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ECO 270 Final Review
| Term | Definition |
|---|---|
| Fundamental problem of economics | scarcity but unlimited wants. |
| Economics | is the study of how best to allocate scarce resources among competing uses. |
| Production possibilities curve (where is efficiency/inefficiency represented) | Any point on the curve represents maximum efficiency. Anything inside the curve shows inefficiency. |
| Per capita GDP | is used as a measure of a country’s standard of living. |
| Economic growth | refers to an increase in the output (real GDP). |
| Goal of the consumer in a market economy | obtain the most desired good and services, increase consumption of goods and services, and choose the cheapest or best product. |
| Goal of a firm in a market economy | maximize its profits |
| Law of supply | The quantity of a good supplied in a given time period increases as its prices increases. |
| Change in demand vs. change in quantity demanded | Change in demand refers to shifts in the entire demand curve due to factors other than price, such as income, preferences, or the price of related goods. Change in quantity demanded refers to movements along the demand curve caused by changes in price. |
| Equilibrium price | A state in which the supply and demand for a given good or service are in balance. |
| Private good | A good or service whose consumption by one person excludes consumption by others. |
| Primary function of taxes | fund the government by creating programs and financing public works and services. |
| Percentage of GDP made up by consumption | 2/3 |
| Unemployment rate (calculate) | Unemployment Rate = # of unemployed people/ Labor Force (includes employed and unemployed) |
| Frictional unemployment | refers to brief periods of unemployment experienced by people moving between jobs or into the labor market. |
| Inflation | is an increase in the average level of prices of goods and services. |
| Potential problems with macro equilibrium | undesirability and instability. |
| Components of aggregate demand | consumption, investment, government spending and net exports. |
| Multiplier (calculate) | Multiplier = 1/1-MPC |
| Income transfer | are payments to individuals for which no current goods or services are exchanged. |
| Fiscal stimulus | refers to tax cuts or spending hikes intended to increase (shift) aggregate demand. |
| Fiscal policy | the use of government taxes and spending to alter macroeconomic outcomes. |
| Balanced budget multiplier | An increase in government spending paid for by an increase in taxes of equal size isn’t really neutral |
| Pork barrel politics | Members of Congress are reluctant to sacrifice any spending projects in their own districts. They want their constituents to get the biggest tax savings. No one in Congress wants a tax hike or spending cut before the election. This can alter th |
| Deficit spending | is the use of borrowed funds to finance government expenditures that exceed tax revenues. |
| Budget surplus | An excess of government revenues over government expenditures in a given time period. |
| Discretionary spending (percentage of budget) | 30% |
| Debt service | refers to interest required to be paid each year on outstanding debt. |
| Required reserves (calculate) | Required Required reserve Total reserves = ratio x deposits |
| Money multiplier (calculate) | Money Multiplier = 1/Required Reserves |
| Monetary policy | the use of money and credit controls to influence macroeconomic activity. |
| Money supply (components of M1 and M2) | M1 Includes both cash and transactions accounts. M2 refers to M1 plus balances in time accounts and money market funds. |
| Bond | a certificate acknowledging a debt and the amount of interest to be paid each year until repayment. |
| Bond yield (calculate) | Yield = Annual interest rate/price paid for bond |
| Interest rate | the percentage of the amount of money charged for its use. |
| Transactions demand for money | the need for money to facilitate day-to-day transactions. |
| Equation of exchange | MV = PQ |
| Constraints on monetary stimulus | low expectations related to sales and profit, the liquidity trap. |
| Stagflation | is the simultaneous occurrence of substantial unemployment and inflation. |
| Goal of supply-side economic policy | increase productivity and increase efficiency in the economy. |
| Short run capacity utilization | Short run capacity utilization is the production produced is fixed in a certain time period. Short run has changes. Short run is stricter with boundaries to enter. |
| Sources of productivity advancement | technological progress |
| Congressional responsibilities for economic policy | power to lay and collect taxes, borrow money on the credit of the U.S., regulate commerce with foreign nations, and establish laws. |
| Critical policy lever for monetarists | the reserve ratio, discount rate, and open market operations to increase or decrease money supply in the economy. |
| Gains from trade and specialization | ability to produce different goods and services, greater efficiency, allows a wider variety of goods at lower costs. |
| Effects of trade restrictions on gains from trade | limit the free flow of goods between countries, higher prices, reduced variety, and inefficiency in the market. |
| Exchange rate | is the rate at which one currency can be exchanged |
| Currency bailout | refers to financial assistance provided to a country to stabilize its currency and prevent a financial crisis. |
| Absolute deprivation | refers to a condition where individuals or households lack the financial resources to meet the basic necessities of |
| Relative deprivation | refers to a condition where individuals or households have significantly less income or resources compared to the average standard of living in their society. |
| Upward mobility (more likely in rich or poor nations?) | More likely in rich nations since there is stronger education system, better health care, and more economic opportunities. |
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