants grow faster than resources
- What are 4 resources?
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Land (rent)
LAbor (wages)
Capital (interest)
Entrepreneurship (profit) - What are the differences between the 2 different branches of econ?
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Micro - the parts (ex. industry decisions)
Macro - the whole (ex. looking at the U.S. economy, unemployment rates, inflation rates, etc.) - What are models?
- they are a simplification of reality, and help us to understand what is happening, as well as predict for the future
- What is Adam Smith's invisible hand?
- the idea that individuals only acting in their self-interest, unknowingly promote the society's best interest
- What are the assumptions made in the Production Possibilties Frontier?
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- that there are 2 goods
- there's a given level of technology
- you start with a base of resources
- resources are transferable
- but not perfectly transferable - What three situations can you be in with the PPF?
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Unattainable- outside/above the line on the graph, you need to increase technology or resources and grow economically
Attainable - on the line, you are at full production and efficiently working
Attainable - inside the graph, but not perfect, some are unemployed and you could be more efficient - What is the law of supply?
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as price increases, producers will produce more than at lower prices
*because of profit motive and how they produce items - How do you measure the unemployment and employment rates?
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unemployment = unemployed / labor force
employment = # employed / population - what are some causes for Unemployment?
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Frictional
Structural
Cyclical
Seasonal - Frictional
- it takes time to locate a job
- Structural
- there are not enough of the "right" jobs; mismatch of skills required by the jobs and what those people seraching can do
- Cyclical
- inadequate # of total jobs caused by poor overall economic performance (business cycle)
- Seasonal
- fluctuations in economic activity due to the change of the seasons