Macroeconomics 1

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  1. Determinants of Demand
    Income, Availability and price of complements, Availability and price of substitute goods, Taste/ consumer preference, Expectations, Size of Market
  2. Determinants of Supply
    Cost of Inputs, Technology, Cost of alternative goods, Expectations, Number of producers
  3. PPF
    Production Possibilities Frontier
  4. 3 Assumptions of PPF
    • 1. Fixed point in time.
    • 2. Involves 2 goods or services.
    • 3. All resources are deployed efficiently.
  5. 3 Economic Assumptions
    • 1. People will act in a rational manner.
    • 2. People will act in their own best interest.
    • 3. People will utilize information to make decisions.
  6. Factors of Production
    • Land - Natural Resources
    • Labor
    • Capital
    • Entrepreneurial Skill
    • Time
  7. Schedule of what consumers are willing and able to purchase at various prices.
  8. Price varies inversely with quantity demanded.
    Law of Demand
  9. Schedule of what producers are willing and able to sell at various prices.
  10. P*
    Market Clearing Price
  11. Social science concerned with how society allocates scarce resources.
  12. Strictly conservative economic theory where the market dictates and there is no government involvement.
  13. Economic theory that favors government involvement in the form of large infrastructure projects.
  14. Economic theory that states market and government are tangled. Economic decisions are based on political factors.
    Public Choice
  15. Economic theory concerned with the money supply.
  16. Economic theory which applies common sense and very little math.
  17. Classical theory with lots of math. Applies economic theory to non-economic issues.
  18. Economic theory that promotes removing barriers to production.
  19. Processing current available information before making a decision.
    Rational Expectations
  20. Using past events to make current decisions.
    Adaptive Expectations
  21. Post hoc ergo propter hoc
    After it, therefore, because of it.
  22. Ceterus parabus
    All other things being equal.
  23. 3 basic economic questions
    • What?
    • Where?
    • For Whom?
  24. The next best option.
    Opportunity Cost
  25. Arena where buyers and sellers meet to make transactions.
  26. Labor Force
    Everyone over 16 who is able to work and is looking for work.
  27. People who are excluded from the Labor Force
    Disabled, Incarcerated, Institutionalized
  28. Labor Force Participation Rate
    Labor Force divided by Potential Labor Force
  29. Unemployment Rate
    Unemployed divided by Labor Force
  30. Problems with Unemployment Rate
    Diccouraged Worker Effect, Underemployment
  31. Discouraged Worker Effect
    Survey Respondents report that they aren't looking for work because of embarrassment.
  32. Underemployment
    Not being able to use specific skill set.
  33. 4 types of Unemployment
    • Cyclical
    • Seasonal
    • Structural
    • Frictional
  34. Cyclical Unemployment
    Related to the Business Cycle
  35. Structural Unemployment
    Due to the nature of an industry changing - Technology, Outsourcing
  36. Frictional Unemployment
    Literally between jobs
  37. Inflation
    General rise in level of prices or devaluation of currency.
  38. Consumer Price Index
    Determined by the Market Basket, a list of common household expenditures.
  39. Problems with CPI
    • New goods take longer to incorporate
    • Quality of goods is not taken into account
    • Substitution Effect is not taken into account
  40. COLA
    Cost Of Living Adjustment
  41. Quantity Theory of Money
    Money times Velocity equals Price times Quantity. Velocity and Quantity are fixed.
  42. Demand Pull
    Demand rising in one sector causes demand to fall in another. Assumes people don't have access to credit.
  43. Gresham's Law
    If people no longer have faith in currency, it becomes worthless.
  44. 3 Focuses of Macroeconomics
    • Growth
    • Inflation
    • Unemployment
  45. Gross Domestic Product
    Total dollar value of all final goods and services produced within a country's borders for a given period of time.
  46. Real
    Adjusted for Inflation
  47. Problems with the GDP
    • Black Market
    • Non Market - Household Labor, etc.
    • Leisure Time
  48. Reasons for US shift to service based economy
    • Dual Income Households
    • Mass Production Overseas
    • Improved Transportation
    • Communication
    • Health Care
    • Credit
  49. Stock
    Piece of ownership of a company
  50. Bond
    Piece of debt owed by a company.
  51. Fractional Reserve Banking
    Banks lend out most of the money deposited with them.
  52. Number of regional Fed Banks
  53. Monetary Policy
    Changing the money supply to impact economic conditions.
  54. Money Multiplier
    1/rr (Reserve Requirement)
  55. Loose Money Policy
    More currency in the market. Used to fight unemployment.
  56. Tight Money Policy
    Less currency in the market. Used to fight inflation.
  57. Fiscal Policy
    Use of taxes to impact the economy.
  58. MPC
    Marginal Propensity to Consume. What you spend from each additional dollar, after obligations are met.
  59. Autonomous Spending
    Spending unrelated to level of income.
  60. AE
    Aggregate Expenditures. Everything purchased in the economy.
  61. AE>GDP
    Causes Deficit, Inflation
  62. AE<GDP
    Causes Unemployment.
  63. 3 Issues with Fiscal Policy
    • Recognition Lag
    • Implementation Lag
    • Operational Lag
  64. Perverse Incentives
    Incentive that backfires on one of the parties.
  65. Psychic Income
    Intangible reward for work.
Card Set:
Macroeconomics 1

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