Unit 1 Identifies
Macroeconomics essentially is __________
What are Individuals and societies forced to make choices because most resources are scarce.
Define GDP, explain and write the equation
What is Gross Domestic Product the total value of all final goods and services produced within a country in a specific time period. (C)onsumption + (I)investment + (G)government spending (Xn)et Exports. Keep in mind Exports minus Imports.
Define sticky wages
what is when nominal wages are slow to rise or fall in response to changes in the economy.
ex. If the economy is poor and sales are down, companies do not want to create resentment from employees by cutting wages.
Draw me a simple graph of aggregate demand.
What is
x-axis says real GDP, the y-axis says Price level. then there's just a line in the middle starting on the top left making its way down to the right. That's AD
Give me the comparative and absolute advantage in this situation; explain it using opportunity cost!
Commodity Hours of Work Needed to Produce 1 Unit
Ropistan Wirania
Rope 100 90
Wire 120 80
What is Wirania having both absolute advantages in the making of both commodities and the comparative advantage of Wire. Wirania needs less hours to produce 1 unit for both commodities. As for comparative advantage, the opportunity cost of producing a unit of wire in Ropistan is .31 more than Wirania.
Define comparative and absolute advantage.
What is, Comparative Advantage- the ability to produce a good or service at a lower opportunity cost than another producer.
Absolute advantage- when a person, business, or country that can produce more of a good or service than another producer that has the same quantities of resources.
Define Real GDP, show and explain the formula.
What is nominal Gross Domestic Product adjusted for inflation and deflation.
Real GDP = Nominal GDP/Deflator (in hundredths)
Define Stagflation
What is a form of negative supply shock which occurs when inflation meets decreasing aggregate output. (stagnation +inflation).
What is the PPC curve? Draw an example, make it general, nothing specific.
What is... The production possibilities curve, PPC, illustrates the trade-offs and opportunity costs associated with the production of two goods or services. Good graph ex. Capital goods left n' Consumer goods down.
Calculate GDP:
Consumer Spending $9000
Transfer payments $1000
Government Spending $3000
Imports $4000
Business subsidies $500
Exports $7000
Investment spending $10,000
Purchasing of Stocks and bonds $5,000
GDP = C + I + G + (X-M)
= 9000 + 10,000 + 3000 + (3,000) - 500
What is = 24,500
*Purchasing of stocks and bonds and transfer payments are not included in this
What are Economic Resources, or factors of production? List and define all of them :)
What are
1. Natural resources are the raw materials that exist on the Earth in the air that humans can use to make goods.
2. Human Resources (labor and the workforce) is a term used by Economists to refer to the people whose efforts and skills go into the production of goods and services.
3. Capital resources are the machines, tools, and buildings used in the production of goods and services. It can also be called capital goods or just capital.
Define Inflation rate and tell us/explain the equation to calculate it.
What is the measure of the change in purchasing power.
Inflation rate= CPI2 - CPI1/CPI1 x 100
Define the multiplier effect.
What is how an increase (or decrease) in one economic activity causes increases (or decreases) across a range of other related economic activities.
Draw me and explain a Supply/Demand Equilibrium graph!
What is...
y-axis = price x-axis = quantity Supply shoots up (right to left) Demand shoots down top to bottom. Equilibrium dotted has a vertical line that goes down the intersection and from right to left of the intersection.
Calculate the GDP Deflator using a Nominal GDP of 20,000 and a real GDP of 19,100.
GDP Deflator= Nomina GDP/Real GDP x 100
20000/19100 x 100
What is
=104.71
Define surplus and shortage. Show us how you can see it on Supply/Demand Equilibrium.
What is
Surplus- excess supply for demand. At any price higher than the equilibrium price on graph it is considered surplus.
shortage- a supply too small to fill demand at that price. At any price lower than the equilibrium price on graph.
Define the CPI and write the formula
What is Consumer Price Index, a measure that tracks the change in the average price of a group of consumer goods and services
CPI= Cost of market basket in year a/ Cost of Market basket base year x 100
Define transfer payments and give an example
What are programs that must be paid by the government with no goods or services in return
This includes social insurance programs: Social security, Medicare, and Medicaid.
Draw the AD-AS Model
What is
x-axis=Aggregate price level y-axis=real GDP
AD right to left up to down intersecting the SRAS right to left down to up. A dotted YE line from the x-axis up connecting to the ESR (the equilibrium) and the PE dotted line y-axis connecting to the ESR.
Calculate the total cost of purchasing the base year fixed basket.
2016 Base Year
Good Price Quantity
Soccer Balls $10 100
Shoes $50 40
Concert Tickets $100 20
($10 x 100) + ($50 x 40) + ($100 x 20)
= (1000) + (2000) + (2000)
What its
= $5000
Define Goods and Services, give me 3 examples of each!
What is goods are tangible items of value, things that one can see or touch, such as cars, medicines, and textbooks.
Services are intangible things that have value, can't be neither seen or touched, haircuts, medical care, and education.
Define frictional, structural, cyclical, and seasonal unemployment.
What is
1. Frictional unemployment is a temporary status resulting from a transition. It occurs when workers are searching for jobs, moving, looking for a more satisfying employment.
2. Structural unemployment results from the decline of a particular industry. Like a mismatch between an employee's skills and an employers needs. ex. replaced by machines.
3. Cyclical unemployment occurs as a consequence of a downturn in the overall economy that leads to job losses. Ex. recession, depression, other financial issues.
4. Seasonal unemployment occurs during times of the year when the demand for certain types of labor is low. Ex. mall Santa.
What makes long aggregate supply different from short aggregate supply.
What is the time frame when price levels, wages and contracts can adjust to the changes in the economy, price levels are not sticky in the long run.
Draw a simple LRAS and the AD-AS Model
What is
x-axis= Real GDP y-axis= Aggregate Price Level
LRAS line in the middle labeled as Yf hitting the x-axis and LRAS at the top. AD crossing the graph from left to right top to bottom. SRAS crossing the same spot bottom to top left to right. a dotted PE line should go from that intersection to the y-axis.
If the marginal propensity to consume is 0.75, the government decreases personal income taxes by $100, real gross domestic product will
(A) increase by $300
(B) decreaseby$400
(C) increase by $250
(D) decrease by $160
(E) increaseby$1,000
A. Increase by 300
Honestly can't tell you why lol