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ECON Exam 2
| Term | Definition |
|---|---|
| Ex of Price Ceiling | Landlords can't charge more than $1,000 a month Binding when market is at $1400 people cant find enough houses |
| Ex of Price Floor | Minimum Wage at $15 Biding is when equilibrium is at $12 |
| Consumer Surplus | Area below demand curve and above the market price |
| Producer Surplus | Above the supply curve and below market price |
| Demand ↓ and Supply ↑ | Quantity ↓ for sure, Price is ambiguous. |
| Households supply ______ and Demand________ | labor and goods |
| Uber has a surcharge to keep up with demand | T or F |
| How useful are anti price gouging laws? | They are useful but hurts the economy and can't allow equilibrium. |
| Demand Markets contain | Buyers, Labor is the supply |
| GDP = | Gross Domestic Product within the country |
| GNP = | Gross National Product - all product + American product from American owned factories |
| What are some signs of a recession | Falling GDP, Rising unemployment, declining consumption |
| What is a trade defecit | We import more than we export |
| Durable vs. non-durable goods. | Durable = House Nondurable = gas |
| What is not included in GDP? | (used goods, underground economy and transfer payments, intermediate goods) |
| What makes up the income approach to GDP? | Income approach adds up wages, rent, interest, and profit — plus taxes and depreciation — to measure total income earned from producing goods and services. |
| Nominal GDP | Nominal GDP measures the value of all final goods and services using current-year prices. |
| Real GDP | Real GDP measures the value of all final goods and services using constant (base-year) prices. |
| If prices increase by 5% and output increases by 2% what happens to nominal GDP | Nominal GDP = 7% |
| Why does the Fed try to achieve 2% Core Inflation? Why Core Inflation instead of overall inflation? Why 2%? Why not 0%? | To avoid deflation. |
| What is the “natural rate” of unemployment? | 4% |
| Structural Unemployment | When something like a robot replaces you |
| Frictional Unemployment | Natural looking for a better job |
| Cyclical Unemployment | Unemployment due to economic slow down |
| Stagflation | Unemployment with high inflation |
| (What is the discouraged worker effect?) | Want a job Looked for work in the past Stopped looking because they believe no jobs are available The moment they stop actively searching, the government stops counting them as unemployed. |
| What has historically been different about frictional unemployment in Europe as opposed to the U.S.? Why is this the case | European labor markets have stronger job‑protection laws, more generous unemployment benefits, and more regulations, all of which make job searches longer and transitions slower. |
| Okun’s Law | 1% increase in the unemployment rate correlates with a 2% decline in GDP or an increase in the GDP Gap of 2% |
| What is inflation? | Inflation is a sustained increase in the average price level |
| What was the inflation rate with the SPI this year? | 7% |
| Does the CPI overestimate or underestimate the problem of inflation? | Overestimate |
| Does the unemployment rate overestimate or underestimate the problem of unemployment? | Underestimates |
| What is the biggest problem with hyperinflation? | Destroys the value of money so fast |
| CPI | Consumer Price Index - Measures the cost of a fixed basket of goods and services purchased by households. |
| PPI | Producer Price Index - Measures prices of goods and services at the wholesale or producer level. |
| Rate Interest rate calculation | Nominal Interest Rate=2120−2000/2000 = 6% and inflation rate was 4% so real interest ibn 2% |
| Understand the “Rule of 72” and be able to calculate changes in output for a given growth rate over time. | Rule of 72 tells you how long it takes for output to double: divide 72 by the growth rate. Then use the number of doublings to estimate how much output increases over time. |
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