ECON 522 Midterm: ECON Exam 1.docx
Document Summary
Economic models are simplified versions of a more complex reality. Economist studies the performance of the economy in the short run (months. Example of a model: demand and supply curves. Some important concepts: or a few years) and in the long run (several years). Market clearing: an assumption that prices are flexible, adjust to equate supply and demand. In the short run, prices are sticky, i. e. prices change slowly like a menu cost. In the long run, prices are flexible and the markets clear. The three main measure of macroeconomics performance are: produced in a country. Total expenditure on domestically- produced final goods and services. Total income by domestically located factors of production. Expenditure equals income because every dollar spent by a buyer becomes income to the seller. Economist use different models to examine different issues. Models with flexible prices describe the economy in the long run. Models with sticky prices describe the economy in the short run.
