Unit 1 - Basic Economic Concepts
This term describes the condition of limited resources but unlimited wants.
What is scarcity
The total market value of all final goods and services produced within a country in one year.
What is GDP
This curve shows the total quantity of output that households, businesses, and the government want to buy at different price levels.
What is the aggregate demand curve.
The central bank of the United States.
Who is The Federal Reserve (The Fed)
The two main policy tools used to stabilize the economy.
What is fiscal policy and monetary policy.
The next best alternative that is given up when making a choice.
What is Opportunity Cost
This type of unemployment happens when workers are between jobs.
What is frictional
A decrease in resource prices will shift this curve to the right.
What is the Short Run Aggregate Supply Curve (SRAS).
The part of a bank deposit that must legally be kept in the bank.
What is the Reserve Requirement Ration (RRR).
What is it called when government spending greater than tax revenue results in this.
What is a budget deficit.
This graph showing the maximum possible output combinations of two goods using all resources efficiently.
What is a Production Possibilities Curve (PPC)
Inflation measured with a fixed “basket of goods” commonly purchased by consumers. Name it.
What is the Consumer Price Index (CPI)?
The idea that spending by one person becomes income for others, increasing total output by more than the original amount spent.
What is the multiplier effect
When the Fed buys bonds on the open market, this happens to interest rates.
Interest Rates Decrease.
When the Fed buys bonds, it injects money into the banking system, creating an increase in the money supply, which will encourage people to borrow money.
When a nation exports more than it imports, it has this.
What is a trade surplus
If a country can create more of a good or service than another using the same amount of resources, or producing a good using fewer resources than another country, indicating superior efficiency in production... it has this type of advantage.
What is Absolute Advantage
This GDP that has been adjusted for inflation.
What is Real GDP
What is structural (mismatched skills or location) unemployment. In a natural rate of unemployment, there is zero cyclical (due to business cycles) unemployment.
Assume Marshall bank has a required reserve ratio of 10%. Jovan deposits $20,000 into his checking account. What is the maximum amount of new loans Marshall Bank can initially make.
What is $18,000
What kind of gap occurs when actual GDP falls short of potential GDP during a recession.
What is a recessionary gap
The economic system in which decisions are made by individual buyers and sellers, with minimal government intervention.
What is a market economy? (Will also accept capitalism)
Market economy is about HOW goods are exchanged (supply/demand, voluntary trade) while capitalism describes WHO owns the means of production (private individuals/corporations for profit)
When inflation is unexpectedly higher than predicted, this group typically benefits. Explain why.
Borrowers benefit from inflation because they repay debt with money that has less purchasing power, effectively lowering the real cost of the loan over time.
An economy faces a recessionary gap; Congress implements expansionary fiscal policy by increasing government spending financed by higher taxes, shifting AD right, what happens to short run Real GDP and Price Level?
Real GDP increases and price level increases (why? sellers respond to higher demand with higher prices, especially as resources become scarcer. )
Assume Marshall bank has a required reserve ratio of 10%. Jovan deposits $20,000 into his checking account. Knowing the maximum amount of new loans Marshall bank can make, and using the Money multiplier, what is the maximum total change in the money supply?
Money multiplier is 1/required reserve ration. In this case 1/.1 = 10. So $18,000 X 10 = $180,000
Country A can produce cars at a lower opportunity cost than Country B. Which country has the comparative advantage?
Who is Country A