Basic Economic Concepts
Define scarcity
unlimited wants, limited resources
What makes up GDP?
consumer spending, investment, government spending, and net exports
Name a shifter of aggregate demand
change in consumer spending, change in investment spending, change in government spending, change in net exports
What is changed during fiscal policy?
government spending and taxes
What's the difference between a trade deficit and trade surplus?
Trade deficit is when the amount of exports is less than imports. Trade surplus is when the amount of exports is more than imports.
Define investment
the money spent by businesses to improve their production
Define nominal and real GDP
Nominal GDP is GDP measured in current prices and it doesn't account for inflation from year to year. Real GDP is GDP expressed in constant and unchanging money.
change in resource prices, change in government actions, change in productivity
What are the equations for the simple spending multiplier and tax multiplier?
simple spending- 1/MPS or 1/1-MPC
tax- MPC/MPS or MPC x 1/MPS
appreciation- the incrase of value of a country's currency with respect to a foreign currency
depreciation- the loss of value of a country's currency with respect to a foreign country
Name a shifter of demand
taste/preference, number of consumers, price of related goods, income, future expectations
What are the different types of unemployment?
Where is the long run phillip's curve
natural rate of unemployment
What is the money multiplier equation?
1/reserve requirement ratio
What's included in the current account and financial account
current account- trades in goods and services, investment income, net transfers
financial account- sales of financial assets abroad, things that continue to earn money
Name a shifter of supply
price/ability of inputs, number of sellers, technology, government action, expectation of future profit
What is the equation for the unemployment rate?
#of unemployed/# in the labor force x 100
Where is the LRAS when the economy is in a recessionary gap?
to the right of the equilibrium
What's the difference between contractionary and expansionary fiscal policy?
Contractionary fiscal policy is laws that reduce inflation and decrease GDP. Expansionary fiscal policy is laws that reduce unemployment and increase GDP.
Define absolute vs. comparative advantage.
absolute- the producer that can produce the most output or requires the least amount of input
comparative- the producer with the lowest opportunity cost
What's the difference between factor payments and transfer payments?
Factor payments are payments for factors of production, namely rent, wages, interest and profit. Transfer payments are when government redistributes income.
Name someone who is helped and someone who is hurt by unanticipated inflation.
helped- borrowers, businesses where the price of product increases faster than the price of resources
hurt- lenders, people with fixed incomes, savers
Where is the LRAS when the economy is in an inflationary gap?
to the left of the equilibrium
What are the shifters of the money supply?
reserve requirement, discount rate, open market operations(buying and selling bonds)
What are the foreign exchange shifters?
change in tastes, change in relative incomes, changes in relative price level, changes in relative interest rate