APE REVIEW… A DUAL TO THE DEATH!

1. APE REVIEW…A DUAL TO THE DEATH!

2. National Income and Price Determination • The LRAS curve is conceptually the same as this other curve. • Production Possibilities Curve (PPC)

3. Measurement of Economic Performance • Explain the difference between nominal and real GDP. • Nominal doesn’t account for inflation, Real uses consistent base year prices.

4. Basic EconomicConcepts • Fundamentalproblemfacing allpeople; unlimitedwantsandlimitedresourcesto satisfythose wants. • Scarcity

5. Basic EconomicConcepts • Which of the following nations should produce butter? • United States

6. 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.

7. Measurement of Economic Performance • Total GDP is 200. There are 5 people in the economy. What is the Real GDP per Capita? • 40

8. Graphing • Draw a correctly labeled AS/AD graph, complete with labeled equilibrium.

9. 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.

10. Inflation, Unemployment and Stabilization Policies • List the two tools at the disposal of the federal government • Taxation, Government Spending

11. Measurement of Economic Performance • GDP = ____ + ____ + ____ + ____ • C + I + G + Xn

12. 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

13. Measurement of Economic Performance • List three items excluded from GDP. • Intermediate products, Used goods, non-market transactions, black market goods.

14. 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

15. Measurement of Economic Performance • What is the economist definition of a recession? • Real GDP falls for two consecutive quarters (6 straight months)

16. Open Economy: International Trade and Finance • The market of exchange that provides for the trading of international currencies • FOREX market

17. 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

18. Graphing • Draw a properly labeled FOREX market for the US dollar, in relation to the Japanese Yen.

19. 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

20. Measurement of Economic Performance • Given an example of the 4 types of unemployment. • Structural, frictional, cyclical, seasonal

21. 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

22. Basic EconomicConcepts • The average quantity of goods and services that can be produced per each unit of labor input • Productivity

23. National Income and Price Determination • Name the four determinants of Aggregate Demand. • Consumption, Investment, Government Spending, Net Exports

24. Graphing • Draw a Production Possibilities Curve, with points identifying efficient (A), inefficient (B) and unattainable (C) economies.

25. 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

26. 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

27. Measurement of Economic Performance • List the phases of the business cycle. • Peak, Contraction (Recession), Trough, Expansion (Recovery)

28. 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

29. 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

30. 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

31. 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.

32. 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

33. Financial Sector • This financial instrument acts as an IOU for the government. • Bond

34. 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

35. 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

36. 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

37. Inflation, Unemployment and Stabilization Policies • This type of policy is controlled by the government • Fiscal

38. Inflation, Unemployment and Stabilization Policies • The percentage (%) of additional disposable income that each consumer will spend • Marginal propensity to consume

39. Inflation, Unemployment and Stabilization Policies • What does the short run Phillips curve illustrate? • The inverse relationship between unemployment and inflation

40. Financial Sector • What are the three tools of monetary policy? • Required Reserve Ratio, Open Market Operations, Discount Rate

41. 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

42. Graphing • Draw a properly labeled investment demand graph.

43. 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

44. Graphing • Draw an AS/AD graph with demand-pull inflation.

45. 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.

46. Graphing • Draw a properly labeled money market graph.

47. Economic Growth and Productivity • How is economic growth measured? • GDP

48. Open Economy: International Trade and Finance • Domestically produced goods and services sold abroad are called this • Exports

49. 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

50. Open Economy: International Trade and Finance • Exports and imports would be recorded into this account • Current Account