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KSU - ECON 12906 - Study Guide - Midterm

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KSU - ECON 12906 - Study Guide - Midterm

School: Kent State University
Department: Economics
Course: Principles of Macroeconomics
Professor: Laurie Skul
Term: Fall 2016
Tags: Macroeconomics, Macro, Microeconomic, micro, Economics, and Econ
Name: Macroeconomics, Week 3, Study Guide
Description: This study guide covers chapters 1, 2, 3, and 4 which will all be on our first exam, next Thursday. Good luck!
Uploaded: 09/16/2016
0 5 3 31 Reviews
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background image Macroeconomics   Exam #1: Study Guide  Chapter 1 : The Interconnected Economy  - Economy  is the way a society organizes the consumption, distribution, and production of goods and services It  answers: what is produced, how, and who for.  - Market  brings together buyers and sellers of goods and services. A  market-oriented economy  is when buyers and  sellers make most economic decisions. A  command economy  is when the government makes most economic  decisions. Most economies fall somewhere in the middle of the two extremes.  - Division of labor  is when people earn income by specializing in productions and using that income to purchase  the products they desire. Reasons for division of labor: specialization, encourages inventing and learning, and 
economies of scale. 
-Microeconomics  focuses on individuals, firms, and industries.  Macroeconomics  focuses on general issues such as  the growth in the standard of living, unemployment, inflation, and levels of foreign trade.  -Macroeconomics has four main goals: growth in the standard of living, low unemployment, low inflation, and 
sustainable balance of trade. To accomplish these goals there are two types of policies: monetary and fiscal. 
-Circular Flow Diagram:          Goods and Services Market               Goods and Services                             Payment for G&S                     Labor Market  Households      Labor      Firms               Payment for Labor                          Financial Capital Market               Financial Capital                Payment for FC       
background image Chapter 2 : Choice in a World of Scarcity  - Scarcity  is when people’s desires exceed what is possible resulting in  trade- offs , which is when individuals, firms,  government, and society give up things they desire for other things they desire.  Intertemporal choices  are costs in  the present and benefits in the future or benefits in the present and costs in the future.  - Budget constraint : know how to create one!  Compound Interest  = (Present amount) * (1 + interest rate) (number of years)  = Future amount  - Opportunity cost  measures the cost by what is sacrificed. Be able to calculate!  -Economic decisions involve thinking on the margin. The law of  diminishing marginal utility  shows that as a  person receives more of a specific good or resource, the additional marginal gains becomes smaller.  Sunk costs  cannot be recovered and should be disregarded when making current decisions. The  law of diminishing returns  states that as increments of additional resources go towards production, the marginal increase in output becomes 
smaller. 
- PPF : know how to calculate and build one!  Productive efficiency  means you can’t produce more of one good  without decreasing the production of another. Society prefers  allocative efficiency - Positive statements  show the world as it is while  normative statements  show how the world should be.  Chapter 3 : International Trade  - Absolute advantage  is when a country has a productivity edge over others. When two countries have an absolute  advantage in different goods, they can both benefit by specializing in the product in which they have the absolute 
advantage and then trading. 
Comparative advantage  is when a country’s cost of production/opportunity cost is  lowest. Same as absolute advantage, countries benefit by specializing in the product in which they have a 
comparative advantage and then trading. Be able to calculate both! 
- Intra-industry trade  is when a country imports and exports the same goods at the same time. The gains from trade  come from specialization and economies of scale. Specialization in the work economy is called  splitting up the  value chain . International trade causes disruption and controversy since it involves over $20 trillion worth of  goods and services around the world.                 

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School: Kent State University
Department: Economics
Course: Principles of Macroeconomics
Professor: Laurie Skul
Term: Fall 2016
Tags: Macroeconomics, Macro, Microeconomic, micro, Economics, and Econ
Name: Macroeconomics, Week 3, Study Guide
Description: This study guide covers chapters 1, 2, 3, and 4 which will all be on our first exam, next Thursday. Good luck!
Uploaded: 09/16/2016
3 Pages 41 Views 32 Unlocks
  • Better Grades Guarantee
  • 24/7 Homework help
  • Notes, Study Guides, Flashcards + More!
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