Term
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Definition
| the number of unemployed people expressed as a percentage of the labor force |
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Term
| describe one type of market failure |
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Definition
| if a monopoly exists, that would be a market failure because there is a lack of business competition, undermining the "economic freedom" goal |
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Term
| how does our govt attempt to fix a market failure involving prices |
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Definition
| by placing price floors or ceilings |
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Term
| Draw a diagram to show a price floor in the "real world". describe a negative effect of this price floor |
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Definition
| it would be a supply & demand graph of min. wage. The price floor would cause business input costs to go up, perhaps causing them to layoff certain workers |
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Term
| List and define the US economic goals. |
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Definition
1)price stability--keeping inflation low (usually under 3% a year)
2)economic freedom--people can control their own resources (money, usually)
3)full employment--everyone who wants to work has a job (in the US, full employment means the unemployment rate is < 5%)
4)economic growth--people have a better standard of living over time
5)economic security--there is a safety net for those in need
6)economic equity--"fair" distribution of resources |
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Term
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Definition
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Term
| if nominal GDP were to increase this year vs last year, will our standard of living necessarily increase? explain. |
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Definition
| not necessarily because nominal GDP has not adjusted for inflation. it could be that the new GDP is only higher because prices are higher |
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Term
| what are two common causes of increased AD? |
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Definition
| increased govt. spending or increased consumer spending |
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Term
| From a Neo-Classical perspective, describe a situation where an increase in AD would NOT cause inflation. |
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Definition
| if AD and LRAS both moved |
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Term
| What 2 things would a Keynesian suggest to expand/improve our economy. |
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Definition
increased govt. spending
monetary policy + fiscal policy |
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Term
| Full employment may occur @ Yf. What does Yf represent in macro terms? |
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Definition
| that our economy is @ full capacity |
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Term
| what is a possible negative effect of deflation |
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Definition
| people stop buying things because prices will get lower and businesses will fail because of this lack of demand |
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Term
| what would cause a LRAS increase? what effect would this have on the economy if the AD didn't move. |
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Definition
efficiency of economy has gone up
unemployment increase
prices decrease |
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Term
| What are 2 Neo-classical solutions to a high unemployment rate? |
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Definition
1) move LRAS by decreasing input costs for businesses
2)remove welfare, etc. to encourage people to get jobs instead of mooching off the govt |
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Term
| if our country is experiencing disinflation and frictional unemployment (ceteris peribus), what should the Fed do? why? |
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Definition
| nothing. absolutely diddly-squat. disinflation is good, it meets the goal of price stability. also, frictional unemployment is always present in any economy. |
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Term
| in general, what do "leading economic indicators" (LEI) forecast? |
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Definition
| tell us what the economy will be like in the near future |
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Term
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Definition
| when a market allowed to operate freely has negative consequences |
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Term
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Definition
min. set price usually set by govt.
e.g. min wage, milk |
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Term
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Definition
max. set price, usually set by govt.
e.g. rent control |
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Term
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Definition
statements of fact, data from reliable sources
e.g. "Federal min wage was $5.15/hr from '97 to '07" |
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Term
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Definition
opinion of interpretation of information/data
e.g. "the min. wage should be increased to help poor." |
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Term
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Definition
| a set of rules that govern the production & distribution of goods/services |
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Term
| What are the 3 basic economic questions |
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Definition
1. Who should get what is produces, and how much?
2. What and how much should be produced?
3. How should goods/services be produced? |
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Term
| what are the components/requirements of a capitalist/market economy? |
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Definition
_laissez-faire--the govt does not make econ decisions
_free enterprise--freedom to run a business as you see fit
_private property--you can own/use property
_pi (profit) motive--people can try to make money
_competition--allowed to compete to make $$
_voluntary exchange--no one can force you to buy anything
_available credit (loans)--people must be able to loan money-helps people take advantage of other aspects
*most important aspect of a capitalist economy |
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Term
| what are the components/requirements of a command/control (commuist) economy? |
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Definition
| _govt answers all basic economic questions |
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Term
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Definition
| govt. controlling $$ supply to fight inflation & unemployment |
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Term
| who is in charge of monetary policy? |
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Definition
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Term
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Definition
more $$ put into supply
aka "easy money" |
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Term
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Definition
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Term
| Go through the process of loosening $ |
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Definition
1) Fed uses tool to lower interest rates
2) banks are able to offer lower rates on loans
3) more people are able to get a loan
4) people have more $ and spend it
5) the demand curve shifts to the right
6) unemployment decreases, prices increase |
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Term
| Go through the process of tightening $ |
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Definition
1) Fed uses tool to raise interest rates
2)banks raise interest rates
3)fewer people are going to borrow $
4) people have less $ to spend
5) demand curve shifts to the left
6) unemployment goes up, prices tend to stay about the same (disinflation)
*prices tend to be "sticky" because people are not easily willing to charge less |
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Term
| what are 2 tools the Fed uses to raise/lower interest rates? |
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Definition
discount rate
reserve requirement |
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Term
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Definition
| total spending in a nation per year |
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Term
| what are the Leading Economic Indicators (LEIs)? |
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Definition
1) S&P 500
2)initial unemployment claims--first time people go apply for unemployment benefits
3)avg. weekly work hours
4) # of new applications for building permits |
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Term
| lagging economic indicators |
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Definition
data changes after overall economy has changed--tells us how econ has been for past 6 months
1) unemployment rate
2)consumer price index (CPI)
stagflation--inflation & unemployment are high (very rare!) |
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Term
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Definition
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Term
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Definition
| annual percentage rate--yearly interest rate |
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Term
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Definition
| interest added on to your loan balance |
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Term
| how can you avoid paying interest? |
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Definition
| by paying off balance every month |
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Term
| what do coincident economic indicators show/describe? |
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Definition
| what the economy is doing currently |
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Term
| what are the 4 coincident economic indicators? |
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Definition
| 1.GDP 2.personal income 3.industrial production (what factories are making) 4.retail sales |
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Term
| what is a fico score? What are its possible values |
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Definition
| measures liklihood a borrower will repay a loan/between 300 and 850 |
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Term
| what are good things to borrow money for? |
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Definition
| anything that can help you make more $ than you'd pay in finance charges:/home/education |
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Term
| what are some risky things to borrow money for? |
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Definition
| starting a business (most die w/in 2 yrs)/investing on margin |
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Term
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Definition
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Term
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Definition
| the amount of a house the home owner owns |
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Term
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Definition
| a new mortgage replaces your previous one |
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Term
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Definition
| 1 firm/Debeer's diamonds/very high price control/very very high barriers for new firms |
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Term
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Definition
| a few firms/Coke&Pepsi/possible price control/comewhat(possibly) high barriers for new firms |
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Term
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Definition
| numerous firms/fast food restaurants/some price control/some barriers for new firms |
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Term
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Definition
| infinite # of firms/lemonade stands in summertime/none/none |
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Term
| what is the purpose of the FTC? |
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Definition
| the Federal Trade Commission keeps business competition (secures economic goal of price stability) |
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Term
| How does the FTC operate? |
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Definition
| a board of 5 people, businesses must ask their permission before mergering or "buying out"/can impose conditions to merger |
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Term
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Definition
| when 2 companies conspire to "fix" prices--usually by limiting supply |
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Term
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Definition
| illegalizes cartels and trusts |
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