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APE REVIEW… A DUAL TO THE DEATH!. National Income and Price Determination. The LRAS curve is conceptually the same as this other curve. Production Possibilities Curve (PPC). Measurement of Economic Performance. Explain the difference between nominal and real GDP.
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National Income and Price Determination • The LRAS curve is conceptually the same as this other curve. • Production Possibilities Curve (PPC)
Measurement of Economic Performance • Explain the difference between nominal and real GDP. • Nominal doesn’t account for inflation, Real uses consistent base year prices.
Basic EconomicConcepts • Fundamentalproblemfacing allpeople; unlimitedwantsandlimitedresourcesto satisfythose wants. • Scarcity
Basic EconomicConcepts • Which of the following nations should produce butter? • United States
Basic EconomicConcepts • What would be the acceptable terms of trade between the two nations? 1 gun for _____ butter. • Canada trades 1 gun for 1 1/3 butter.
Measurement of Economic Performance • Total GDP is 200. There are 5 people in the economy. What is the Real GDP per Capita? • 40
Graphing • Draw a correctly labeled AS/AD graph, complete with labeled equilibrium.
Basic EconomicConcepts • State the Law of Demand • When prices are high, people buy less, and when prices are low, people buy more – the price of a good/service is inversely related with the quantity demanded.
Inflation, Unemployment and Stabilization Policies • List the two tools at the disposal of the federal government • Taxation, Government Spending
Measurement of Economic Performance • GDP = ____ + ____ + ____ + ____ • C + I + G + Xn
Financial Sector • If an individual puts $1,000 in the bank, what amount will the bank have in excess reserves with a required reserve ratio of 10%? • $900
Measurement of Economic Performance • List three items excluded from GDP. • Intermediate products, Used goods, non-market transactions, black market goods.
Economic Growth and Productivity • If the government enacts expansionary fiscal policy, it would have this affect on interest rates and unemployment. • Increase interest rates and decrease unemployment
Measurement of Economic Performance • What is the economist definition of a recession? • Real GDP falls for two consecutive quarters (6 straight months)
Open Economy: International Trade and Finance • The market of exchange that provides for the trading of international currencies • FOREX market
Measurement of Economic Performance • Explain the 2 theories of inflation. • Demand-pull = too much demand for too little supply • Cost-push = increased input costs cause rising prices
Graphing • Draw a properly labeled FOREX market for the US dollar, in relation to the Japanese Yen.
Basic EconomicConcepts • Used by economiststo measurethecostof decision-making;value ofthe most desirable alternative givenup.Next best alternative use ofmoney,time,orresources(Highest-valued alternative forgone) • OpportunityCost
Measurement of Economic Performance • Given an example of the 4 types of unemployment. • Structural, frictional, cyclical, seasonal
National Income and Price Determination • Which phase of the business cycle occurs when business is good, there is a large amount of customers and profits are growing? • Expansionary
Basic EconomicConcepts • The average quantity of goods and services that can be produced per each unit of labor input • Productivity
National Income and Price Determination • Name the four determinants of Aggregate Demand. • Consumption, Investment, Government Spending, Net Exports
Graphing • Draw a Production Possibilities Curve, with points identifying efficient (A), inefficient (B) and unattainable (C) economies.
Open Economy: International Trade and Finance • Suppose that interest rates are lower in the US relative to interest rates in Canada. Financial capital would flow ______ the US and the US dollar would ________. • Out of, depreciate
National Income and Price Determination • The Keynesian theory that says that laborers are unwilling to immediately take reductions in pay due to a contracting economy. • Sticky wage theory
Measurement of Economic Performance • List the phases of the business cycle. • Peak, Contraction (Recession), Trough, Expansion (Recovery)
National Income and Price Determination • Which curve would be shifted and in what direction? • Government announces a large increase in spending on health and education. • AD, to the right
National Income and Price Determination • Which curve would be shifted and in what direction? • There is a significant increase in world oil prices. • AS, to the left
Measurement of Economic Performance • The total market value of all final goods and services produced within a country’s borders in a given period of time • GDP
National Income and Price Determination • Which curve would be shifted and in what direction? • Due to a decrease in demand for loanable funds, the real interest rate decreases. • AD, to the right.
Basic EconomicConcepts • This concept allows each labor input to focus on the specific activities that cost them the least (also known as division of labor) • Specialization
Financial Sector • This financial instrument acts as an IOU for the government. • Bond
Financial Sector • If an individual puts $1,000 in the bank with a RRR of 10%, what change does that deposit have on the money supply? • $9000
Financial Sector • If the Federal Reserve purchases $100 million in government securities, with a RRR of 20%, what change does that have on the money supply? • $500 million
Financial Sector • If the Fed decides to adopt contractionary monetary policy, what is the likely affect on the Loanable Funds Market? • Supply of Loanable Funds will decrease
Inflation, Unemployment and Stabilization Policies • This type of policy is controlled by the government • Fiscal
Inflation, Unemployment and Stabilization Policies • The percentage (%) of additional disposable income that each consumer will spend • Marginal propensity to consume
Inflation, Unemployment and Stabilization Policies • What does the short run Phillips curve illustrate? • The inverse relationship between unemployment and inflation
Financial Sector • What are the three tools of monetary policy? • Required Reserve Ratio, Open Market Operations, Discount Rate
Inflation, Unemployment and Stabilization Policies • Give an example of both expansionary fiscal and monetary policy. • Fiscal – lower taxes, increase spending • Monetary – lower discount rate, lower RRR, buy bonds
Graphing • Draw a properly labeled investment demand graph.
Economic Growth and Productivity • Other things equal, an improvement in productivity has what affect on the AS/AD graph in the short-run? • Shift SRAS to the right
Graphing • Draw an AS/AD graph with demand-pull inflation.
National Income and Price Determination • List two scenarios that would shift the LRAS curve to the right. • Increasing capital stock, discovery of new natural resources, technological advancements, increased education or training for laborers.
Graphing • Draw a properly labeled money market graph.
Economic Growth and Productivity • How is economic growth measured? • GDP
Open Economy: International Trade and Finance • Domestically produced goods and services sold abroad are called this • Exports
Inflation, Unemployment and Stabilization Policies • The side effect that occurs when expansionary fiscal policy increases AD, which in turn raises interest rates. • Crowding Out effect
Open Economy: International Trade and Finance • Exports and imports would be recorded into this account • Current Account