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Final Economic Life Study Guide

by: Amber Wickard

Final Economic Life Study Guide EC 2000 - 03

Marketplace > Wright State University > Economcs > EC 2000 - 03 > Final Economic Life Study Guide
Amber Wickard
GPA 3.0

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Study Guide for final exam.
Economic Lif
Pamela Bowers
Study Guide
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This 3 page Study Guide was uploaded by Amber Wickard on Wednesday February 3, 2016. The Study Guide belongs to EC 2000 - 03 at Wright State University taught by Pamela Bowers in Fall 2015. Since its upload, it has received 40 views. For similar materials see Economic Lif in Economcs at Wright State University.


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Date Created: 02/03/16
Amber Wickard   12­09­2015   Econ.2000     Final Exam Study Guide – Fall Semester 2015   ● Opportunity cost: the loss of potential gain from other alternatives when one alternative is  chosen.   ● The market mechanism:is a term from economics referring to the use of money  exchanged by buyers and sellers with an open and understood system of value and time  trade­offs to produce the best distribution of goods and services.   ● Price signal: is information conveyed to consumers and producers, via the price charged  for a product or service, which provides a signal to increase supply and/or decrease  demand for the priced item.   ● Four Components of GDP and Aggregate demand: – Consumption spending C),  investment spending (I), government purchases (G), and net exports (NX); equation  proposed by the Mundell­Fleming model of a large open economy is Y = C(Y ­ T) + I(r)  + G + NX(e). Y represents income or output. C(Y ­ T) represents consumption as a  function of disposable income, defined as income less taxes.   ● The largest component of U.S. GDP: as used by the Bureau of Economic Analysis, U.S.  Department of Commerce; Personal consumption expenditures, Government  expenditures, Investment, and Net exports.   ● Law of Supply: states that the quantity of a good supplied (the amount owners or  producers offer for sale) rises as the market price rises, and falls as the price falls.   ● Law of Demand: says that the quantity of a good demanded falls as the price rises, and  vice versa.   ● Total revenue: is the total receipts of a firm from the sale of some given quantities of a  product; refers to the total sales of a firm based on a given quantity of goods. It is the  total income of a company and is calculated by multiplying the quantity of goods sold by  the price of the goods.    ● Variable cost: a cost that varies with the level of output; curve slopes up at an  accelerating rate, reflecting the law of diminishing marginal returns. The formula for  calculating total variable cost is:  Total Variable Cost = Total Quantity of Output x  Variable Cost Per Unit of Output   ● Fixed cost: are constant as output increases, the curve is a horizontal line on the cost  graph. They do not vary with output and typically include rents, insurance, depreciation,  set­up costs, and normal profit. They are also called overheads.   ● Profit: A financial benefit that is realized when the amount of revenue gained from a  business activity exceeds the expenses, costs and taxes needed to sustain the activity. Any  profit that is gained goes to the business's owners, who may or may not decide to spend it  on the business. Calculated as: profit = total revenue ­ total expenses.   ● The business cycle: Expansion, Recession, Contraction and Revival or Recovery.   ● Real GDP: is a macroeconomic measure of the value of economic output adjusted for  price changes (inflation or deflation). This adjustment transforms the money­value  measure, nominal GDP, into an index for quantity of total output.   ● Recession: a period of temporary economic decline during which trade and industrial  activity are reduced, generally identified by a fall in GDP in two successive quarters.   ● The labor force: is the actual number of people available for work. The labor force of a  country includes both the employed and the unemployed.   ● Unemployment rate calculation: unemployment rate = number of unemployed persons /  labor force. Finally, the labor force participation rate is the percentage of the population  that is in the labor force. The formula is labor force participation rate = labor force / adult  population; it is a measure of the prevalence of unemployment and it is calculated as a  percentage by dividing the number of unemployed individuals by all individuals currently  in the labor force. During periods of recession, an economy usually experiences a  relatively high unemployment rate.   ● Inflation: a general increase in prices and fall in the purchasing value of money.   ● CPI:  the Consumer Price Index can be defined as “a measure of the average change over  time in the prices paid by urban consumers for a market basket of consumer goods and  services.”   ● Aggregate demand: is the total demand for final goods and services in an economy at a  given time. It specifies the amounts of goods and services that will be purchased at all  possible price levels; The first reason for the downward slope of the aggregate demand  curve is Pigou's wealth effect. Recall that the nominal value of money is fixed, but the  real value is dependent upon the price level. This is because for a given amount of  money, a lower price level provides more purchasing power per unit of currency.   ● Macro equilibrium: is an economic state in an economy where the quantity of aggregate  demand equals the quantity of aggregate supply. Significant changes in either aggregate  demand or aggregate supply will have important effects on price, unemployment, and  inflation.  ● Classical economic theory vs. Keynesian – what are the differing views of the economy  and the corresponding policy prescriptions   ● Fiscal policy and tools used shift aggregate demand   ● Effect of fiscal policy on the federal budget   ● Fiscal stimulus – what are the tools, what is the purpose   ● Basic money supply – in what form is it mostly   ● 3 things banks do   ● What happens when a bank makes a loan   ● Monetary policy (definition or purpose) and policy tools (what are they)   ● Fractional reserve banking – what is it   ● Definition of and relationship between excess reserves, total reserves, and required  reserves   ● How much can banks lend?   ● Connection between lending and aggregate demand   ● The Federal Reserve’s dual mandate – what is it   ● Services the Federal Reserve bank provides   ● Structure of the Federal Reserve system   ● Federal Reserve Board of Governors   ● Open market operations   ● How is the growth rate of the economy measured   ● What does GDP per capita measure   ● What is an important driver of economic growth in the long­run   ● What activities contribute to increases in productivity  


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