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100 Cards in this Set

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  • Back

measures how much of something there is at a given time

stock variable

measures how much something changes over time

flow variable

the amount a recent college grad pays each month in student loan payments

stock or flow


the amount a recent college grad owes in student loans stock or flow


the value of your car stock or flow


the amount by which your car decreases in value each year stock or flow


the number of candaian immigrants living in the US stock or flow


the number of canadians who emigrate to the US each year stock or flow


how do you calculate the percentage change in aggregate output from 1990-1991

change in GDP from 1990-1991/(level of gdp in 1990)

how is a contraction represented on a graph plotting aggregate output

level of aggregate output slopes downward

how is a contraction represented on a graph plotting annual change in aggregate output percentage

plots for aggregate output during contraction are below zero or negative

is the region you call the contraction approximate or exact

approximate because you don't know when the growth rate turned negative

data on recent interest rates that can be a good indicator of whether the economy was recently in a recession

not a good indicator of whether economy will be or soon will be in a recession

lagging economic indicator

data on stock market prices which can be a good indicator of whether the economy will likely be in a recession soon

not a good indicator of whether economy is currently or was in a recession

leading economic indicator

useful simplification of the macroeconomy used to explain short run fluctuations in economic activity around its long run trend

Aggregate demand aggregate supply curve

what does the horizontal axis of the aggregate demand and aggregate supply curve measure

an economy's aggregate output or quantity of a product

what does the vertical axis of the aggregate demand and aggregate supply curve measure

the price level

why does the short run aggregate supply curve slope upward

as the price level rises firms expand their production because they can sell their output for money

a curve that represents the total quantity of goods and services supplied by domestic suppliers as a function of price level

aggregate supply curve

when a firm response to an increase in price of computers by buying fewer computers is the change captured in aggregate demand or aggregate supply curve

aggregate demand curve

what is the focus of macroeconomics shaped by

major events in economic history

what is the focus of macroeconomic policy shaped by

government legislative responses to these major events

prior to the great depression what did economists believe the economy was

self regulating

true or false

prior to the collapse economists believed that markets needed to be free of government interference to operate effectively


true or false

grim business expectations during 1929 and 1933 negatively affected the aggregate supply


in the 1980s what was on of the strategies to fight stagflation and what was the result of this

lower tax rates to increase aggregate supply thereby increasing output and employment

During the great depression prices plummeted as unemployment skyrocketed and factories lay idle show if and how this shifts AD and AS curves

AD shifts left along supply curve

sinking incomes and poor macroeconomic policy caused households and firms ti buy fewer goods and services at any price level

what do economists assume that a firm and entrepreneur's decisions are made in an attempt to

maximize profits

what do economists assume households make decisions in an attempt to

maximize utility

given to people that have few resources that are valued in the market due to either disability discrimination or poor health

short term public assistance

short term public assistance such as welfare benefits social securtiy unemployment compensation and disability benefits, food health care, and housign

transfer payments

order the largest sources of personal income in the US

transfer payments, personal interest, and proprietor's income

how do economists look at any situation

by its comparative parts

what are the comparative parts of an economy

the people making decisions, the environment in which they're making those decisions, and the goods or services being exchanged

activities surrounding a family automobile. which of the following car related items are services choose all that apply

a) windshield wiper blades

b) getting a tire rotation

c) receiving an oil change

d) an air freshener for your vehicle

b and c because services are acts that consumers pay for

Sole Proprietorships, Partnerships and Corporations

which is the most sheer in numbers?

which is the most important in total sales

a) proprietorships, partnerships, corporations

b) corporations bring in the most sales

3/4 of firms are sole proprietorships

allows firms to produce many goods and services at lower production and transaction costs than individuals can


why do households still produce some goods and services for themselves

households can minimize transaction costs by producing some goods and services for themselves

production of some goods and services doesn't require special skills or resources

do it yourself job is tax free no income tax

technological advances have increased household productivity thereby reducing cost of cooking cleaning and doing chores

what is the primary function of government being served when the government levies a tax on consumers and businesses to pay for the provision of a public good such as national defense

reallocating resources

what is the primary function of government that is being served when members of the federal reserve bank the central bank of the us meet every six weeks to adjust interest rates according to economic issues

promoting stability

how does the government make goods available for producing public

levying taxes on households and businesses; taking income and purchasing power away; reducing private demand

enables government to shift new resources to production of public goods

how does the government promote stability in the economy

adjusts interest rates which is a form of monetary policy. interest rates affect consumption and investment which affect unemployment and infaltion

when does a situation not involve externalities

actions neither impose costs nor generate benefits or a third party

progressive income tax

high income tax payers pay a larger fraction of their income than lower income tax payers


high income taxparyers pay a smaller fraction of taxes than lower income taxpayers


average tax rate is the same reguardless of of taxable income




formula for net exports of goods and services

= Exports - imports

expenditure approach

the method of calculating GDP which involves summing the amount spent on final goods and services

income approach

calculating GDP aggregates the income generated by production by summarizing the value added at each stage of production

The contribution that you found using hte expenditure approach corresponds to the _______ at each stage of production

value added

list aggregate expenditures

consumption, net exports, government purchases, investment

list aggregate income

Disposable income, net taxes

while aggregate income must equal aggregate expenditure, income must also equal expenditure for each of the five sectors of the circular flow model: households, firms, governments, financial markets, and the rest of the world. In the financial sector, the amount flowing into the sector or ________ must equal the amount flowing out of the sector _____________


investment plus government borrowing

what are the injections of spending

exports investment and government purcahses

what are the leakages

saving net taxes and imports

what does GDP not account for

household production, enjoyment households receive from things such as quality of goods avaliable to consumers, loss of enjoyment people experience when scenic land is converted into commercial use

where are funds spent by city government to renovate their building accounted for in GDP?

injections from the government into the ecnomy

what are the value of the foreighn components of American goods accounted for in GDP as

part of imports

why do price indexes overstate inflation

They assume fixed basket cost and dont account for a price increase decreasing demand

They assume quality of a good doesn't change

they dont account for the benefit of new goodsT

The GDP price index for this year is calculated by dividing ______________using ___________ by ___________ using ____________ and multiplying by 100

THe value of all goods and services produced in the economy this year

this years prices

the value of all goods and services produced in the economy this year

the base year's prices

the chain weighted system for measuring inflation helps to reduce the biased caused by _________ and ______________that causes fixed weight measures to ________________ inflation

changes in product quality

consumers switching to lower priced goods


what is the GDP formula for the expenditure approach

Consumption + gross investment+ Government purchases + (exports - imports)

what is the GDP formula for the income approach

depreciation + production taxes + employee compensation + proprietor s income + Corporate Profits + net interest + Rental Income

what is the national income formula

GDP - Depreciation = Net Domestic Product + Net earnings of resources abroad = National Income

What is the disposable income formula

National income + Income received but not earned - income earned but not received = personal income - personal taxes and nontax charges = disposable income


civilian noninstitutionalized adult population who worked for pay in the last week even if unsatisfied with his or her job

labor force

actively seeking employment or employed, and of the adult age


part of civilian noninstitutionalized adult population, hasn't worked for pay in previous week and is actively looking for a job

formula for labor force participation rate

number in labor force / civilian noninstitutionalized adult population

what is the unemployment rate rate

number of unemployed workers / number in labor force

as a broad measure of how the overall economy is doing the national unemployment rate works fairly well. As we would expect it tends to _________ during period when the US economy is in a recession and __________ during expansions



unemployment rates can differ widely across regions and across different groups of people. For example in the past few decades, the jobless rate among teenagers had tended to be _________ than the jobless rate among adults


when the economy is in a long recession the unemployment rate may _________ as these workers become discourage and leave the labor force


structural unemployement

occurs due to changes in the skills desired by employers or the tastes of customers, for example skills are no longer applicable in job market; job transferred to another firm

frictional unemployment

occurs because job seekers and employers need time to find one another; brief; moved and looking for job

cyclical unemployment

associated with business cycles; rises during recessions and falls during expanisions

seasonal unemployment

joblessness that occurs because some jobs are seasonal, farmland jobs during harvest seasonsw

when is the economy at full employment

when the cyclical unemployment = 0

what is the formula for total unemployment

seasonal unemployment + frictional unemployment + cyclical unemployment + structural unemployment

define a discouraged worker

not in the labor force, given up looking for work

does the unemployment rate change when workers hours are cut

no it doesn't affect the unemployment rate because the same amount of workers are working


very high rate of inflation such as the one germany experienced in the 1920s

government votes wages must be doubled so firms lay of thousands of workers and charge higher prices. what curves are shifted aggregate demand or aggregate supply to display primary cause of inflation

aggregate supply is shifted to the left

cost push inflation

type of inflation accompanied by a decrease in aggregate output

AD curve doesn't shift

caused by a decrease in aggregate supply which is caused by an increase in costs scarcity occurs as a result of this and then households also tend to purchase fewer goods and services. therefore prices increase and aggregate output decerases

the higher cost of labor causes a left shift of AS curve raising prices and lowering output

demand pull inflation

inflation caused by an increase in aggregate demand

AS curve doesn't shift; higher demand creates scarcity which drives up prices; firms respond by producing more goods and services. therefore both prices and aggregate output increase

if inflation turns out to he higher than expected this would __________ the union and __________ specific automakers



what is the formula for real wage increase

nominal wage increase - inflation that actually occurs

if the inflation rate turned out to be lower than expected this would ___________ the union and _________ specific automakers



because of uncertainty about future inflation the union devotes a large quantity of resources to monitoring inflation indicators in order to maximize its financial position. this illustrates the fact that

variable inflation is associated with high transaction costs

what is the formula for real interest rates

nominal interest rate - inflation rate

why does the creditor or loaner benefit from low rate of inflation

she ends up receiving a payment that is a larger percentage of her salary than she expected

why does the debtor suffer from the unanticipated decrease in the inflation rate

he ends up having to use a larger fraction of his salary to repay the loan

which role of government

the government decides that it will cut taxes in an attempt to lead the economy out of a serious recession

promoting stabilityt

Which role of government

members of the federal reserve bank, the central band of the US meet every six weeks to adjust interest rates according to economic situations

promoting stability

when a firm responds to an increase in the price of computers does the shift the aggregate demand or aggregate supply curve

it shifts the aggregate demand curve because investment decisions are part of aggregate demand

True or false

grim business expectations during 1929 and 1933 negatively affected aggregate supply


in the 1980s, on of the strategies to fight stagflation was to __________ tax rates to _________ aggregate supply, thereby __________ output and employment





persistent high inflation combined with high unemployment and stagnant demand in a country's economy