Econ AP Review Flashcards

6774505787	resources into 4 categories	Land: Natural resources: RENT Labor: Human resources: WAGES Capital: Tools, machines, factories: INVESTMENT Entrepreneurship: risk-takers combine land, labor and capital in new ways in order to make profit.	0
6774486206	Scarcity	People have unlimited wants but materials are scarce	1
6774498950	Businesses weigh the M.B. against the M.C. of a decision.	Stop when MB=MC	2
6774500670	Ceteris Paribus	Economists hold factors constant, except for what's being considered.	3
6774528243	Opportunity Cost	Next best alternative use for a resource. Ex. If the 3 cups of flour are used to bake bread, then the opportunity cost is the cake that could also have been baked with the 3 cups of flour	4
6774539753	Marginal analysis	used to assist people to maximize the benefit of the output produced.	5
6774553535	Marginal Benefit (MB)	What you gain when you get one more unit of something.	6
6774556784	Businesses making a Rational Choice	add units until the MB=MC.	7
6774560546	PPC	a graph showing all of the possible combinations of output for an economy at full employment producing 2 goods	8
6774570724	straight-line PPC	Constant opportunity cost = perfectly substitutable inputs (resources)	9
6774578693	curved (concave) PPC	Increasing opportunity cost = Imperfect substitutability of inputs (resources).	10
6774587410	The Law of Increasing Opportunity Costs	Given our limited resources, as more and more of a product is produced (through reallocation of resources), its opportunity cost goes up.	11
6774613118	Productive Efficiency	maximum output for technology and resources (A)	12
6774615320	Allocative Efficiency	one point on PPC where MB=MC	13
6774632877	economy is operating under unemployment	inside its PPC	14
6774635817	full employment will result in economic growth	Moving from inside of a PPC toward the frontier	15
6774651072	All will shift the PPC to the right:	increase productivity. increase capital (investment). increase amount resources. increase quality of resources. improvement in technology.	16
6774657670	Absolute Advantage	lower opportunity cost	17
6774662452	Comparative Advantage	lower cost	18
6774664180	specialization	Producing according to comparative advantage and the key to the benefits of trade	19
6774674145	Comparative Methods (two)	1) Input Method: Input-Other-Under (IOU) 2) Output Method: Output-Other-Over (OOO)	20
6774689214	Free Market	forces of supply and demand decide the economic questions and therefore where to allocate resource	21
6774693627	Command Market	A market where the government or some central authority decides where to allocate resources.	22
6774700514	Market Systems Characteristics	Private Property Freedom Self-Interest Competition Prices	23
6774708178	Demand	Consumers' willingness and ability to buy an item at a given price.	24
6774711727	Law of Demand	The price of an item determines the quantity demanded.	25
6774713501	The lower the price	the higher the quantity demanded	26
6774715449	The higher the price	the lower the quantity demanded.	27
6774719545	price of a good is __________ related to quantity demanded.	inversely	28
6774727397	Income Effect	When things are expensive, money buys less. When things are cheap, money buys more.	29
6774729066	Substitution Effect	When apples are expensive and their substitutes (pears) are relatively cheap, I buy fewer apples and more pears.	30
6774733320	Law of Diminishing Marginal Utility	Each additional unit of an item purchased gives less marginal utility than the previous unit. The only way I will buy more is if the price is lower.	31
6774740253	Increase in Demand	More quantity demanded at all prices Demand Curve shifts →	32
6774741900	Decrease in Demand	Less quantity demanded at all prices Demand Curve shifts ←	33
6774745613	Does price shift Demand?	No	34
6774759899	Complements V. Substitutes	Complements - goods/services accompanied by Substitutes - goods/services replace other goods/services	35
6774784444	Supply	Producers willingness and ability to sell a good/service. (not an amount, behavior)	36
6774790109	Law of Supply	The price of an item determines the quantity supplied.	37
6774792424	The lower the price	the lower the quantity supplied	38
6774795045	The higher the price	the higher the quantity supplied	39
6774799734	price of a good is ______________ related to quantity supplied.	directly	40
6774802794	The Law of Increasing Marginal Cost	It is more costly to produce two than one. Therefore, I must collect a higher price if I am going to produce more.	41
6774805100	Increase in Supply	More quantity supplied at all prices Supply Curve shifts →	42
6774807333	Decrease in Supply	Less quantity supplied at all prices Supply Curve shifts ←	43
6774815612	Does price shift Supply?	No	44
6774819574	Changes in Supply N.I.C.E.J.A.G.	Natural/Manmade Phenomenon Input Costs Competition Expectations joint-supply(Cows= milk, beef and hide) alternative goods Government action	45
6774829134	Equilibrium	When supply = demand	46
6774832568	Changes in Equilibrium	If demand increases then price increases and quantity increases. If supply increases then price decreases and quantity increases.	47
6774841109	Increase in Demand Graph	D right : Price increases & Quantity increase	48
6774843991	Increase in Supply Graph	S → : Price decrease & Quantity increase	49
6774863903	Simultaneous Changes in Supply and Demand	If supply and demand both increase then price is indeterminate, but quantity definitely increases.	50
6774865971	Decrease in Supply/Increase in Demand Graph		51
6774870582	Disequilibrium	Price occurs at some point where supply and demand are not =	52
6774878115	Price Floor	a minimum price for a good/service or resource determined outside of the market Ex. Minimum wage	53
6774885253	Price ceiling	a maximum price for a good/service Ex. Concert tickets sold by Ticket-master	54
6774892642	Markets work best when supply and demand	determine the price of goods/services or resources.	55
6774898476	When forces other than supply/ demand determine the price of goods	surpluses and shortages result	56
6774907193	forces of supply and demand that cause artificial prices	Black markets, ticket scalping, undocumented workers	57
6774912548	Consumer Surplus	the difference between what consumers would willingly pay and the equilibrium price	58
6774917528	Producer Surplus	difference between what producers would willingly charge and the equilibrium price.	59
6774929408	Circular Flow Model		60
6774933134	Injections	Investments and purchases of exports.	61
6774934454	Leakages	Savings and purchases of imports.	62
6774940561	GDP	market value of all final goods and services produced within a nation in a year.	63
6774945135	Not counted in GDP	Used intermediate goods Non-market production (stay at home Dad) Underground or 'black market'	64
6774952393	Aggregate Spending	GDP = C + IG + G + XN C = Consumption IG = Gross Private Investment G = Government Spending XN= Net Exports = Exports (X) - Imports (M)	65
6774961165	What is the largest component of U.S. GDP.	Consumer spending	66
6774963003	Gross Private Investment	Spending in order to increase future output or productivity Ex: Business spending on capital, New construction	67
6774972161	Does government spending on final goods and services and infrastructure count toward GDP?	Yes	68
6774974563	Do government transfer payments count toward GDP?	No	69
6774981478	Imports	create a flow of money away from the U.S. in exchange for foreign production	70
6774983067	Exports	create a flow of money to the US in exchange for domestic production	71
6774987625	Nominal GDP	current GDP measured at current market prices. (doesn't include inflation) Nominal GDP may overstate production because inflation.	72
6774992032	Real GDP	current GDP measured with a fixed dollar. Real GDP holds the value of the dollar constant makes year to year comparisons.	73
6774996844	Is the GDP Constant in the US?	No	74
6775002538	Business Cycle Diagram	ups and downs in GDP over time	75
6775012025	GDP Deflator	A measure of the cost of living (Nominal GDP/RGDP)*100.	76
6775018306	Consumer price index	reflects the prices of all goods and services bought by consumers (includes imports).	77
6775294540	Consumer Price Index compares	the price of a fixed basket of goods and services to the price of the basket in the base year	78
6775299456	GDP deflator measures	the difference between real GDP and nominal GDP	79
6775308530	Bureau of Labor Statistics	reports the CPI each month.	80
6775310463	CPI monitors	changes in the cost of living over time.	81
6775322893	Consumer Inflation Rate	(CPI New- CPI Old)/CPI Old *100	82
6775328755	Inflation Rate	(Cost of market basket- Cost of market basket base year)*100	83
6775336088	Inflation Rate symbol	π	84
6775337608	Percent change of CPI	(CPI Last Year- CPI This Year)CPI Last Year*100	85
6775353149	Unexpected Inflation winners	Borrowers, variable-income, & Employers	86
6775358046	Unexpected Inflation Losers	Savers, Fixed income, & Employees	87
6775365312	Labor Force	Number of people in a country that are classified as either employed or unemployed	88
6775369315	Labor Force Participation Rate	% of working age population in the labor force.	89
6775372661	Frictional	"between jobs", voluntary, good for individuals and society.	90
6775372662	Structural	lack of skills or declining industry ex. H.S dropouts	91
6775374449	Cyclical	downturns in business cycle. Bad for society and individuals.	92
6775376879	Seasonal	ex: Mall Santas & Life-guards	93
6775379926	Full Employment	Occurs when there is no cyclical unemployment present in the economy.	94
6775388378	Natural Rate of Unemployment (NRU).	level of unemployment full potential. US 4%-5	95
6775395230	Okun's Law	Every 1% increase in the u% causes a 2% decline in Real GDP	96
6775402324	Disposable Income (DI)	DI = Gross Income - Taxes	97
6775405744	Consumption	The ability to consume is constrained by: disposable income & propensity to save.	98
6775412083	Marginal Propensity to Consume equation	ΔC/ΔDI	99
6775413755	Marginal Propensity to Save equation	ΔS/ΔDI	100
6775417623	Investment in GDP	New plants (factories) Capital equipment (machinery) Technology (hardware & software) New Homes Inventories (goods sold by producers)	101
6775422397	investment decisions	Cost / Benefit Analysis.	102
6775427506	Investment Demand Curve		103
6775431700	Shifts in Investment Demand	Cost of Production: Lower costs shift ID → Business Taxes: Lower business taxes shift ID → Technological Change:New technology shifts ID → Stock of Capital :low on capital, then ID → Positive expectations shift ID →	104
6775442121	Loanable Funds Market	effects: savers and borrowers shows: exchange funds at the real rate of interest	105
6775445508	demand for loanable funds, or borrowing comes from	households, firms, government, & foreign sector.	106
6775451640	Loanable Funds Market in Equilibrium		107
6775455428	Changes in the Demand for Loanable Funds	More borrowing = more demand for L.F. (→) Less borrowing = less demand for L.F. (←)	108
6775466734	Loanable funds market determines the	real interest rate	109
6776187850	Multiplier Equation	1/1-MPC 1/MPS (Change in GDP/ Change in Spending) (1/RR)	110
6776195291	Multipliers are _____when there is an increase in spending and____ when there is a decrease	(+) , (-)	111
6776248020	Real-Balances Effect	P.L. is high households and businesses can't afford as much output.	112
6776250680	Interest-Rate Effect	A higher P.L. increases the interest rate which discourages investment.	113
6776260049	Foreign Purchases Effect	A higher P.L. increases demand for cheaper goods	114
6776273186	Determinants of AD	Consumption (C) Gross Private Investment (IG) Government Spending (G) Net Exports (XN) = Exports - Imports (X - M) Increase Right Decrease Left	115
6776286356	Household spending and how it affects AD	More wealth = more spending (AD shifts →) + expectations = more spending (AD shifts →) Less debt = more spending (AD shifts →) Less taxes = more spending (AD shifts →)	116
6776324562	Determinants of Gross Private Investment	Higher Expected Returns = More Investment (AD→)	117
6776350723	Government Spending	More Government Spending (AD→) Less Government Spending (AD←)	118
6776354316	Net Exports are sensitive to:	Strong $ (appreciation)= More Imports and Fewer Exports = (AD ←) Strong Foreign Econ = More Exports = (AD →)	119
6776359439	Aggregate Supply	level of RGDP that firms will produce at each PL	120
6776361856	Long-Run	input prices are completely flexible and adjust to changes in the PL in the L.R. RGDP is independent of the PL.	121
6776367855	Short-Run	input prices are sticky and do not change the P.L. S.R. directly related to the PL.	122
6776382595	What graph shows full employment in the economy	Long Run Aggregate Supply	123
6776391479	input prices are completely flexible in the	LRAS Vertical	124
6776396511	input prices are sticky in	the short-run, the SRAS is upward sloping.	125
6776403067	Determinants of SRAS	Input Prices Productivity Legal-Institutional Environment Tax Policy Deregulation	126
6776415008	Input Prices change SRAS	Increases in Resource Prices = SRAS ←	127
6776426560	Productivity change SRAS	More productivity = lower unit production cost = SRAS →	128
6776435297	Taxes and Subsidies	Taxes ($ to govt) on business increase per unit production cost = SRAS ← Subsidies ($ from govt) to business reduce per unit production cost = SRAS →	129
6776439339	Government Regulation	Government regulation creates a cost of compliance = SRAS ← Deregulation reduces compliance costs = SRAS →	130
6776449472	Long-Run Phillips Curve Shifts	LRPC: natural rate of unemployment Increases in un will shift LRPC → Decreases in un will shift LRPC ←	131
6807418503	Crowding Out	increased IR lead to a reduction in private investment spending dampens the initial increase of total investment spending	132
6807498605	Deflated nominal GDP	Nominal/GDP Deflator	133
6807505316	Economy operating beyond full employment causes	increase in AD won't lower UN rate will cause inflation	134
6807519941	An economy-wide NEGATIVE supply shock will:	shift the aggregate supply curve leftward decrease output increase price level.	135
6807538097	Supply side incentives	"Reaganomics" greater tax cuts for investors and entrepreneurs provide incentives to save and invest, and produce economic benefits that trickle down into the overall economy	136
6807554751	Contractionary monetary policy causes	Nominal IR: Up AD: Down Output: Down PL: Down	137
6807565754	Fiscal	public revenues (taxation) and public spending, debt, and finance (govt. spending).	138
6807613399	Higher tariff imposed on foreign goods	Tariff causes imports to fall= net exports raise Net exports will raise and $ appreciates	139
6807677073	Growth	increase in quantity of resources & tech. advances	140
6807706225	Closed economy	no imports or exports	141
6807738147	Aggregate	adding up all micro activity of household and firms into macro	142
6807753871	RGDP Equation	(Nominal/Price Index)X100	143
6807768551	CPI	Consumer Price Index: average price level of items that consumers buy	144
6807778956	Unemployment rate	(unemployed/ Labor force) X100	145
6807782535	Discouraged workers	not counted in UN ex: moved back with parents	146
6807799768	MPC & MPS Equations	(change in consumption/Change in disposal income) (change in Saving/Change in disposal income) MPC+MPS=1	147
6807803641	Quantity demanded increases when price _____	Falls	148
6807826863	Market for Loanable Funds Graph	Supply: Saving/Lending Demand: Investment/ Borrowing Equilibrium: $ saved= $ invested	149
6807845062	Common Multipliers	(1/.10)= 10 (1/.20)=5 (1/.25)=4 (1/.5)=2	150
6807877959	Decrease in taxes (Increases/ Decreases) DI?	Increases	151
6807920719	LRAS Shifts	Availability of Resources Tech. & Productivity Incentives	152
6807987326	Shocks Determinants	increase in AD and SRAS Causes Increase in RGDP= reduces UN and Increases PL	153
6808045429	supply side boom	AD Constant SRAS shifts Right PL Falls RGDP increases UN Falls	154
6808062469	Stagflation	Inflation and UN increasing causes SRAS to falls & AD constant	155
6808076873	Phillips curve	Relationship Btween Inflation and UN	156
6808088790	Expansionary Fiscal	economy is in a recession RGDP Low & UN high Govt: Increases Spending/ Lowers Taxes (AD right) Crowding out (New money can cause inflation)	157
6808099851	Contractionary Fiscal	Beyond Full Employment/Inflation Govt: Raises Taxes (AD left)	158
6808160436	Net export effect	Increased demand for $ appreciates $	159
6808204527	Sticky Prices	Don't change	160
6808210468	Equity Financing	Relinquishes part of control of company/firm ex: stocks	161
6808219924	Debt Financing	raises money by borrowing ex: bonds	162
6808225457	Fiat money	Paper and coin	163
6808229037	Unit of Account	Currency	164
6808231739	Store of value	essentially same value	165
6808240272	M1	Cash, Coins, Checking deposits, Travlers Checks, (most liquid)	166
6808255673	M2	M1, small deposits (less liquid penalty for withdrawal)	167
6808272517	M3	Large time deposits (not easily liquidated)	168
6808277347	Money demand/supply graph		169
6808306772	Keynesian	PL is sticky IR balance supply and demand which determines AD and SRAS	170
6808312453	Classical	PL is flexible and LRAS adjusts natural rate of employment	171
6808325238	Reserve Ratio equation	Cash Reserves/Total deposits	172
6808404030	T-account	assets: R.R., Excess Reserves, total assets liabilities: checking deposits, total liabilities	173
6808441150	Monetary	Federal Reserve: open markert operations, discount rate, reserve ratio (circulation of money)	174
6808458774	expansionary monetary	fix recession: increase AD lower unemployment, increase RGDP	175
6808466046	contractionary monetary	lower PL, decreases RGDP, back to full employment IR increases	176
6808485892	open markert operations	Sell bonds = smaller money supply Buy bonds = bigger money supply	177
6808525598	Changing Discount Rate	Borrowing from Fed. = interest rate Lowering DR= Increases excess reserves= expands money supply	178
6808541933	Lowering Reserve Ratio=	increase in excess reserves = expands money supply	179
6808554852	High UN	buy bonds Lower D.R. Lower R.R. Money supply, investment, AD, & RGDP would increase Inflation & UN would decrease	180
6808559657	High Inflation	sell bonds raise D.R. raise R.R. Money supply, investment, AD,investment, & RGDP would decrease Inflation would increase	181
6808645171	Quantity Theory of Money	Quantity of money= PL and Growth rate= Inflation	182
6808672702	Balance of payment accounts	exchanging goods and services with foreign consumers payments sent back and forth: balance of flow between F and D	183
6808691633	Current Account	indicator of economy's health = the balance of trade net income from foreign countries	184
6808721529	Capital Account	nation buys foreign firm or real estate = outflow of assets to foreign nations	185
6808731621	official reserves	Federal reserve holds quantities of foreign currency	186
6808745859	Currency Market	shows exchange rate ex: 1 euro = $2 US	187
6808789095	Appreciating V. Depreciating	A: price of currency rising: less dollars needed to buy euro D: price of currency falling: more dollars needed to buy euro	188
6808822515	Tariffs	revenue tariff: tax levied on foreign good protective tariff: protects domestic industry	189
6808836007	Quotas	maximum amount a good can be imported into domestic market	190
6810530601	Money market determines the	nominal interest rate	191