No Bull Economics Lessons

Macroeconomics & Microeconomics Concepts You Must Know

Essential Questions

How do you graph an economy with inflation?

Posted on April 16, 2014 at 11:35 AM Comments comments (0)

To graph an economy experience inflation in the short run, the short-run aggregate supply curve and aggregate demand curve should intersect to the right of the long-run aggregate supply curve (full-employment level of output).


The No Bull Review diagram shows how to graph an economy experiencing high inflation in the short run using the AD/AS model.


AP Macroeconomic Unit 3 AD/AS & Fiscal Policy

How do you graph an economy in recession?

Posted on April 16, 2014 at 11:30 AM Comments comments (0)

To graph an economy experiencing a recession in the short run, the short-run aggregate supply curve and aggregate demand curve should intersect to the left of the long-run aggregate supply curve (full-employment level of output).


This No Bull Review diagram shows how to graph an economy in recession using the AD/AS model.


AP Macroeconomic Unit 3 AD/AS & Fiscal Policy

How do you graph an economy at full employment?

Posted on April 16, 2014 at 11:25 AM Comments comments (0)

To graph an economy that is fully employed, use the aggregate demand and aggregate supply model. The short-run aggregate supply curve, long-run aggregate supply curve, and aggregate demand curve should all intersect at the same spot. Price Level should be labeled on the y-axis and Real GDP should be labeled on the x-axis.


This No Bull Review graph illustrates a fully employed economy using the AD/AS Model. This is also known as an economy's long run equilibrium.


AP Macroeconomics Unit 3 AD/AS & Fiscal Policy

What are the components of gross investment?

Posted on April 16, 2014 at 10:50 AM Comments comments (0)

In economics courses, investment generally refers to business expenditures on capital goods. There are three components to gross investment when calculating the gross domestic product:


1. Fixed investment on capital goods (tools, machinery)

2. Residential and nonresidential investment (houses, apartments, stores)

3. Adjustments to inventories (accounting for unsold goods produced in the current year)


Net Investment = Gross Investment - Depreciation (AKA Consumption of Fixed Capital)


AP Macroeconomics Unit 2 Measuring Economic Performance

How do you calculate the real interest rate?

Posted on April 16, 2014 at 10:45 AM Comments comments (0)

To calculate the real or nominal interest rate, we can use the Fisher equation. The real interest rate accounts for changes in the price level and is very important for businesses interested in investment spending. When real interest rates are low, businesses will increase spending. When real interest rates are high, businesses are less likely to invest.


Real Interest Rate = Nominal Interest Rate - Inflation Rate

(or)

Nominal Interest Rate = Real Interest Rate + Inflation Rate


AP Macroeconomics Unit 2 Measuring Economic Performance

How do you calculate the inflation rate?

Posted on April 16, 2014 at 10:35 AM Comments comments (0)

The inflation rate measures the percentage increase in consumer prices over a period of time. To calculate the inflation rate, we use a consumer price index (CPI). The consumer price index tracks the prices of goods and services that the typical household buys using a market basket sample (CPI = Market Basket of Specific Year / Market Basket of a Base Year).


The No Bull Review diagram below shows the formula for calculating the inflation rate when you have the CPIs.

AP Macroeconomics Unit 2 Measuring Economic Performance

What is real GDP per capita?

Posted on April 16, 2014 at 10:30 AM Comments comments (0)

Real GDP per capita is one way to measure economic growth and a nation's general economic well-being. It represents the output per person within an economy.


Real GDP per capita = Real GDP / Population


AP Macroeconomics Unit 2 Measuring Economic Performance

What is the difference between real GDP and nominal GDP?

Posted on April 16, 2014 at 10:20 AM Comments comments (0)

Real GDP is output that has been adjusted to hold the price level constant. This way we can measure the level of goods and services that are produced over a period of time without worrying about changes in the price level.


Nominal GDP has not been adjusted for changes in the price level and reflects the market value of all goods and services in the year everything was produced.


 

Therefore, real GDP is more important than nominal GDP for measuring economic growth.


How to calculate the Real GDP:

Real GDP = Nominal GDP / GDP Price Index


This No Bull Review video shows reviews real GDP and nominal GDP.

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AP Macroeconomics Unit 2 Measuring Economic Performance

What is the difference between demand-pull inflation and cost-push inflation?

Posted on April 16, 2014 at 10:10 AM Comments comments (0)

Demand-pull inflation is caused by an increase in aggregate demand. This means that buyers are pulling up the general price level of goods and services within an economy.


Cost-push inflation is caused by a decrease in short-run aggregate supply. This means that an increase in production costs (resource prices) have caused an increase in the general price level.


AP Macroeconomics Unit 2 Measuring Economic Performance

What is a business cycle?

Posted on April 16, 2014 at 10:05 AM Comments comments (0)

The business cycle shows the upturns and downturns of economic activity. It contains four parts:


1. Expansions (real GDP increases, unemployment falls)

2. Peaks (real GDP is at its max, resources are fully employed)

3. Contractions (real GDP declines, unemployment rises)

4. Troughs (real GDP is at its lowest point, unemployment is near its highest point)


The No Bull Review diagram below illustrates the four key parts along with an upward sloping line which demonstrates the long term trend of economic growth.

AP Macroeconomics Unit 2 Measuring Economic Performance

What are the three types of unemployment?

Posted on April 16, 2014 at 9:55 AM Comments comments (0)

There are three types of unemployment that make up the rate of unemployment in a given economy.


1. Frictional unemployment (temporary, seasonal): includes recent graduates and people who quit their job to find something better.

2. Structural unemployment (skills no longer needed): includes people who are replaced by technology or new industries (creative destruction). These people need to retrain or move to find work.

3. Cyclical unemployment (due to recession): includes people who are laid off because the economy is weak (downturn in the business cycle).


This No Bull Review video discusses the three types of unemployment and the natural rate of unemployment.

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AP Macroeconomics Unit 2 Measuring Economic Performance

What is scarcity?

Posted on April 15, 2014 at 10:30 AM Comments comments (0)

Scarcity is the economic problem resulting from the limited nature of the four economic resources (factors of production). The scarce economic resources are land, labor, capital, and entrepreneurship. Every society must determine how it will allocate these scarce economic resources.


This No Bull Review video discusses the four factors of production and the resource payments required to obtain the scarce resources.

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AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What is the law of diminishing marginal utility?

Posted on April 15, 2014 at 10:20 AM Comments comments (0)

The law of diminishing marginal utility states that as you consume more of a good, your additional happiness from consuming one more unit falls. For example, you just ate your fourth taco and realize that the third taco gave you more additional satisfaction than the fourth. That's because of diminishing marginal utility. Say you just completed your seventh year of marriage, and realize that your additional happiness gained in the seventh year is less than the additional happiness gained in the sixth year. That's because of diminishing marginal utility.


Your total utility or total happiness increases as you consume more units of a product, however, the rate that your total utility increases will fall at some point. That is diminishing marginal utility.


Value lies at the margin: Water will give you more total satisfaction throughout your life than the diamonds that you own. However, the marginal utility of the last diamond you purchased is much greater than the last glass of water you drank. That idea along with the concept of scarcity explains why diamonds are so expensive and water is so cheap.


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What is an opportunity cost?

Posted on April 15, 2014 at 10:15 AM Comments comments (0)

An opportunity cost is the next best alternative for whatever you are doing at the moment. For example, right now you are looking at my website MrMedico.info. This is the best thing that you can be doing at the moment. If you had something better to do, you would be doing it! Your opportunity cost is the next best thing that you could be doing instead of reading about opportunity costs on my website. Wow, your life is pretty sad, isn't it? (lol, jk)


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What are the assumptions of a production possibilities frontier?

Posted on April 15, 2014 at 10:05 AM Comments comments (0)

The production possibilities model illustrates opportunity costs graphically. In this simplified model, we make the following assumptions:


1. Only two goods are produced

2. Resources are fixed

3. Technology is fixed

4. Full employment exists on the curve

5. Productive efficiency (producing at lowest cost) exists on the curve

6. Cannot produce beyond the curve in the present

7. Production inside the curve indicates that there are unemployed resources


This No Bull Review video shows you how to draw a PPC and label the key points.

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AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What is the law of increasing opportunity cost?

Posted on April 15, 2014 at 10:00 AM Comments comments (0)

The law of increasing opportunity cost applies to a production possibilities curve that bowed outward from the origin. For an economy to produce more of one good, it must sacrifice increasing quantities of the other good.


If opportunity costs were constant, then the PPC would be straight line.


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What is a surplus?

Posted on April 15, 2014 at 10:00 AM Comments comments (0)

A surplus occurs within a market when the quantity supplied exceeds the quantity demanded. Assuming no government price controls, a surplus is temporary and market forces will push the price back down toward equilibrium.


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What is a shortage?

Posted on April 15, 2014 at 9:55 AM Comments comments (0)

A shortage occurs in a market when the quantity demanded exceeds the quantity supplied. Assuming no price controls or disasters, a shortage is only temporary and market forces will push prices back up toward equilibrium.


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

How do you find the comparative advantage?

Posted on April 15, 2014 at 9:45 AM Comments comments (0)

To determine which country has the comparative advantage in the production of a good, you must determine which country has the lowest opportunity cost (smallest sacrifice) in producing the good.


For example: If Nobully can produce 120 yak skin coats or 60 glockenspiels, then its opportunity cost of producing 1 yak skin coat is 1/2 glockenspiel (60 glockenspiels divided by 120 yak skin coats). If Medicoa can produce 60 yak skin coats or 120 glockenspiels, its opportunity cost of 1 yak skin coat is 2 glockenspiels (120 glockenspiels divided by 60 yak skin coats). Nobully has the comparative advantage in yak skin coat production because its opportunity cost (1/2) is less than Medicoa's opportunity cost (2).


The No Bull Review video below explains how to calculate absolute advantage, comparative advantage, and terms of trade using charts and production possibilities curves. You will learn how to develop your own chart to make these problems easy to solve.

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AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

How do you find the absolute advantage?

Posted on April 15, 2014 at 9:40 AM Comments comments (0)

To determine which country or economy has the absolute advantage in the production of a good, you simply look to see which country can produce more. If Nobully can produce 120 yak skin coats and Medicoa can only produce 60 yak skin coats, then Nobully has the absolute advantage in yak skin coats.


You can also determine absolute advantage by seeing which country can produce one unit faster or one unit with the least amount of economic resources.


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts


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