New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Econ 2030 Exam 1 Study Guide

by: Melissa Cooey

Econ 2030 Exam 1 Study Guide Econ 2030

Marketplace > Auburn University > Economcs > Econ 2030 > Econ 2030 Exam 1 Study Guide
Melissa Cooey

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Study guide for the 1st Econ 2030 exam. Remember that you're allowed to use one 3'x5' notecard during the exam.
Dr. Stern
Study Guide
50 ?




Popular in Macroeconomics

Popular in Economcs

This 8 page Study Guide was uploaded by Melissa Cooey on Saturday February 6, 2016. The Study Guide belongs to Econ 2030 at Auburn University taught by Dr. Stern in Spring 2016. Since its upload, it has received 298 views. For similar materials see Macroeconomics in Economcs at Auburn University.


Reviews for Econ 2030 Exam 1 Study Guide


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 02/06/16
Friday, May 20, y Econ 2030 Exam 1 Study Guide Lecture 1 - Economics: Foundations and Models ­ Scarcity ­ a situation in which we have limited resources, but unlimited wants. ­ forces us to make choices. ­ Economics is the study of these choices. ­ economics is a social science. ­ Economic models ­simplified versions of reality used to analyze real­world  economic applications.  ­ Steps to building an economic model: ­ 1. Decide on the assumptions to use in developing a model. ­ 2. Formulate a testable hypothesis. ­ 3. Use economic data to test the hypothesis. ­ 4. Revise the models it fails to explain the economic data well. ­ 5. Retain the revised model to help answer similar economic questions in the  future. ­ Important features of economic models: ­ Assumptions and simplifications: every model needs them in order to be useful. ­ Testability: good models generate testable predictions, which can be verified or  disproven using data. ­ Economic Variables: measurable items that can be used to insert real­world data  into the model. ­ Rational ­ using all available resources to achieve your goal. 1 Friday, May 20, y ­ Opportunity cost ­ the highest­valued alternative given up in order to engage in  some activity. ­ Trade­off ­ an increase in the production of one good requires the reduction in  production of some other good.  ­ 3 Economic Ideas: ­ People are rational. ­ People respond to incentives. ­ Optimal decisions are made at the margin.  ­ Marginal cost/Marginal benefit ­ the additional cost or benefit associated with a  small amount extra of some action. ­ Marginal analysis ­ comparing MC and MB. ­ Choose an action that is MB≥MC. ­ The Economic Problem: ­ 1. What goods and services will be produced? ­ 2. How will the goods and services be produced? ­ 3. Who will receive the goods and services produced? ­ Types of economies: ­ 1. Centrally Planned Economies ­  where governments decide what to produce,  how to produce it, and who receives the goods and services (former USSR). ­ 2. Market Economies ­ where the decisions of households and firms determine  what is produced, how it is produced, and who receives the goods and services. ­ 3. Mixed Economies ­ have features of both of the above (most developed  countries, like the U.S., Germany, Japan, etc). 2 Friday, May 20, y ­ Positive analysis ­ the study of “what is?” (descriptive, can be tested with data,  doesn't have to be true though). ­ Normative analysis ­ the study of “what ought to be?” (judgmental, prescriptive,  reflects someone’s opinion rather than fact). Lecture 2 - Math Review ­ Macroeconomics ­ the study of the economy as a whole including topics such as  inflation, unemployment, and economic growth. ­ Slope ­ a measure of how much variable y changes when variable x changes by 1  unit (sensitivity measure).  ­ Slope formula: change in value on the vertical axis/change in value on the  horizontal axis = rise/run ­ Percentage change ­ the change in some economic variable, usually from one  period to the next, expressed as a percentage.  ­ percentage change formula for variable X: ­ (X new ­ X old/ X old) x 100% Lecture 3 - GDP: Measuring Total Production and Income ­ Economic Growth ­ refers to a phase of a business cycle when GDP is increasing.  ­ Business Cycle ­ altering periods of economic expansion and economic recession. ­ Expansion/Economic Growth ­ rising real GDP from a trough to the next peak. ­ Recession/Contraction ­ falling real GDP from a peak to the next trough. ­ Trough ­ the lowest point in real GDP at the end of a contraction or recession. ­ Peak ­ the highest point in real GDP at the end of an expansion, and right before a  contraction. ­ Recovery ­ the early part of an expansion, right after a trough. 3 Friday, May 20, y ­ Depression ­ a deep and long recession (The Great Depression of the 1930’s). ­ Inflation rate ­ the percentage increase in the aggregate price level from one year to  the next. ­ Unemployment rate ­ the percentage of the labor force that is unemployed. ­ Final good or service ­ a good or service purchased by a final user, such as a tire  purchased by John White. ­ Intermediate good or service ­ a good or service that is an input into another good  or service, such as a tire being purchased by Ford to be put on a Ford truck.  ­ GDP only includes the market value of final goods. ­ GDP only includes current year productions.  ­ Example: if you buy a brand new 2016 car, then its value will be included in the  GDP for 2016. However, if you buy a used 2010 car in 2016, its value will NOT be  included, The fees that you paid to a car dealer will be included in the year’s GDP  because it is a payment or service given to you in the current year. ­ 3 ways to measure GDP: ­ Spending approach (1st approach): ­ can be measured as the sum of total spending in the economy. ­ = C+I+G+NX ­ Components: ­ 1. Personal Consumption Expenditures, or “Consumption” (C) ­ spending  by households on goods and services, NOT including spending on new  houses, including domestic and imported goods. ­ 2. Gross Private Domestic Investment, or “Investment” (I) ­ spending by  firms on new factories, office, buildings, machinery, and additions to  inventories, AND spending by households on new houses. 4 Friday, May 20, y ­ 3. Government Consumption and Gross Spending, or “Government  Purchases” (G) ­ spending by federal, state, and local governments on goods and services. ­ 4. Net Exports of Goods and Services, or “Net Exports” (NX) ­ exports ­  imports ­ Income approach (2nd approach, least accurate): ­ can be measured as the sum of total income in the economy. ­ Components: ­ 1. Labor Income ­ sum of wages, salaries, and fringe benefits paid to workers. ­ 2. Capital Income ­ sum of profits, rental payments, and interest payments. ­ 3. Indirect Business Taxes ­ taxes, such as sales tax. ­ 4. Net Income of Foreigners ­ (the income of foreign owned assets used in  domestic production) minus (the income of American owned assets used in  foreign production). ­ 5. Depreciation ­ the amount by which physical capital wears out over a given period of time. ­ Value Added approach (3rd approach): ­ can be measured by summing all extra values (value added) created by every  business and every consumer. ­ Value Added ­ (value of the good produced) minus (cost of materials used in the production of that good). ­ Problems with using GDP as a measure of total production: ­ GDP does not include household production (goods and services people produce  for themselves) ­ GDP does not include underground economy (buying and selling of goods and  services that is concealed from the government to avoid taxes or regulations or  because the goods and services are illegal). 5 Friday, May 20, y ­ GDP does not include leisure. ­ GDP is not adjusted for pollution and other negative effects of production. ­ GDP is not adjusted for changes in crime and other social problems. ­ GD does not measure how total production is distributed inside the economy. ­ Nominal GDP ­ the value of final goods and services evaluated at current­year prices. ­ Real GDP ­ the value of final goods and services evaluated at base­year prices. ­ Price level ­ a measure of the average prices of goods and services in the economy. ­ GDP Deflator ­ a measure of the price level, calculated by dividing nominal GDP by  real GDP and multiplying by 100. ­ GDP deflator = (Nominal GDP/Real GDP) x100% ­ Inflation ­ percentage change in the price level. ­ Inflation = (GDP deflator year 2 ­ GDP deflator year 1/GDP deflator year 1) x100% Lecture 4 - Unemployment ­ Unemployment rate ­ the percentage of the labor force that is unemployed. ­ Working Age Population (WAP) ­ Non­institutionalized individuals 16 years or older. ­ Employed (E) ­ Anyone in the WAP who: ­ did any work at all as a paid employee ­ worked in their own business, profession, or on their own farm. ­ worked 15 hours or more as unpaid workers in a family­operated enterprise. ­ did not work but had jobs or businesses from which they were temporarily absent because of illness, vacation, labor dispute, etc. 6 Friday, May 20, y ­ part­time, “unemployed”, and self­employed (home businesses) persons are  counted as employed. ­ Unemployed (U) ­ Anyone in WAP who is not employed and: ­ has actively looked for a job during the survey period (last 4 weeks). ­ is waiting to be recalled for a job from which they were laid off.  ­ Labor Force (LF) ­ Anyone who is employed (E) or unemployed (U) is measured as: ­ LF = E+U ­ Discouraged Workers ­ people who are available for worked but have not looked for a job during the  previous 4 weeks because they believe no jobs are available for them. ­ NOT included in the labor force. ­ Labor Market Formulas: ­ The Unemployment Rate (UR) measures the percentage of the labor force that is  unemployed:  ­ UR = (U/LF) x100% ­ The Employment Rate (ER) measures the percentage of the labor force that is  employed: ­ ER = (E/LF) x100% ­ The Labor Force Participation Rate (LFPR) measures the percentage of the  working­age population in the work force: ­ LFPR = (LF/WAP) x100% ­ The Employee­to ­Population Ratio (EPR) measures the percentage of employed in the working­age population: 7 Friday, May 20, y ­ EPR = (E/WAP) x100% ­ 3 types of unemployment: ­ Frictional Unemployment ­ short­term unemployment that arises from the normal  turnover in labor markets.  ­ Structural Unemployment ­ unemployment arising from lack of skills; often results from technological progress. Usually lasts longer than frictional unemployment  (takes time to acquire a new skill). ­ Cyclical Unemployment ­ unemployment caused by a business cycle (recession). ­ Explaining Unemployment: ­ In the United States and most other industrial countries, the unemployed are  eligible for unemployment insurance payments from the government. ­ If the minimum wage is set above the equilibrium market wage, the quantity of  labor supplied will be greater than the quantity of labor demanded, causing  unemployment. ­ Economists believe that the current minimum wages is above the market wage for  some workers, but they disagree on the amount of unemployment that has  resulted. ­ Labor unions bargain with employers for higher wages and better working  conditions for their workers. ­ Some firms choose to pay their employees higher­than­market wages to increase  their productivity and minimize job turnover. ­ Efficiency wages cause unemployment because there may be workers willing to  work for less. 8


Buy Material

Are you sure you want to buy this material for

50 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."

Anthony Lee UC Santa Barbara

"I bought an awesome study guide, which helped me get an A in my Math 34B class this quarter!"

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.