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Econ 200, Study Guide 2

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by: Brianna Dowell

Econ 200, Study Guide 2 ECON 200

Marketplace > James Madison University > Economcs > ECON 200 > Econ 200 Study Guide 2
Brianna Dowell
GPA 3.4
Amanda Deerfield

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About this Document

This study guide covers ideas that may be found on the test.
Amanda Deerfield
Study Guide
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This page Study Guide was uploaded by Brianna Dowell on Saturday March 19, 2016. The Study Guide belongs to ECON 200 at James Madison University taught by Amanda Deerfield in Spring 2016. Since its upload, it has received 170 views. For similar materials see Macroeconomics in Economcs at James Madison University.


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Date Created: 03/19/16
Econ 200 TERM De nition Factors of Production Land labor capital entrepreneurship Opportunity Cost The loss of potential gain from other alternatives when one alternative is chosen Production possibilities frontier PPF Boundary of what can and cannot be produced Price Controls When the government establishes prices to be charged for goods and services Price Ceiling Legal maximum price that prevents prices from rising Set below equilibrium price Price 393upnlr P llama rid Shortage 39 I I I I 1 t 393 Quantity Rent Control Landlords are unable to raise rent Price Floor Legal minimum price that prevents prices from falling too low Set above equilibrium price Price Erlrplu SUPPI Pquot P llama rid I I I I I I I I I I I Q Q x t Quantity When too much is produced the output 1 Destroyed is 2 Bought by government 3 Subsidized by government Per Capita GDP or quotstandard of livingquot Economic indicator to compare countries Measured by dividing GDP over population Bureau of Labor Statistics BLS Conducts survey caed quotCurrent Population Surveyquot which is a monthly household survey that collects info on employed and unemployed Working age population The total population within a set range Econ 200 of ages ie 1665 that is able to work Labor Force Consists of those employed and unemployed Employed Currently has a job Unemployed Does not have a job but is searching forone People not in labor force Some homeless retired students disability stay at home momdad Labor Force Participation Rate Labor force x1 DD Working age population Calculating unemployment rate U me m p lloyed Unemployment Rate Tollall Lalbor Force Marginally Attached Worker Does not have a job and has not made effort to nd a job in past month but is willing to work Discouraged Worker Has not made an effort to nd a job in past month because they got discouraged in past attempts 3 Macroeconomic Goals 1 Economic growth 2 Stable prices no volatile in ation 3 Low unemployment 4 types of unemployment Fristional structural seasonal cyclical Frictional unemployment Arises due to normal friction in the economy Ex students searching for a job Structural unemployment Comes from changes in the structure of the labor market indicates tech innovation Ex a machine takes your job Seasonal unemployment Seasonal jobs Ex dressing as santa in Nov and Dec Cyclical unemployment Unemployment due to recession Cyclical unemployment moves with the Business Cycle The Business Cycle UTlFUT iiDP nomol Trand1 contraction 7 iiiough TIME Natural Rate of Unemployment Frictional unemp Structural unemp Zero unemployment ls bad It causes in ation Loanable Funds Market Money that is used to save and lend to Econ 200 borrowers for investing Real llntere st Rate quot1 quot Savin gs quotSquot Quantity of Loanable Funds The Market for Loanahle Funds investment quotDquot Types of nancial intermediaries Banks mutual funds savings and loans insurance companies stocks and bonds Banks Takes deposits and make loans available Mutual Funds A company that sells stocks and bonds to other comapanies for you Insurance Companies Invest your premium in other compainies Ex Warren Buffett owns Geico and invests in companies like CocaCola Treasury Bond Issued by US government an IOU Preferred Stockholders Stock that pays a xed dividend Common Stock Receives pro ts based on ratio of shares held Retained earnings Reinvesting money into a corporation Thomas Malthus Economist during 1700s that believed a population incresase would lead to famine but he didn39t acount for technological innovation This is known as the Malthusian Trap Nominal Interest Rate Amount a borrower pays a lender including interest Real Interest Rate Nominal interest in ation Disposable Income Income taxes Default risk Likelihood of being paid back after lending out money National Savings Public savings Private savings Government budget surplus D Increase supply of loanable funds Real interest rate falls and quantity rises This increases investment Government budget de cit D Increases demand for funds Less investment bc interest rate is higher Aggregate Demand Sum of the demand for all nal goods and services Comprised from the Econ 200 componenets of GDP Aggregate Demand Curve P ee lEvBl AIS Real GDP Figure 1 An aggregate demand curve If price level changes we move along the curve Things that will shift curve consumption investments government 3 reasons why the aggregate demand curve slopes downward 1 The wealth effect 2 The interest rate effect 3 The open economy effect The Wealth Effect A rise in price level lowers buying power of money and decreases quantity of real GDP demanded The Interest Rate Effect A If price level T people spend more and save less Interest rates I and real GDP I B If price level I people save more and spend less Interest rates I and real GDP T The Open Economy Effect A If price level I in US we will import T and export I This means real GDP will fall B If price level I in US imports I exports T and real GDP demanded rises Aggregate Supply Relationship between quantity of goods and services suppliers are willing to pay at a given price level 2 kinds of curves Short Run Aggregate Supply SRAS Too short of a time period for input prices to change Econ 200 SRAS Curve 5 RAE EDP Price Deflator RmaIEDP 1 As prices increase so does quantity supplied D unemployment l 2 As prices decrease so does quantity supplied D unemployment T Long Run Aggregate Supply LRAS Long enough time period for input prices to change vertical line LRAS Curve LIFE ES EDP Purim Deflator RmaIGDP Change in price level does not change amount of real GDP supplied Potential GDP Real GDP l Unemp Rate Natural Rate of Unemp If potential GDP gt Real GDP D UR gt NRU If potential GDP lt Real GDP D UR lt NRU All together lp ri e level LRAS AD V Real GDP Anything that increases quantityquality of a factor of production increases both long run and short run shift in the same direction


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