Macroeconomics Chapters 1-6

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economics
a science that studies scarcity; concerned with market outcomes (price and quantity)
scarcity
the situation in which we want more than there is
opportunity cost
the value of the most highly valued alternative when a choice is made
rent control
forcing a market to lower a price (apartment rate) which in the end makes it go away (landlord pulls apartment out)
minimum wage
people want more money but in the end less jobs because employees want to spend less
comparative advantage
do what you are best at; you specialize in the thing you give up less to do; focus on things you are comparatively better at
externalities
3rd party not involved in transaction but are affected (pollution, noise)
united states
largest economy in the world; mostly privately owned economy; large population and productive
inputs
labor, land and capital
role of government
referee-enforce laws; regulator-monopolies and banking systems; expenditures-purchases products and supplies products; taxing; redistributor- welfare,food stamps,medicare,medicaid
omitted variable
a variable that impacts both correlations and misleading/bias
normal good
if income increases and quantity demanded increases
inferior good
if income decreases and quantity demanded increases
factors that shift demand
population, prices of related goods, preferences, future expected prices
supply
plots relation between price and quantity supplied all other things being equal
demand
plots the relation between price and quantity demanded all other things equal
factors that shift supply
technology, industry size, price of inputs, price of related outputs
surplus
when quantity supplied is larger than quantity demanded
shortage
when quantity demanded is larger than quantity supplied
equilibrium
when quantity demanded and quantity supplied are equal
supply decreases
if price increases, and quantity decreases, what happens to supply?
supply increases
if price decreases and quantity increases, what happens to supply?
demand decreases
if price decreases and quantity decreases what happens to demand?
demand increases
if price increases and quantity increases, what happens to demand?
rightward
when demand increases, the curve shifts…?
leftward
when demand decreases, the curve shifts..?
rightward
when supply increases, the curve shifts…?
leftward
when supply decreases, the curve shifts..?
price ceiling
maximum price that one is allowed to sell at, typically mandated by law; rent control, tickets, agriculture
price floor
minimum price that one is allowed to sell at, typically mandated by law; minimum wage, airline tickets, agriculture
negative price ceiling effects
black market, underinvestment, opportunity cost
negative price floor effects
disposal problem (gov. has to buy goods), over investment, unwanted discounts
volume of transactions
lower number of quantity demanded and quantity supplied
microeconomics
studies the prices of goods, employment of individual, production of a good or firm
macroeconomics
studies the economic aggregates, price overall (inflation), unemployment rates, total production of the economy (GDP)
gross domestic product
the value of all final goods and services produced in a country in a given amount of time
nominal gdp
calculated by using the value of output at current prices
real gdp
calculated by valuing outputs of different years at common prices
price level
the average of all prices of all final goods and services produced in an economy in a given year
inflation
a sustained increase in price level
discouraged workers
people who have given up looking for a job
frictional
temporary unemployment; in between jobs or a normal job turning; a new job is expected soon
structural
a job is replaced and goes away permanently usually due to technology leading to unemployment
cyclical
unemployment related to the recession
seasonal
employment only during one season resulting in unemployment during other seasons
full employment
no cyclicial; normal amounts of frictional, seasonal and structural employment
inflation
increases in the price level; it does not tend to erode real wages
increase
when inflation increase, wages tend to__________ since wages are a price
real wage
nominal wage/ price index
price index
price in initial year/ price in new year
determinants of real wage
independent of inflation based on data; productivity; unemployment rate
real interest rate
r
nominal interest rate
i
inflation rate
change in PL (price level)
real interest rate
i-change in PL (nominal interest rate-change in price level)
borrowers
if inflation is higher than expected who benefits?
Categories: Macroeconomics