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MACRO Exam 1
GDP, PPF
| Term | Definition |
|---|---|
| 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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