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Economics Midterm

Intro to Economics Midterm Review

QuestionAnswer
Economics How societies organize themselves to provide for their material well-being.
Resources -Natural Resources (Land) -Human Resources (Labor) -Reproducible Inputs (Capital)
Commodity Anything produced for sale in a market
Production The action of making or manufacturing from components or raw materials, or the process of being so manufactured.
Economic Problem -What to Produce? -How to Produce it? -How to distribute what is produced?
Institution Social rules and codes of behavior that determine: -Who does what? (Division of Labor) -Who gets what? (Distribution of Social Product)
Reciprocity Mutual Gift Giving (strengthens social bonds, imposes obligation to give something back, etc.)
Surplus Production above and beyond what it takes to reproduce the society, including labor and inputs used up in production.
Technology Relationship between inputs and outputs.
Investment Using the surplus to increase the size of the inputs.
Economic Growth The higher output resulting from more inputs.
Profits The surplus itself.
Command Society -Political institutions determine production and distribution. -Command can be an effective way of marshaling resources.
Capitalism (or Market) Economy -Market organizes production and distribution because it has no central organization. -Appears to be just millions and billions of independent decisions concerning buying and selling.
Embedded vs. Disembedded -Traditional societies' economies are embedded in cultural institutions. -Command societies' economies are embedded in political institutions. -In Market societies, a distinctly economic institution governs production and distribution.
Mixed Systems There are no 'pure' systems of any type - tradition, command, or market.
Examples of Command in Modern Society -Government Production and Distribution -All taxation and redistribution (Social Security, etc.)
Examples of Tradition in Modern Society Tipping, holiday gift-giving, bonuses, DIY, etc.
Name the 4 Sectors -Government -Household -Firm -Foreign (rest of the world)
GDP Gross Domestic Product - The market value of all final goods and services produced in a nation during a period of time (usually measured yearly or quarterly).
Three Ways to Calculate GDP Production, Spending, and Income.
What does 'C' stand for? Consumption
What does 'I' stand for? Investment
What does 'G' stand for? Government Spending
What does 'X' stand for? Exports
What does 'M' stand for? Imports
What does it mean when X > M? Trade Surplus --> Higher GDP
What does it mean when M > X? Trade Deficit
What does it mean when X-M? Trade Balance
What components, when added together, make up GDP? GDP=C+I+G+(X-M)
Nominal GDP Based on current market prices.
What are the mathematical components of Nominal GDP? GDPn = PY (Price x Goods)
Real GDP (Y) a measure of GDP that seeks to reflect the actual value of goods and services produced, by removing the effect of changes in prices.
Base Year The year whose prices are chosen for evaluating production in all years. Real and nominal GDP are equal in the base year.
Calculate Real GDP Real GDP = (Nominal GDP ÷ Price Index) x 100
Disposable Income (Yd) Yd = Y - T (Income - Tax Obligation)
Savings (S) S=Yd - C
GDP Equation Derivation (S - I) = (G - T) + (X - M)
Deficit Issue Exporter gets dollars --> Exporter converts dollars into their own currency --> Bank gives dollars to Central Bank --> Central Bank buys US Treasury Bonds with obtained dollars.
Created by: 1555412974
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