Opportunity Cost
Country A (Because it can produce more bikes than Country B).
What economic indicator measures the total value of goods and services produced in 1 nation during a set period of time?
GDP (gross domestic product)
Decrease government spending
Increase taxes
What is placed on the y-axis and x-axis on an AD/AS model?
y-axis = price level
x-axis = real GDP (or real output)
A nation has a population of 100,000. 20,000 people are unemployed, and 60,000 people are employed. What is the labor force participation rate?
80%
Country A can produce 6 lbs or apples or 3 lbs of grapes. What is the opportunity cost of producing 1 pound of apples?
1/2 pounds of grapes
Use the expenditures approach, what are the components of GDP?
Consumer spending (C)
Government spending (G)
Net Exports (Xn)
Gross Investment (Ig)
What impact would an increase in government spending (without an increase in taxes) have on rGDP and the price level in the short-run?
What effect does a negative supply shock have on real output and price levels?
Real output decreases
Price levels increase
John lost his job as a cashier when he was replaced by a self-checkout machine. What type of unemployment is he experiencing?
Structural
Country A (it's opportunity cost is 2/5 cars but Country B's opportunity cost is 5 cars).
Which economic indicator, used to measure inflation, could include foreign goods/services to make its estimation?
CPI (Consumer Price Index) - The GDP Deflator only includes goods/services produced in the United States to track price levels. CPI may include foreign goods/services in the basket.
Some economists believe an increase in government spending leads to higher interest rates, which reduces private investment. What is the term for this phenomenon?
Crowding Out
Draw an AD/AS model showing an inflationary gap.
(The short-run equilibrium between AD and SRAS should appear to the right of the vertical LRAS).
On a market model, what would cause a decrease quantity demanded?
An increase in price
What is added to GDP to calculate Gross National Product (NDP)?
Net Foreign Factor Income
If the government increases its spending by 20 million and the marginal propensity to consume is .8, by how much can the economy grow?
100 million
If both AS and AD increase, what is the effect on real output and price levels?
Real output increases
Price levels are indeterminate (because we don't know the relative strength of the two shifts)
What three factors could cause a PPC to shift outward (to the right)?
An improvement/increase in technology, capital, or labor
The opportunity cost to produce a chair in Country A is 6 couches. The opportunity cost to produce a chair in Country B is 3 couches. If the terms of trade are 1 chair for 7 couches, which nation(s) benefit(s)?
Country B only
What is the formula for disposable income?
Personal income - personal taxes
What policy, advocated by monetarists, would require the government to increase the money supply at the same rate as GDP?
Monetary Rule
AS shifts left (raising prices and unemployment)
This principle of classical economics argues that supply creates its own demand.
Say's Law