Term
Assuming all other things stay equal: according to the law of demand, what happens to the quantity demanded when price falls?
(What does the graph look like?) |
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Definition
| Other things equal, as price falls, the quantity demanded rises |
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Term
Assuming all other things stay equal: according to the law of demand, what happens to the quantity demanded when price rises?
(What does the graph look like?) |
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Definition
| Other things equal, as price rises, the quantity demanded falls |
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Term
| When does equilibrium occur? |
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Definition
| equilibrium occurs where the demand curve and supply curve intersect |
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Term
| What is the equilibrium price (market-clearing price)? What is equal? |
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Definition
the price where the intentions of buyers and sellers match
quantity demand = quantity supplied |
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Term
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Definition
| At any above-equilibrium price, quantity supplied exceeds quantity demanded |
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Term
| What will surplus do to the prices of something? |
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Definition
| Surplus will drive prices down to the equilibrium price |
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Term
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Definition
| At any below equilibrium price, quantity demanded exceeds quantity supplied |
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Term
| What will shortage do to the prices of something? |
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Definition
| shortage will drive prices up to the equilibrium price |
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Term
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Definition
A price ceiling sets the maximum legal price a seller may charge for a product or service
Price ceiling (Pc) < price equilibrium (P0) |
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Term
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Definition
a price floor is a minimum price fixed by the government
Price floor (Pf) > Equilibrium price (P0) |
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Term
| Why is a price ceiling set? |
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Definition
| enables consumers to obtain some "essential" good or service that they could not afford at the equilibrium price |
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Term
| Why is a price floor set? |
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Definition
| the free market system has not provided a sufficient income for certain groups of producers |
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Term
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Definition
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Term
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Definition
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Term
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Definition
Gross domestic product
Defines aggregate output as the dollar value of all final good and services produced within the borders of a given country during a given period of time |
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Term
| Equation for the value added approach of avoiding multiple counting (GDP) |
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Definition
| Value added = Total amount - (units of product x price sold for) |
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Term
| What is the final goods approach of avoiding multiple counting |
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Definition
| including ONLY the final value of the product when calculating total contribution to GDP |
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Term
| Expenditures approach of computing GDP |
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Definition
| sum of all the money spent in buying good and services |
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Term
| Forumla for expenditures approach of computing GDP |
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Definition
GDP = C + Ig + G + NX
C = personal consumption
Ig = Gross private domestic investment
G = government purchases
Net exports = exports - inports |
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Term
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Definition
| value of economic output adjusted for price changes (i.e., inflation or deflation) |
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Term
| formula for expected rate of return |
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Definition
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Term
| formula for expected profit |
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Definition
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Term
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Definition
| A gross domestic product (GDP) figure that has not been adjusted for inflation |
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Term
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Definition
Pc x Qc
*uses both values from current year |
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Term
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Definition
P of base - Qc
Uses price of base year and quantity of current year |
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Term
| What are the 4 things excluded when calculating GDP? |
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Definition
Financial transaction
Import
Intermediate good
Secondhand save |
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Term
| formula for GDP price index |
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Definition
| GDP price index = (nominal/real) x 100 |
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Term
| Phases of the business cycle |
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Definition
1. Peak
2. Recession
3. Trough
4. Expansion |
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Term
| Formula unemployment rate |
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Definition
| (number of unemployed/labor force) x 100 |
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Term
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Definition
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Term
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Definition
| the time period between jobs when a worker is searching for, or transitioning from one job to another. |
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Term
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Definition
| a form of unemployment caused by a mismatch between the skills that workers in the economy can offer, and the skills demanded of workers by employers |
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Term
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Definition
result of businesses not having enough demand for labor to employ all those who are looking for work
recession lays off workers |
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Term
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Definition
| a sustained increase in the general level of prices for goods and services |
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Term
| consumer price index (CPI) |
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Definition
| measures changes in the price level of a market basket of consumer goods and services purchased by households |
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Term
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Definition
| income of individuals or nations after adjusting for inflation |
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Term
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Definition
income expressed in money terms. It is income measured in current dollars
*not adjusted for inflation |
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Term
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Definition
| Current year CPI / Base year CPI |
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Term
| formula rate of inflation |
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Definition
| ((current year CPI - base year CPI) / (Base year CPI)) x 100 |
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Term
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Definition
| Nominal income / (PI/100) |
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Term
| average propensity to consume (APC) |
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Definition
| the fraction of income spent |
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Term
| formula average propensity to consume (APC) |
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Definition
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Term
| average propensity to save (APS) |
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Definition
| Average propensity to save refers to the ratio of saving to the corresponding level of saving income. |
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Term
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Definition
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Term
| Marginal Propensity To Consume (MPC) |
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Definition
| The proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it |
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Term
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Definition
| MPC = (change in C) / (Change in DI) |
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Term
| Marginal Propensity to Save (MPS) |
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Definition
| The proportion of an aggregate raise in pay that a consumer spends on saving rather than on the consumption of goods and services. |
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Term
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Definition
| MPS = (change in savings) / (change in income) |
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Term
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Definition
| amount one would anticipate receiving on an investment that has various known or expected rates of return |
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Term
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Definition
| The demand curve shifts when consumers change their perceptions about the worth of a product |
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Term
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Definition
| consumers decide they are willing to pay higher prices for a product or want to purchase more of it |
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Term
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Definition
| decreased perceived worth of a product by consumers |
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Term
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Definition
| movement in the demand curve occurs when the price of a product changes |
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Term
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Definition
| refers to the increase in final income arising from any new injection of spending |
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Term
| What does the multiplier in the multiplier effect depend on? |
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Definition
| household's marginal decisions to spend, called the marginal propensity to consume (mpc), or to save, called the marginal propensity to save (mps). |
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Term
| formula multiplier effect (3) |
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Definition
1/(1-mpc)
1/mps
change in GDP / change in spending |
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Term
| ideal relationship between rate of return and investment/interest |
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Definition
| the rate of return should be higher than the (investment) x (interest) |
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Term
| Aggregate expenditure model (AE) |
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Definition
| focuses on the short-run relationship between total spending and real GDP, assuming that the price level is constant |
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Term
| Formula Aggregate expenditure model (AE) |
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Definition
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Term
| explanation of downward sloping of AD curve (3) |
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Definition
Real balances effect
Interest-rate effect
Foreign purchases effect |
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Term
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Definition
| A higher price level decreases the purchasing power of money resulting in a decrease in consumption expenditures, investment expenditures, government purchases, and net exports. A lower price level has the opposite affect, causing an increase in the purchasing power of money which results in an increase in consumption expenditures, investment expenditures, government purchases, and net exports. |
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Term
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Definition
| Real GDP planned to be created at various price levels. |
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Term
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Definition
| Private closed economy = C + Ig |
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Term
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Definition
| Private open economy = C + Ig + NX |
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