Chapter 1-16 PDF

Chapter 1 Factors of productions Labor Capital Land Payments Wages Rent Interest Profit Chapter 2 Economic Models All other things equal/Cetris Parabis PPF (Production possibility frontier) Model Improve understanding of tr...

Chapter 1 Factors of productions Labor Capital Land Payments Wages Rent Interest Profit Chapter 2 Economic Models All other things equal/Cetris Parabis PPF (Production possibility frontier) Model Improve understanding of trade offs by considering a simplified economy that produces only two goods True cost of any good is what must must be given up in return Chapter 3 Price rise Quantity supplied rises Quantity demanded decreases Price decrease Quantity supplied decreases Quantity demanded increases Price change Movement on curve Chapter 4 Rent Controls Keeps the price of apartment rentals below market equilibrium level Creates shortages Price Controls Price ceilings = Legal maximum price Price floors = Legal minimum price Problems with price ceilings Inefficient allocation High Transaction costs Black Market Low quality Problems with price floors Wasted resources Inefficient allocation High quality Black Market Quantity controls (quota rents) Sales limitations Quota licenses Problem with quantity controls Inefficiency due to missed opportunities Chapter 6 Classical Simplified financial model of the price level that depends on self correction Keynesian  Government policy can aid recovery Fiscal policy Use of government spending and tax policy to influence economic conditions Monetary policy Use of interest rates and money supply to influence economic conditions Trade deficit Imports greater than exports Chapter 7 GDP = Measure of value at production Formula = I + Netx + C + G Netx = Exports - Imports GDP exclusions Intermediate goods Financial transactions/Securities + transfer payments Used goods Household productions Real GDP Adjusts for inflation GDP/Price Index * 100 Per Capita GDP Adjusts for population changes Price Index Measures price changes Current value of market/Base year value * 100 Basis for measuring inflation Chapter 8 Unemployment rate # unemployed/labor force * 100 Types Frictional Cyclical Structural Seasonal Chapter 9 Rule of 70’s 70/rate Sources of long run growth Production tech Human capital Resources Climate Government policy Health Geography Neighbors High savings Infrastructure Chapter 10 Closed economy a. I = NS Open economy a. I = NS + KI Variables KI = capital inflows NS = national savings KI a. - (Netx) NS a. GDP - C - G Chapter 11 Consumption function Shows how an individual household’s consumer spending varies with current disposable income C = mY +AC Spending multiplier a. 1/MPS Variables a. MPS = 1 - MPC b. MPC + MPS = 1 c. MPC = Δ consumer spending/Δ disposable income d. Y = income e. AC = constant - minimum spending needed Chapter 12 Aggregate demand curve determinants Expectations Wealth Size of existing stock of physical capital Monetary + Fiscal policy Long run aggregate supply curve determinants Resources Tech Entrepreneurship Education Short run aggregate supply curve determinants Commodity prices Expectations Productivity Chapter 13 Fiscal policy Discretionary spending Taxation Crowding out Federal spending replaces local and indirect spending Tax multiplier a. MPC/MPS Spending Multiplier a. 1/MPS Automatic stabilizers Tax collection Unemployment insurance Medicaid Food stamps Chapter 14 M1  Currency Checkable deposits Savings accounts M2 Includes M1 Time deposits Money market accounts Money functions Store of value Medium of exchange Unit of account FED functions Supply currency Check clearing Hold reserves for banks US government bank Bank regulation Lender of last reserve Intervenes in foreign currency markets Money creation Money multiplier a. 1/Reserve ratio Chapter 15 Expansionary monetary policy Easy money Grows the economy  Lower interest rates Contractionary monetary policy Tight money Slows down economy Higher interest rates Major types of interest rates Discount rate Federal funds rate Discount rate Rate fed charges on loans Federal funds rate Interbank lending rate Chapter 16 Inflation tax Tax on holding money assets Hyperinflation Rate > 50% per month Cause of hyperinflation Large government deficits and debt Non independent central bank Deflation Average prices decrease Unexpected deflation Fixed debt payments take away from aggregate demand Expected deflation Aggregate demand down  More incentive to save Liquidity trap Unable to use conventional monetary policy because nominal interest rates can’t be cut further Occurs with sharp reduction in demand for loanable funds Chapter 5 Comparative advantage Ability to produce at lower opportunity costs Major trade barriers Tariffs