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62 Cards in this Set
- Front
- Back
Scarcity means:
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we can't satisfy all our wants
we must make choices |
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True or False
For rich people, there is no scarcity problem. |
false
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Name the three productive resources
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land
labor capital |
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What kind of statement is 'every child should go to school?'
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normal statement
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Ceteris paribus
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keeping all other factors constant besides the one we want to study
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Opportunity cost
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the value of the highest valued alternative forgone
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Over spring break, you fly to Daytona Beach, Florida and stay in a hotel. Once there, you must decide wheter to spend an afternoon swimming or sailing. The opportunity cost of saiting includes
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the pleasure of swimming
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The production possibilites frontier is the boundary between
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the attainable and unattainable combinations of goods and services
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Marginal cost
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number of something cut
divided by the additional number of units obtained |
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Moving from one point to another on a production possibilities frontier implies
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increasing the production of one good and decreasing the production of another
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A major earthquake occurs in the central part of the U.S. What impact would this have on the nation's production possibilites frontier and why?
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It would shift inward because some of the nation's resources, such as capital and labor, would be destroyed
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A movement from one point on a production possibilities frontier to another represents
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a trade off
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If the PPF is bowed outward, the opportunity cost is
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increasing
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What is the quantity demanded?
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the amount of a good people are able and willing to buy during a specific time period and at a given price
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The law of demand refers to how
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the quantity demanded changes when the price of the good changes
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In stores, it is common to find products marked as 'on sale' at a lower price than usual. What explains this behavior?
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the law of demand is being used to increase the quantity demanded
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As Americans have a higher income, the demand for health care would
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increase
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Gas and cars are complements. When gas prices rise, the demand for cars will
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decrease
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People expect that next years auto price would increase. What will happen to the demand for auto this year?
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increase
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The phrase 'a change in demand' most directly implies a
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shift in the demand curve
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If consumers' preferences for a good increase, then
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the good's demand curve shifts rightward
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Ford found a new and more efficient way to produce cars. What will happen to supply?
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increase
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Milk can be used to produce cheese or butter. If the price of a pound of butter rises, what happens to the supply of cheese?
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the supply of cheese decreases
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With the news that a hurricane may hit TX (important oil production area in the US) next month, what is likely to happen to the supply of oil this month
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increase
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In a market, the supply increases and demand decreases. What will be the change to market price and quantity
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price falls
quantity undecided |
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Price floor may cause
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surplus
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Price ceiling may cause
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shortage
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The pollution caused by a steel plant is an example of
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negative externality
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The argument for government subsidy for flu vaccination is
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positive externality of the flu vaccination
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The price elasticity of demand measures
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how responsive the quantity demanded is to changes in price
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If the price of a six pack of Pepsi falls from 4 to 3 and the quantity purchased increases 80%, then demand is
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elastic
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If a substitute good is easy to find, then demand for a good is
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elastic
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If demand is price inelastic and the price is lowered, what of the following occurs
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the total revenue of the firms selling the product decreases
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If money wage increases, aggregate supply would
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decrease
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If oil price is lower, aggregate supply would
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increase
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When the price level is lower, the quantity of real GDP demanded would increase because of
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the real balance effect
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When aggregate demand increases, given other things constant, what will happen?
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price level increases, real GDP increases
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Oil prices rise by 100%. What are the effects on the economy?
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price level increases and real GDP decreases
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Affregate equilbrium occurs when
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treal GDP demanded equals to the real GDP supplied
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M1 includes
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checkable deposits
currency travelers checks |
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M2 includes
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currency in circulation
small time deposits saving deposits |
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Bank reserves include
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banks deposits with the central bank
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When a bank calls in a loan of 1 million, how much money is created?
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1 million
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Citi bank will get more reserves when
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the Fed buys bonds from Citi bank
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If an economy is at a recessionary gap, a proper fiscal policy should be
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increase government expenditure
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If an economy is at an inflationary gap, a proper fiscal policy should be
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increased tax
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If an economy is at a recessionary gap, a proper monetary policy should be
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lower interest rate
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If an economy is at an inflationary gap, a proper monetary policy should be
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to sell securities in the open market
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real income
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= (nominal income)/CPI
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CPI
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= (nominal income)/(real income)
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annual rate of inflation
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[(CPI in year - CPI in previous year)/
(CPI in previous year)] *100 |
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real intreset rate
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= nominal intreset rate - inflation rate
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Marginal propensity to consume (MPC):
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(change in consumption spending)
/ (change in income) |
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Spending multiplier
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= 1/(1-MPC)
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Increase in GDP
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gov spending * spending multiplier
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Nominal income
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the actual numner of dollars recieved over a period of time
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Real income
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The actual number of dollars recieved adjusted for changes in the CPI
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Nominal intreset rate
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the actual rate of intreset without adjustment for the inflation rate
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Real intreset rate
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the nominal rate of interest minus the inflation rate
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Aggregate demand curve
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the curve that shows the level of real GDP purchased by households, businesses, government and foreginers at different possible price levels during a time period, ceteris paribas
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real balance effect
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the impact on total spending caused by the inverse relationship between price level and the real value of financial assets with fixed nominal value
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Discretionary Fiscal Policy
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the deliberate use of changes in government spending or taxes to alter aggregated demand and stabilize the economy
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