Basic Economic Concepts
What will happen to the demand for coffee if consumers' income rises?
It will increase!
What is the GDP formula?
GDP = C + I + G + NX
Name one shifter of Aggregate Demand
Government Spending | Expectations | Consumption | Investment | changes in Trade
Name one component of the Money Supply (M1)
Checkable Deposits, Currency, Coins, Traveler's checks
What are the names of the two accounts in a balance of payments?
Current and Financial accounts
Sam can make 20 pies and 10 cakes. Preston can make 30 pies and 20 cakes. Who has absolute advantage in producing cakes?
Preston!
The Consumer Price Index for 1990 was 100 and in 1991 it was 110. The rate of inflation for 1991 was...?
10%
What are sticky in the short run but not in the long run?
Input prices (wages)
Draw the Loanable Funds Market (labelled correctly)!
see whiteboard
What is the sum of the current and financial accounts?
zero
What are the factors of production?
Land, Labor, Capital, and Entrepreneurship.
What is the name of the unemployment rate that exists when an economy is producing the full employment output?
The Natural Rate of Unemployment
If the spending multiplier is 4 and the economy is $400 billion below full employment, by how much should the government increase spending to return to full employment?
$100 billion
What is it called when decreased private investment is caused by an increase in government spending?
What does the Current Account measure?
The trade of Goods and Services -- (exports - imports)
Sam can make 20 pies and 10 cakes. Preston can make 30 pies and 20 cakes. Who has the comparative advantage in making pies? What is their opportunity cost of making one pie?
Sam does! His opportunity cost of making a pie is 1/2 of a cake (Preston's is larger at 2/3 a cake).
If real GDP is $200 billion and the price index is 200, what is nominal GDP?
$400 billion
What is the difference between the tax multiplier and the spending multiplier? Show it in their formulas
spending multiplier = 1/MPS
tax multiplier = -MPC/MPS
If a bank has no excess reserves and the required reserve ratio is 10 percent, what is the value of new loans the bank can issue if a customer deposits $20,000?
$18,000
Draw and label a foreign exchange market graph of US dollars (against pesos)
see whiteboard
Draw a PPC (cars and motorcycles) and label a point that is a) nefficient, b)efficient, and c)impossible.
(see whiteboard)
If prices double between 2000 and 2020 and at the same time your nominal income increases from $40,000 to $80,000, what has happened to your real income?
Nothing! $40,000/100 - $80,000/200
What is it called when the price level rises and real output falls (caused by a decrease in SRAS)?
Stagflation
If someone deposits $500 into a bank that keeps no excess reserves and the reserve requirement is 20%, what is the max change in the money supply that occurs as a result of the depost?
$2000
How would an increase in the U.S. interest rate (compared to China) affect the value of the U.S. dollar and the Chinese yuan?
The dollar would appreciate against the Cinese yuan (as the demand for US dollars would increase)