Unit 1: Basic Concepts
This concept explains the next best alternative foregone when making a decision.
What is opportunity cost?
What is the formula for GDP?
What is C+I+G+(X-M)?
This curve shows the total quantity of goods and services demanded at different price levels.
What is aggregate demand (AD)?
This institution is responsible for controlling the money supply in the United States.
What is the Federal Reserve?
If the MPC is 0.8, this is the spending multiplier.
What is 5?
When an economy is producing on this curve, it is using all resources efficiently
What is the production possibilities curve (PPC)?
This type of unemployment occurs when workers are between jobs or entering the workforce.
What is frictional unemployment?
An increase in government spending shifts this curve in which direction?
What is aggregate demand shifts right?
The fraction of deposits that banks are required to keep as reserves is called this.
Response: What is the required reserve ratio?
A negative supply shock will shift which curve and in what direction?
Response: What is SRAS shifts left?
Name 2 factors of production.
Labour, capital, Land, entrepreneurship
GDP adjusted for inflation is known as this.
What is Real GDP?
This short-run curve is upward sloping due to sticky wages and input prices.
Response: What is short-run aggregate supply (SRAS)?
This formula determines the maximum amount of money that can be created in the banking system.
What is the money multiplier (1 / reserve ratio)?
Clue: Nominal GDP is $1,200 and Real GDP is $1,000; calculate the GDP deflator.
Response: What is 120?
A point inside the PPC represents this economic condition.
What is inefficiency or unemployment of resources?
This index measures changes in the price level of a fixed basket of goods and services.
What is the Consumer Price Index (CPI)?
A decrease in input costs will shift this curve in which direction
Response: What is short-run aggregate supply shifts right?
Buying government bonds on the open market will have what effect on the money supply?
Response: What is increase the money supply?
Clue: When actual output exceeds potential output, this type of gap exists.
Response: What is an inflationary gap?
Japan can produce either 24 phones or 12 cars, what is Japan’s opportunity cost of producing 1 phone?
The unemployment rate at which there is no cyclical unemployment is called this.
What is the natural rate of unemployment?
The point where AD, SRAS, and LRAS intersect represents this.
Response: What is long-run equilibrium?
This interest rate is the rate banks charge each other for overnight loans.
What is the federal funds rate?
Clue: Excess reserves in the banking system increase when the Fed does this.
Response: What is lowers reserve requirements OR buys bonds OR lowers interest rates?