[ECON 2133] - Midterm Exam Guide - Ultimate 15 pages long Study Guide!

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ECON 2133
MIDTERM EXAM
STUDY GUIDE
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Macroeconomics
Definition & Measurement
1/10/2017
Economics- The allocation of scarce resources among alternative competing ends.
- 6+ Billion people worldwide; 330 Million people in USA
Demography- The study of population characteristics (geographically, ethnically,
educationally, etc.) and dynamics (how is it changing over time).
- Rural China, 160 males per 100 females because the #1 son takes care of
parents so they were more valued
Scarcity- Finite resources with infinite wants.
- Necessitates choice!
- Is permanent
- Can be alleviated or lessoned
Economics is the Science of Optimal Choice Making!
- Economics pie, $18.5 trillion, making USA the largest piece of world pie
* Allocation (mechanisms) is (are) used to divide the pie
Markets- Laws of supply and demand, driven by individual choice (i.e. Singapore)
vs.
- United States
- Venezuela
- Cuba
- China
Government Control- Government spends or redistributes how the money is allocated (i.e.
North Korea)
Mixed Economy- The What to produce, (ow to produce, and Who to produce for
questions are not easily answered. A mix of individuals and government make the decision.
Macroeconomics vs. Microeconomics
Positive Economics
- Fact/Empirical Data
- Scientific Inquiry
- Testable Hypothesis
vs.
Normative Economics
- Views, opinions, controversy
- Value judgments What we should/ought to be doing
Macro Economy Goals
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1. Have Full employment, which means having a 4%-5% average unemployment rate
- Unemployment means you are looking for employment and do not have it
- Must be on the production possibly curve
- 160 million Americans are in workforce
2. Price Stability meaning, having low and stable inflation
- Inflation is the percent of increase in the overall general price level (dot over P)
- Inflation is BAD because 1) it reduces the standard of living, 2) it creates
uncertainty, and 3) interest rates go up.
* Nominal Interest Rate = Real interest rate + inflation
13% 3% 10%
Fisher Equation
(Also: Real interest = Nominal interest Inflation)
- Hyperinflation is when you have 50%+ inflation per month
- Example of hyperinflation: In November of 2008 Zimbabwe switched to the
dollar because their inflation rate was 72, 600, 000, 000%
3. Economic Growth or Expanding Pie $18.5 trillion is US output
- No growth = Zero Sum Society (i.e. playing poker)
- Growth = Positive Sum Society (i.e. win-win situations)
4. Efficiency is about getting maximum output from minimum inputs (Microecon)
5. Equitable Distribution of Income meaning, it must be fair, just, ethical criteria
in deciding who gets what (introducing normative criteria in deciding right/wrong)
- Karl Marxx- Anarchy of the market Rich gets stuff, poor do not/People who
need it the most should get the resources/Communism)
- To solve the problem, redistribute FDR’s New Deal, or )ncome Transfers
(take income from one group and give to another), or Entitlement Spending (to
provide people with resources and money because they are entitled)
* They are Non-Discretionary Spending Programs (i.e. social security) (#1
thing Federal Government does is write checks to people)
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