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UNIT 1 UNIT 3 KEY TERMS

RANDOMUNIT 2 KEY CONCEPTS

- $100 Mention at least 3 factors that cause a shift in consumer demand:

Changes in:

1. Taste and Preferences2. Number of Consumers3. Price of Related Goods4. Income5. Future Expectations

- $200

A Production Possibilities Curve (or Frontier) illustrates trade offs facing an economy that produces only two goods. What are the Shifter of a PPC/PPF?

1. Changes in Resource (quantity/quality)2. Change in Technology3. Change in Trade

- $300

Determine if the point shown on the PPC is Unattainable, Inefficient, or Efficient.

(A)Efficient(B)Unattainable(C)Inefficient

- $400

State what each letter represents.

Supply and Demand Curve

A)EquilibriumB)ShortageC)Surplus

- $500

*For every computer, it must give up 5/3 of a car.*For every car, it must give up 1/3 of a computer.

Based on the chart, what is Japan’s opportunity cost of making computers? What is U.S’ opportunity cost of making cars?

Cars Computers

USA 12 4

Japan 10 6

- $100

Fill in the missing parts:

The Circular Flow Model

Households

Money

Goods and

Services

GDP= C+I+G+Xn1. Consumer Spending2. Investments3. Government Expanding4. Net Exports (Exports-Imports)

- $200

Name the 4 components of GDP:

- $300What kind of unemployment are there? Explain each of them.

1. Frictional-unemployment due to the time workers spend in job search.2. Structural-change in the structure of the labor force make that make some skills absolate. 3. Cyclical-results from a recession.

- $400

If a the government focus too much on preventing inflation and slows down the economy, what would happen?

*there will be unemployment

-hurt-help-hurt-hurt

- $500

Suppose a country has inflation, determine whether the following situation would help or hurt a(n):

-lender-debtor-saver-employee with a fixed income

- $100

Define Aggregate Demand and Supply:

*Aggregate Demand-all goods and services that buyers are willing and able to purchase at different prices.*Aggregate Supply-amount of goods and services that firms will produce in an economy at different price levels.

- $200

Graph and label each of the following: AD, SRAS, and LRAS.

PriceLevel

Real Domestic Output (Real GDP)

SRAS

AD

LRAS

- $300

What is the marginal propensity to consume? What is its formula?

*MPC-is the average propensity of disposable income to be consumed.*calculated by the change in consumption over the change in disposable income.

1____ 1____1-MPC MPS

OR

- $400

What are the shifters of AD and AS?

*Shifter of AD are changes in:-Consumer Spending-Investment Spending-Government Spending-Net Exports Spending

*Shifter of AS are:-Resource Prices-Actions of the Government-Productivity/Technology

- $500

*the Keynesian model advocates increasing government spending and lower taxes to stimulate demand.*the fiscal policy that would increase AD is Expansionary Fiscal Policy.

What is the Keynesian model? Identify what fiscal policy would increase AD in this model.

- $100

Define Opportunity Cost:

*the most desirable alternatives given as a result of a decision.

- $200

*Circular Flow Model

Fill in the blank:

“The _______ _______ _______ shows how factors of production go from households to firms in order to create goods for people to buy.”

- $300

Define Normative and Positive Economics:

*Normative-makes prescriptions about the way the economy should work, value judgements.*Positive-a branch of economic analysis that describes the way the economy actually works, fact based statements.

- $400

What is Nominal GDP?

*the total value of all goods and services produced in the economy during a given year, calculated with the prices current in the year in which the output is produced.

- $500

Define Discretionary Fiscal Policy:

*it means that the federal government must take deliberate action or pass a new law changing taxes or spending during economic hardships.

- $100

*Real GDP is adjusted for price changes; Nominal GDP is not adjusted for price changes.

What is the main difference between Real and Nominal GDP?

- $200

What causes movement along the AS curve?

*changes in the price level

- $300

According to automatic or built in stabilizers, what would happen to taxation during a recession?

*when a recession occurs, taxes usually decrease because persons and corporations make less. This gives them extra money to spend or invest, which helps GDP remain higher than it would otherwise.

- $400

According to automatic or built in stabilizers, what would happen to taxation during a recession?

*when a recession occurs, taxes usually decrease because persons and corporations make less. This gives them extra money to spend or invest, which helps GDP remain higher than it would otherwise.

- $500

Fill in the blanks:

“The downward sloping aggregate demand curve is explained by the _____ ______ effect, the _______ effect, and the _____ _____ effect.”

*interest rate*wealth (AKA real balance effect)*net export

- $100

Describe the Ratchet Effect:

*it is rare for prices to fall because its hard for resources’ prices to fall, therefore laver cost is rarely to fall. So it is easy for prices to go up but not down.

- $200

Give at least 3 examples of what is not included in the measure of GDP.

*stocks and bonds, transfer payments (such as Social Security benefits), unemployment compensation, some interest payments, profits earned by U.S.-owned companies overseas, and income earned by U.S. citizens working abroad.

- $300

State and give examples of the factors of production:

*land-minerals, timber, petroleum*labor-workers*capital-ovens,sewing machines, robots*entrepreneurship-taking risks for new enterprises, innovating, developing a new production process

- $400

Which type(s) of unemployment is inevitable?

*Frictional and Structural Unemployment

- $500

What are the Classical economic assumptions?

1. Prices of resources (wages) are very flexible.2. Change in AD will not change output; even in the short run.3. AD can’t increase without inflation.