28 Cards in this Set
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Microeconomics
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Economic behavior of individual decision making units such as
consumers, resource owners, and business firms. Also groups of consumers (British 30s), resource owners (farm owner in NC), and business firms(industry-swine) as well.
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Macroeconomics
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Studies the aggregate level of economic activity, general health of economy,
Economic system’s value of total output: GDP
Level of National Income
Total Level of Unemployment
General Price Level of the Economy: Inflation
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GDP
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Gross Domestic Product; monetary value of all the goods and services
produced within the boundaries of the U.S [U.S. companies and Foreign owned (Honda) producing goods and services (G&S) within the U.S]
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Sustainable Growth Rate
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Economists believe it is 2.5%, because population growth has been averaging 1.0% and growth in productivity has averaged 1.5% per year. They believe if we go over there will be inflation. Some believe this is too low.
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"Vital Signs" of Economy
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-GDP
-Unemployment rate
-industrial capacity utilization rate
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Full-employment
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Accepted as 5% unemployment. Below = ^ pressure on inflation (wage increases as producers compete with each other to find qualified labor
to expand production) Productivity is making this 5% being questioned, less people can be more productive now
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Industrial capacity utilization rate
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-85% industrial capacity utilization rate as its “benchmark”
above 85 =^inflation (Machinery breaks down, people get tired, irritable, sick, etc)
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Normative Economics
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Tends to be subjective, value laden, and emotion. Often referred to as “What ought to be” economics. “We ought to do this,” or “we ought to do that.” Normative economics is “prescription” and/or policy oriented.
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Positive Economics
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Objective, without emotion or value judgements, “What is, what was, and what probably will be” economics. Based on sound economic theory, probability, and statistical methods. Strives to explain current economic phenomena as well as answering "what if" type questions without value judgeme…
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(Federal) Fiscal Policy
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the amount of government
spending and taxation
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Federal Budget
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basically the government’s
taxation and spending policy.
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Monetary Policy
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Manipulation of the money supply by the Federal Reserve (chairman Ben Bernank) system to affect short-term interest rates and control inflation
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Negative Externality
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When you produce or consume a commodity or service within your private property rights that imposes a cost on a third party not directly involved in the market transaction . (The cost is very difficult (expensive) to recover: “Spillover Cost”)
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Positive Externality
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When you produce/consume a commodity/service within your private property rights that bestows a benefit on third party not directly involved in the market transaction The benefit bestowed is difficult(expensive)to recover “Spillover benefit”
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Examples of Positive and Negative Externalities
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N: smokers on others, sandwich name association, seat belts/helmets
P: your house increases market value of others, education (^GDP, lower crime)
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relationships between the unemployment rate and
education and the unemployment rate and race
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Increased education = decreased unemployment rates
across the civilian labor force and across race/gender. Also notice how the difference between unemployment rates between Whites and Blacks decreases as education levels increase.
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Economic Method to Make Decisions
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Step 1: Identify and state the problem
Step 2: Apply the relevant economic model
Step 3: Identify the solutions
Step 4: Evaluate the solutions
Step 5: Select and implement a solution
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Purchasing Power
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A dollar today is worth less (purchases less) than a dollar last year because of inflation
Purchasing Power During 2010 of Y Dollars, in Year X
= (Y Dollars, in Year X) * Purchasing Power Converter in Year X
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Gross salary
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before taxes
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Take-home Salary
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after taxes, so = Gross - taxes
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Comparing Cost of Living Among states
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The Level of Income Needed
in State X to Obtain the Same
Level of Purchasing Power as
in State Y
= (Income in State Y) * Cost of Living state X/COL state Y
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Weak Dollar
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a “weak” dollar makes imports from other countries more
expensive to consumers and can help fuel inflation. Agriculture benefits because it's cheaper for people to buy local.
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Problem with Baby Boomers
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Currently ages 40-60ish, they're working and spending considerable amounts on luxury items = boone to economy. What happens when they get? social sec/medicare, lower incomes. How will we sustain future economy?
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three largest expense categories associated with raising a child
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Housing ~33%
Food ~17%
Transportation~14%
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Percentage of Income spent on children
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high income spend more on children but low income spend a higher percentage of income on children
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Nominal vs Real Cost
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Nominal: not adjusted for inflation
Real: adjusted for inflation (so if bank says you get 6%, you might really only get 3% b/c inflation made that value less)
Real Interest Rate = Nominal Interest Rate - Inflation
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Unemployment Rate (calculate)
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= Unemployed/Employed * 100%
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Economic Models
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Used to make predictions and cannot include every little factor, it should capture only the essential relationships that are essential to analyse a certain problem/question.
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ARE 201: EXAM 3