ECON 1102: MIDTERM 1 DEFINITIONS
43 Cards in this Set
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What are 5 characteristics of a market system?
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a. Extensive Private Property Rights
b. Freedom of Enterprise and Choice
c. Self interest as the primary motivating force
d. Competition
e. Existence of markets and prices
f. Active, but limited government
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Why do economists use RGDP per capita to study cross-country welfare, even though there is reason to believe that it doesn’t capture the general quality of life very well?
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Strong correlation between GDP and other “quality of life factors”. (This is one reason, listing the factors separately will not count for additional reasons)
GDP data is available for many countries
Countries have good incentive to collect accurate GDP data (for tax purposes).
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What are the 3 assumptions economists make about firms?
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a. Firms act to maximize profits
b. Firms produce goods with a technology that requires resounces c. Resources are limited.
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What are the 3 assumptions economists make about consumers?
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a. People are rational
b. People have unlimited wants
c. People have limited income
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What are the four components of aggregate demand?
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Consumption, Investment, Government Expenditure, Net Exports
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What distinguishes Modern Economic Growth from historical growth patterns? According to in class discussion, what part of the following sentence is incorrect, and why? “(Modern) Economic Growth has made rich countries richer and poor countries poorer.”
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1. Modern growth is characterized by sustained growth in real GDP per capita over long periods of time. Pre-1800’s economic growth was essentially zero.
2. Poor countries have yet to experience modern growth (i.e. sustained growth) whereas rich countries have. So, while it is true that t…
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What is the largest componest of USA GDP: C, I, G or NX?
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Consumption
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scarcity
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finite amount of goods creates the need for economics
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normative statements
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how the world should be
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positive statements
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how the world is
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Macro vs micro
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macro = whole system
micro= a single firm
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things in macro that arent in micro
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inflation
growth
fiscal and monetary policy
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Command Economy/ Command System
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A method of organizing an economy in which
a.property resources are publicly owned and
b.government uses central economic planning to direct and coordinate economic activities
c.private ownership is prohibited
communism
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economy flow chart
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Short Run Aggregate Supply
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-Sticky Wages
-Sticky Prices
-Misperceptions
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Sticky Wages
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Wages dont change immediately in response to economic changes
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Sticky Prices
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input prices don't change immediately in response to economic changes
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Misperceptions
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Firms alter their short run to match a response they think is from their efforts, but its an economic change, so they will revert
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Short Run Aggregate Demand
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-wealth effect
-interest rate effect
-exchange rate effect
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Wealth affect
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not just income, but net assets, including property, savings, and items
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interest rate effect
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as interest rates change, investments don't give as much - yield less
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exchange rate effect
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As the price level drops, interest rates fall, domestic investment in foreign countries increases, the real exchange rate depreciates, net exports increase, andaggregate demand increases.
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multiplier effect
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if consumption increases by $x, then it will cycle around the economy flow and alter things
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GDP formula
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Consumption +
Government Spending
+Investments +
eXports - iMports
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Recessionary period
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If LRAS is to the right of SREquilibrium
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Expansionary Period
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If LRAS is to the left of SREquilibrium
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GDP definition
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the total values of final goods sold within the boundaries of a specific country during a specific period of time
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GDP Deflator
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Nominal GDP
---------------------------- x 100
Real GDP
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How to calculate GDP inflation
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(Current Year GDP deflator - Previous Year GDP deflator)
-------------------------------------------------------- x100
Previous year GDP deflator
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Who isn't counted in population
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those without a permanent address
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labor force includes
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employed
unemployed, but looking
discouraged workers
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Structural Unemployment
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don't have the right skill set for the jobs available
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Frictional Unemployment
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Looking for a specific job, and choosing not to work
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Economic Growth
definition
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increase in RGDP/Capita over time
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Future GDP calculation
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(1+growth rate%)^#of years
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Present GDP
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What drives growth
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-human capital (health/education)
-technology
-infrastructures
-regular capital
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Production Possibilities frontier
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Curved line from Y to X axis
shows efficiency of the country
on line is efficient, just below is natural, too low is recession
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PPF shift up caused by
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economic growth
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High population growth leads to low GDP growth. T/F
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TRUE
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High RGDP growth leads to low population growth. T/F
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True
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Low population growth leads to high GDP growth. T/F
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False
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Governmental roles in a market economy
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Regulator (provide legal structure, maintain competition, promote stability) and
Equalizer (provide public goods/services, redistribution of income, reallocation of resources)
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Why would governments involve themselves in economic matters?
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The economy is not always naturally efficient
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ECON 1102: MIDTERM 2