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10/8/18
ECON EXAM #2
1. CHAPTER 6: INTRO TO MACROECONOMICS
The main objectives of this chapter are to go over some fundamental terms and ideas of macroeconomics. It explains how GDP, inflation, and unemployment are focused on when assessing the health of an entire economy. We also look at how and why the standards of living have dramatically increased in recent history. Looking at economic trends, we look at the flexibility of prices and how it affects to economy.
A. Key terms and Concepts
i. Business Cycle: increases and decreases in economic activity over time; consisting of peaks, recession, troughs, and expansion ii. Recession: period of declining real GDP, accompanied by a lower real income and higher unemployment rate
iii. Real GDP: Gross Domestic Product adjusted for inflation (GDP in a year divided by GDP Price Index, expressed as a decimal)
iv. Nominal GDP: GDP measured in terms of price level at that time, not adjusted for inflation
v. Unemployment: failure of an economy to employ its full labor force vi. Inflation: a general increase in prices and fall in the purchasing value of money
vii. Two important economic questions: Can the government promote economic growth, and can they reduce the severity of recession? viii. Modern Economic Growth: increase in the capacity of an economy to produce goods and services, compared to a previous time period ix. There is no recorded economic growth in history before the Industrial Revolution
x. Investment: purchase of goods that are not consumed today but are used in the future to create wealth We also discuss several other topics like What are the five types of chemical bonds?
xi. Financial Investment: investment in monetary assets such as stock xii. Economic Investment: investment in durable, productive resources xiii. Shocks: unexpected or unpredictable event that affects an economy, either positively or negatively If you want to learn more check out What is meant by the concept of a strategic fit?
xiv. Inventory: produced goods that are unsold
xv. Inflexible (Sticky) Prices: prices that remain the same, despite changes in the broad economy that suggest a different price is optimal
xvi. Flexible Prices: prices that adjust in response to market shortages or surplus
xvii. All prices are flexible in the long run
2. CHAPTER 7: MEASURING DOMESTIC OUTPUT AND NATIONAL INCOME
This chapter focuses on GDP, how it is determined, its relationship to other important economic terms, its nature and function, and the limitations of GDP.
A. Key Terms and Concepts
i. National Income Accounting: technique to measure the overall production of a country’s economy
ii. Gross Domestic Product (GDP): the total market value of all final goods and services produced annually in a nation
iii. Intermediate Goods vs Final Goods: Final goods are what is finally sold as the product and intermediate goods are all the goods that go into a final good
iv. Multiple Counting: wrongly including intermediate goods when calculating GDP
v. Value Added: when the price a product is sold at is higher than the cost of production
vi. Expenditures Approach: a way to view GDP as the sum of all the money spent in buying it If you want to learn more check out What are the types of enzyme inhibition?
vii. Income Approach: a way to view GDP in terms of the income derived or created from producing it
viii. Personal Consumption Expenditures (C): covers all the expenditures made by households on goods and services
ix. Durable vs Nondurable goods: durable goods are products that have a life expectancy of 3 or more years, nondurable goods are goods that are consumed quickly, if not immediately
x. Services: work done by laborers
xi. Gross Private Domestic Investment (Ig): All final purchases of machinery, equipment, and tools by business enterprises/all
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construction/changes in inventories/money spent on research and development or art
xii. Net Private Domestic Investment: only investment in the form of added capital
xiii. Government Purchases (G): expenditures for goods and services that the government consumes in providing public service/ for publicly owned capital/ on research and development and other activities that increase the economy’s stock of know-how We also discuss several other topics like Why is the destruction of pompeii historically significant?
xiv. Net Exports (Xn): Exports minus imports
xv. National income: total income earned by resource suppliers xvi. Consumption of fixed capital: amount of capital used during production
xvii. Net domestic product (NDP): capital that had been consumed over the year in the form of housing vehicle, or machinery deterioration xviii. Personal income (PI): before-tax income of an individual xix. Disposable income (DI): amount of money that households have available for spending and saving after income taxes
xx. Price Index: comprehensive measure used for estimation of price changes in a basket of goods and services
xxi. Base Year: a year used to compare in the measure of a business activity
xxii. Gross Output (GO): total economic activity in the production of new goods and services in an accounting period
3. CHAPTER 8: ECONOMIC GROWTH
This chapter covers the ways that economic growth is measured, defines “modern economic growth”, identifies forces that grow the economy, and discusses differing perspectives as to whether growth is desirable and sustainable. We also discuss several other topics like What is parsimony?
A. Key Terms and Concepts
i. Economic Growth: an increase in the amount of goods and services produced per head of the population over a period of time
ii. Real GDP per capita: Inflation-adjusted output per person iii. Rule of 70: means of estimating the number of years it takes for a certain variable to double (years)
iv. Modern Economic Growth: sustainable increase in real GDP per capita
v. Leader Countries: countries that develop and use the most advanced technologies
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vi. Follower Countries: countries that adopt the technologies of leader countries
vii. Supply Factors: supply related factors that boosts economy improved tech, increase in quality and quantity of natural
resources, human resources, and stock of capital goods If you want to learn more check out What is the death instinct?
viii. Demand Factor: aggregate demand increases at the same rate as potential output
ix. Efficiency Factors: capacity of an economy to achieve allocative efficiency and productivity efficiency
x. Labor Productivity: total output divided by the amount of labor employed to produce it
xi. Labor-Force Participation Rate: percentage of the working-age population that is actually in the work force
xii. Growth Accounting: procedure used to measure the contribution of different factors to economic growth
xiii. Infrastructure: basic physical systems of business or nation (transportation, communication, sewage, water and electric systems)
xiv. Human Capital: collective skills, knowledge, or other intangible assets of individuals that can be used to create economic value for laborers
xv. Economies of Scale: the situation when a firms average total cost of producing a product decreases in the long run as the firm increases the size of its plant
xvi. Information Technology: efficient methods of receiving information through technology
xvii. Start-Up Firms: a new firm focused on creating and introducing a particular new product or employing a specific new production or distribution method
xviii. Increasing Returns: larger increase in output than in input xix. Network Effects: increases in the value of a product to each user, including existing users, as the total number of users rises
xx. Learning by Doing: skills and knowledge gain from repetition of a task
4. CHAPTER 8: BUSINESS CYCLES, UNEMPLOYMENT, AND INFLATION
This chapter discusses the business cycle and its primary phases. More in depth, it explains unemployment (how it is measured and the different
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types), how inflation is measured and how it related to real income, and how inflation may affect the economy’s level of real output.
A. Key Terms and Concepts
i. Peak: a point in the Business Cycle at which business activities have reaches a temporary maximum
ii. Trough: a point in the Business Cycle at which business activities have reaches a temporary minimum
iii. Expansion: Real GDP, income, and employment reach a maximum iv. Labor Force: all people 16+ who are employed or seeking work v. Unemployment Rate: percent of the labor force that is unemployed at any time
vi. Discouraged Workers: employees that leave the labor force because they were unable to find work
vii. Frictional Unemployment: a natural form of unemployment caused by workers in between jobs
viii. Structural Unemployment: employees who lack sufficient skill for the job or can’t easily move locations
ix. Cyclical Unemployment: unemployment due to recession x. Potential Output: real output an economy can produce when fully employing its resources
xi. Okun’s Law: for every 1% rise in unemployment, there is a 2% loss in country’s production
xii. Deflation: opposite of inflation, overall decrease in average price level
xiii. Demand-Pull Inflation: Inflation resulting from increase in aggregate demand
xiv. Cost-Push Inflation: Inflation caused by decrease in aggregate supply
xv. Nominal Income: Number of dollars received by an individual for their work
xvi. Real Income: Nominal income adjusted for inflation xvii. Unanticipated Inflation: affects fixed-income receivers, savers, and creditors
xviii. Anticipated Inflation: redistribution from lender to borrower may be altered
xix. Cost-of-living Adjustments (COLAs): adjusted incomes for workers xx. Hyperinflation: abnormal, rapid, and extreme inflation
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