Econ 201: Study Guide 2
51 Cards in this Set
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to say that demand for a good is elastic it means that
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a 1% rise in price results in a drop in quantity demanded by more than 1%
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If a good has a price elasticity of demand of 0.5, this means that if price changed by 6%, quantity demanded would change by ____.
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3%
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If a good has a price elasticity of demand of 3, this means that if price changed by 6%, quantity demanded would change by ____.
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18%
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a good generally tends to be more elastic (elastic of demand)
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if the good is a luxury
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if a good is a necessity with no close substitutes then demand will most likely be
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very inelastic
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if demand for a good or service is elastic then an increase in price will lead to
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a decrease in revenue because the increase in price will be outweighed by the loss in quantity demand
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What is the official formula for the price elasticity of demand
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Ed = %ΔQd / %ΔP
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midpoint formula for price elasticity of demand
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Ed= [ΔQd/avgQd] / [ΔP/avgP]
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gross domestic product:
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the value of all final goods and services produced within an economy in a given year
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when policy-makers and news organizations talk about the "size of the economy", what are they referring to?
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GDP
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which agency is in charge of calculating/reporting the US GDP?
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Bureau of Economic Analysis
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If the general price level of new goods and services increases from year 1 to year 2 while the quantity of goods produced remains the same, what happens to nominal and real GDP?
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nominal will rise; real will stay the same
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If the general price of new goods and services falls from year 1 to year 2 while the quantity of goods and services produced rises, what happens to the nominal and real GDP?
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change in nominal GDP cannot be determined, real GDP will rise
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Mr. Smith buys a new american made widget for his house. how does this transaction affect the US GDP
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through the consumption component
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mr smith buys a new american made widget for his business. how does this affect US GDP
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through the investment component
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mr smith buys a used american-made widget for his house. how does this transaction affect US GDP
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this transaction would not affect the US GDP
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Suppose at the end of the year, Ken's Kars has 10 new Ford cars left on the lot that wen unsold. Each car is $15,000. How does this affect GDP and through which component?
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GDP increases by $150,000 and it shows up in the Investment component
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When Policy makers and the news reports that "the economy is expanding," this means that during the last period
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real GDP increased at the potential rate or faster
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When policy makers and news reports that "the economy contracted" this means that during the last period
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real GDP increased slower than the potential rate or decreased
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what are the stages of the business cycle in correct order?
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peak, contraction, trough, expansion
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Which government agency is in charge of calculating and reporting the nation's unemployment figures?
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Bureau of Labor Statistics
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Where are children under 16 counted by the BLS when calculating unemployment figures?
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They aren't counted at all
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Where are retired people counted by the BLS when calculating unemployment figures?
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not in the labor force
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what are the three categories used by the BLS to classify the civilian, adult population?
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employed(all-full and part time)
not in the labor force
unemployed
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The total civilian, non-institutionalized adult population (16 and over), according to the BLS, is:
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the employed, unemployed, and those not in the labor force
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The labor force is defined as:
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employed plus unemployed
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The unemployment rate, as calculated by the BLS, is the
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unemployed / labor force
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When someone becomes unemployed as the result of a slowdown in the growth of real GDP, we say that:
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that person is cyclically unemployed
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When someone is unemployed because they haven't found the job that best matches their skills, then we say in general that they are:
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fricitonally unemployed
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Someone unemployed because their current set of skills are no longer in demand by society are ________ unemployed
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structurally
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Suppose that John Doe quits his job and becomes unemployed while he looks for a job more to his liking. this is:
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frictional unemployment
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When someone wants a full-time job but can only find part-time work, we can say the person is
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under-employed
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The natural rate of unemployment is equal to
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frictional plus structural unemployment
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The actual rate of unemployment is equal o
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cyclical, frictional, and structural all together
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Which government organization is in charge of calculating and reporting the consumer price index?
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Bureau of Labor Statistics
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What are the two main measures of inflation used in the US?
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Consumer Price Index and the GDP chain price index
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Your job earns $30,000. You spend it all on comic books which cost $5 each. What is your money (nominal) wage? What is your real wage?
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Money wage: $30,000
Real wage: 6,000 comic books
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What is the formula for real interest rate?
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r= i-inflation rate
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What is NOT a component of aggregate demand?
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stocks and bonds
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The real balances effect, the interest-rate effect, and the net export effect all explain why:
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aggregate demand is downward sloping
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What can cause an increase in aggregate demand?
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government decreases tax rates
fall in nominal interest rates
rise in consumer confidence
Federal Reserve increases money supply
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What can cause a decrease in aggregate demand?
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falling investor/business confidence
government reduces spending
fall in foreign wealth
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Consider the potential level of real GDP for an economy (Ý). Graphically, it:
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is vertical and does not depend on general price level
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What can cause an increase in the potential level of real GDP?
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increase in productivity of labor
increase in the nation's stock of physical capital
advance in technology
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What can cause a decrease in the potential GDP?
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unrest in the Middle East causes a disruption in the supply of oil to the US
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What can cause an increase in the aggregate supply?
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increase in the productivity of labor
increase in the nation's stock of physical capital
advance in technology of production
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What do we mean by economic overheating?
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Real GDP is rising much faster than the potential rate
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What is the main concern when the economy is overheating?
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inflation
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If it takes 20 years for real GDP to double, what was the growth rate?
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3.5%
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Workers today are more productive than in the early 1800s because workers today:
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have more capital with which to work
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The opportunity cost of economic growth (growth in GDP per capita) is:
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a reduction in current consumption
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Econ 201: Test 3