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MACRO Exam 1

GDP, PPF

TermDefinition
Economy a system for coordinating society's productive activities
Economics social science that studies the production, distribution and consumption of goods/services
Command economy government officials decide what factories produce and what goods get delivered to households
Market economy production and consumption are the results of decentralized decisions made by many firms and individuals
Invisible hand way a market economy manages to harness the power of self-interest for the goods/services
Market failure when individual pursuit of self-interest that makes society worse off
Recession a downturn in the economy
Macroeconomics concerned with overall ups and downs of the economy
Economic growth the increasing ability of the economy to produce goods/services
Sustainable long-run economic growth economic growth over time that balances the environment and improved living standards for current and future generations
Individual choice decisions made by an individual about what to do and what not to do
Scarcity not having enough resources
Opportunity cost what you must give up to get an item you want
Trade-off comparison of costs and benefits
Marginal analysis the study of marginal decisions
Incentives anything that offers rewards to people to change their behavior
Interaction which my choices affect your choices and vice versa
Trade provide goods/services to others in return and receive goods/services in return
Gains from trade people can get more of what they want than they could get by being self-sufficient
Specialization people specialize in tasks that they are good at performing
Equilibrium when no individuals would be better off doing something different
Inflation a rise in prices throughout the economy government's control of quantity of money in circulation gives it another powerful tool that affects total spending
Simplifying assumption assume things to be true to make analysis of economy easier
PPF an economic model that shows combinations of goods/services that can be produced given resources and technology available
Resources land, labor, capital
Attainable all points inside are inefficient and points on the PPF and efficient
Unattainable all points that lie outside the PPF
Causes of economic growth 1. investment in physical capital- equipment and structures 2. investment in human capital- skills and knowledge workers have 3. increases in resources- having a larger labor-force 4. technological advances- increases labor productivity
Ways PPF shifts inward 1. decrease in labor force 2. natural disaster 3. loss of resources 4. war/pandemic
Capital goods goods used to produce other goods/services-education/equipment
Consumer goods goods that get used up and aren't used to produce other goods/services- coffee/clothes
GDP market value of all finished goods/services produced in a country in a given period of time (measures how much stuff we produce)
Finished good corn sold at a farmer's market by a farmer
Intermediate good farmer's sell corn and corn is used for ethanol
Expenditure approach adds all expenditures of firms, consumers, government and other countries within the economy
Income approach adds all sources of income received by the factors of production within the economy
Factors of production land, labor and capital
Expenditure equation GDP= C + I + G + NX (consumption, investment, government, net exports)
Real v Nominal GDP nominal includes inflation while real doesn't because they have a base year for the price
GDP per capita equation GDP per capita= GDP/ total population
Created by: lexpatrow
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