Podcast
Questions and Answers
What does economics fundamentally deal with?
What does economics fundamentally deal with?
Scarcity
What is the term for the loss of potential gain from other alternatives when one alternative is chosen?
What is the term for the loss of potential gain from other alternatives when one alternative is chosen?
Opportunity Cost
Which principle of economics is illustrated by a tax on gasoline encouraging people to drive smaller, more fuel-efficient cars?
Which principle of economics is illustrated by a tax on gasoline encouraging people to drive smaller, more fuel-efficient cars?
People respond to incentives
What tradeoff exists between a clean environment and a higher level of income?
What tradeoff exists between a clean environment and a higher level of income?
What are trade-offs?
What are trade-offs?
According to the circular flow diagram, how does Suzy participate as a worker?
According to the circular flow diagram, how does Suzy participate as a worker?
What makes the circular-flow diagram unusual among economic models?
What makes the circular-flow diagram unusual among economic models?
What causes a PPF (Production Possibilities Frontier) to shift outward?
What causes a PPF (Production Possibilities Frontier) to shift outward?
When is a PPF represented as a straight line?
When is a PPF represented as a straight line?
When is a PPF bowed outward?
When is a PPF bowed outward?
What can a country that currently does not trade with other countries benefit by?
What can a country that currently does not trade with other countries benefit by?
What does comparative advantage refer to?
What does comparative advantage refer to?
What does absolute advantage refer to?
What does absolute advantage refer to?
Real GDP is defined as the yearly production of final goods and services valued at?
Real GDP is defined as the yearly production of final goods and services valued at?
Nominal GDP is defined as the yearly production of final goods and services valued at?
Nominal GDP is defined as the yearly production of final goods and services valued at?
How is the GDP deflator calculated?
How is the GDP deflator calculated?
What is the Inflation Rate formula?
What is the Inflation Rate formula?
What does the nominal interest rate usually refer to?
What does the nominal interest rate usually refer to?
What is the formula for real interest rate?
What is the formula for real interest rate?
What does the intersection of nominal & real interest rates show?
What does the intersection of nominal & real interest rates show?
What happens to the real interest rate when the nominal rate increases followed by a period of deflation?
What happens to the real interest rate when the nominal rate increases followed by a period of deflation?
Flashcards
Scarcity in Economics
Scarcity in Economics
Limited availability of resources to satisfy unlimited wants.
Opportunity Cost
Opportunity Cost
The potential gains lost by choosing one option over another.
Economic Incentive
Economic Incentive
Something that encourages or discourages an action, like a tax on gasoline to promote fuel-efficient cars.
Trade-offs in Economics
Trade-offs in Economics
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Circular Flow Diagram
Circular Flow Diagram
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Labor Markets
Labor Markets
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Production Possibilities Frontier (PPF)
Production Possibilities Frontier (PPF)
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Technological Advancement on PPF
Technological Advancement on PPF
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Constant Trade-off Rate (Linear PPF)
Constant Trade-off Rate (Linear PPF)
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Varying Trade-off Rate (Bowed PPF)
Varying Trade-off Rate (Bowed PPF)
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Benefits of International Trade
Benefits of International Trade
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Comparative Advantage
Comparative Advantage
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Absolute Advantage
Absolute Advantage
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Real GDP
Real GDP
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Nominal GDP
Nominal GDP
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GDP Deflator
GDP Deflator
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Inflation Rate
Inflation Rate
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Nominal Interest Rate
Nominal Interest Rate
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Real Interest Rate
Real Interest Rate
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Intersection of Nominal and Real Interest Rates
Intersection of Nominal and Real Interest Rates
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Study Notes
Fundamental Concepts in Economics
- Economics fundamentally deals with scarcity, the limited availability of resources to meet unlimited wants.
- Opportunity cost refers to the potential gains lost when one alternative is selected over others.
Economic Incentives and Trade-offs
- A tax on gasoline serves as an incentive, encouraging consumers to opt for smaller, more fuel-efficient cars.
- Trade-offs exist when laws that reduce pollution lead to increased production costs, which can lower overall income.
- Trade-offs involve sacrifices made to acquire certain goods or experiences.
Circular Flow Diagram Insights
- In the circular flow diagram, individuals like Suzy, who delivers flowers, engage in labor markets, trading their work for income.
- The circular-flow diagram is distinctive because it does not involve mathematics, focusing on concepts instead.
Production Possibilities Frontier (PPF)
- A PPF can expand outward due to technological advancements, indicating increased production capabilities.
- A linear PPF signifies a constant trade-off rate between two produced goods.
- A bowed-outward PPF illustrates a varying trade-off rate, influenced by the quantity of each good produced.
Trade and Economic Advantages
- A nation that does not engage in international trade could benefit from lower trade restrictions.
- Comparative advantage means a country will always export goods in which it has a relative efficiency.
- Absolute advantage indicates a country’s need to import goods due to its lack of efficiency in those areas.
Understanding GDP
- Real GDP measures the production of final goods and services at constant prices, adjusting for inflation.
- Nominal GDP reflects the value of production at current prices without inflation adjustments.
- The GDP deflator is calculated by dividing current prices by constant prices and multiplying by 100, providing insights into inflation (e.g., 57% deflator).
Inflation and Interest Rates
- The inflation rate is calculated as ( \frac{\text{CPI year 2} - \text{CPI year 1}}{\text{CPI year 1}} \times 100 ).
- The nominal interest rate is typically the rate quoted in financial contexts.
- The real interest rate formulates as the nominal rate minus the inflation rate, indicating the actual purchasing power of earnings.
- The intersection of nominal and real interest rates reflects trends in how interest rates fluctuate in response to economic changes.
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Description
Test your knowledge of key concepts in Macroeconomics with these flashcards. Each card features a fundamental term along with its definition, covering essential principles like scarcity and opportunity cost. Perfect for students looking to reinforce their understanding of economic principles.
