USAD - DemiDec - Basic - Economics
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- What are the main economic activities of the government within the circular flow model?
- regulation and taxation
- What is "consumer sovereignty?"
- when the consumers drive the economy
- What is Say's Law?
- that supply creates its own demand
- In the circular flow model, which sector is on the demand side of the product market?
- households
- In the circular flow model, which sector is on the demand side of the factor market?
- businesses
- Which sector in the circular flow model owns resources?
- households
- Which sector in the circular flow model is responsible for taxation and regulation?
- government
- In the circular flow model, when the real flow is clockwise, in what direction does money flow?
- counter-clockwise
- Supply-side economics suggests that the circular flow model starts in which sector?
- business
- What is national income?
- the total income earned by all households and corporations in an economy within a given period of time
- What does GDP stand for?
- Gross Domestic Product
- What is GDP?
- the total value of all final goods and services produced within an economy over a specified period of time.
- What does GDP measure?
- a nation's productive output
- Which GDP-calculating approach involves knowing the amount of consumption and invenstment?
- expenditures approach
- In the expenditures approach to calculating GDP, what does the C stand for?
- consumption
- In the expenditures approach to calculating GDP, what does the G stand for?
- government spending
- In the expenditures approach to calculating GDP, what does the I stand for?
- investment spending
- In the expenditures approach to calculating GDP, what does the X stand for?
- net exports (all exports minus all imports)
- In the US, what percentage of the GDP is based on consumption?
- 65%
- In the US, what percentage of the GDP is based on government spending?
- 15%
- In the US, what percentage of the GDP is based on investment spending?
- 15%
- In the US, what percentage of the GDP is based on net exports?
- 5%
- What is the difference between nominal GDP and real GDP?
-
nominal = GDP expressed in current-year dollars
real = GDP expressed after it's been adjusted for inflation - What do we call the price index used to convert nominal GDP to real GDP?
- GDP deflator
- What is the equation for real GDP?
-
real GDP = nominal GDP divided by GDP deflator
= (nominal GDP)/(GDP deflator) - How can changes in GDP be misleading?
- doesn't account for changes in quality or inflation; some activities go unreported (aka illegal activities); transactions without money (home-making, subsistance farming) aren't included;
- What is per capita GDP?
- the total GDP divided by the total population
- What does per capita GDP measure?
- quality of life
- How can the per capita GDP measure the quality of life inaccurately?
- it doesn't include non-market activities (i.e. home-making); doesn't factor in the good stuff (second-hand goods), or the bad stuff (greenhouse emissions); as time goes on, developing nations appear further behind while industrialized nations appear farther ahead
- GDP = _____ + _____ + _____ + _____
- C (consumption); G (government spending); I (investment spending); X (net exports)
- In the income approach to GDP, what two things must be subtracted from the subtotal?
- subsidies and indirect taxes
- What is considered the best measure of the quality of life in an economy?
- GDP
- What is "double-counting" as it pertains to GDP measurements?
- when goods or services are included twice in the GDP measurement
- Why is GDP per capita an inadequate measure for the quality of life?
- GDP is a measure of productivity, but that's only one aspect of the quality of life in an economy; does reveal everything about quality of life in an economy;
- How can GDP be distorted by price changes?
- it's hard to tell whether a price increase is the result of an increase in quality
- What is economic growth?
- a sustained increase in an economy's capacity to produce goods and services
- What do economists watch to determine whether economic growth is occurring in the US?
- GDP
- How long must GDP increase in order to be defined as a period of economic expansion in the business cycle?
- at least two consecutive quarters (6 months)
- How long must GDP decrease in order to be defined as a period of economic recession in the business cycle?
- at least two consecutive quarters (6 months)
- What is the lowest point (end) of a recession called?
- trough
- What is the highest point (end) of an expansion called?
- peak
- What can rise rapidly during expansionary periods?
- inflation
- What can rise rapidly during recessionary periods?
- unemployment
- True or false: A recession is a sustained decrease in business activity, lasting at least four consecutive quarters.
- false; a recession is a sustained decrease in business activity, lasting at least TWO consecutive quarters
- True or false: The business cycle is comprised of the natural fluctuations that occur in the level of business activity.
- true
- True or false: By definition, economic growth is a sustained increase in an economy's factors of production.
- false; By definition, economic growth is a sustained increase in an economy's CAPACITY TO PRODUCE
- True or false: To measure economic growth economists watch for increases in Gross Domestic Product.
- true
- True or false: The end of a recession is a trough in the business cycle.
- true
- True or false: The end of an expanstion is a peak in the business cycle.
- true
- What is a depression?
- a severe contraction in economic growth, which lasts longer than one year
- Expansion or recession: the years from 1933-1937
- expansion
- Expansion or recession: World War II
- expansion
- Expansion or recession: the years from 1945-1947
- recession
- Expansion or recession: the Korean War
- expansion
- Expansion or recession: the OPEC oil embargo of 1973
- recession
- Expansion or recession: the years from 1983-1989
- expansion
- Expansion or recession: the Gulf War
- recession
- Expansion or recession: the years from 1991-2001
- expansion
- What is aggregate output?
- all the goods and services produced in an economy
- How is aggregate output measured?
- GDP
- What is aggregate demand?
- the relationship between the quantity demanded of aggregate output and the price level
- What is price level?
- the average price of all the goods and services produced in an economy
- What does the aggregate demand curve show?
- the relationship between the price level and the quantity demanded of real GDP
- What is aggregate supply?
- the relationship between the price level and the quantity of real GDP that producers are willing and able to supply
- What does the aggregate supply curve show?
- the relationship between price level and quantity supplied of real GDP
- What is equilibrium?
- the point where aggregate demand equals aggregate supply; the intersection of the aggregate demand curve and the aggregate supply curve;
- What is stagflation?
- a combination of economic stagnation and inflation; prices are rising but real GDP is not growing;
- Who is included in the labor force?
- any person who is at least 16 years of age, who works for pay either full-time or part-time, and anyone who is actively seeking a job
- What is the definition of an unemployed person?
- someone who does not currently have a job, but is making a serious, persistant effort to find one.
- What makes up the labor force?
- labor force = unemployed + employed
- Micro or macro: How the Fed influences consumer spending the in US.
- macro
- Micro or macro: How a firm decides when to go out of business.
- micro
- Micro or macro: How debt affects the income gap among Americans.
- macro
- Micro or macro: How new parents decide whether to work or to stay home with their children
- micro
- In five or fewer words, what is economics?
- a study of decision-making
- What is the emphasis of microeconomics?
- the economic decision-making of the individual
- What is the emphasis of macroeconomics?
- the economic behavior of an economy as a whole
- Which of doesn't belong?: the circular flow of the economy; market structure; income elasticity of demand; price elasticity of demand;
-
the circular flow of the economy;
the circular flow is a "macro" issue, everything else is a "micro" issue - Which doesn't belong: gross domestic product; gross national product; price controls; monetary policy;
-
price controls
price controls are a macro issuebecause they affect individual markets or industries. All the others are "macro" issues. - Which doesn't belong: the policy tools of the Federal Reserve; the Humphrey-Hawkins Act; recession; barriers to market entry;
-
barriers to market entry
All are "macro isues, but the "barriers" refer to entry into an individual market. The Humphrey-Hawkins Act obligates congress to pursue economic prosperity. Even if you didn't know this, you could have guessed that any bit of legislation might result in a policy change, which means if would fall under "macro." - Which doesn't belong: National Income Accounts the natural rate of unemployment; characteristics of an oligopoly; the velocity of money
-
characteristics of an oligopoly
all are macro issues, but the "characteristics"refer to an individual market (which happens o be an oligopoly). - Scarcity forces people to make _____.
- choices
- There ain't no such thing as a free _____. (TANSTAAFL).
- lunch
- Economics is based on the assumption that people have unlimied _____ and limited _____.
- wants; resources
- The basic problem of economics is _____.
- scarcity
- If less of a resource is available to us than we like, then the resource is said to be _____.
- scarce
- The most common example of a free good is _____.
- air
- What is a trade-off?
- a decision to have something and to do without something else
- What is opportunity cost?
- the value of the best alternative not chosen
- What is economic cost?
- the complete cost, which is a measure of its net economic impact (includes monetary and non-monetary values)
- According to economics, why do people have to make choices?
- because they deal with scarcity
- Why do economists say "there ain't no such thing as a free lunch?"
- if you give it enough thought, everything has an economic cost
- What is a free good?
- a resource so abundantly available to everyone that it does not seem to be limited
- What is the difference between accounting cost and economic cost?
- economic cost includes the accounting cost as well as other qualitative costs
- Why is it difficult to quantify the economic cost of a decision?
- economic cost includes qualitative costs, which are difficult to quantify
- The cost of a trade-off is called _____.
- opportunity cost
- What is the decision to have more of one thing and less of another?
- trade-off
- What is the scale of the study of microeconomics?
- individual
- What is equal to the value of the best alternative not taken?
- opportunity cost
- What is a measure of the economic impact of an action?
- economic cost
- What is the scale of the focus of macroeconomics?
- aggregate
- What is something called that is available in a sufficient quantity to anyone who wants it?
- free good
- What is the reason we study economics?
- scarcity
- Production at any point allong the PPF is _____ and _____.
- attainable and efficient
- Production at a point inside the PPF is _____ and _____.
- attainable and inefficient
- Production at a point outside the PPF is _____.
- impossible/unattainable
- As production approaches a point closer to either end of the PPF, the trade-offs become _____.
- increasingly costly
- What law causes the PPF to curve?
- the law of increasing opportunity costs
- Whay is it difficult to quantify the economic cost of a decision?
- economic cost includes qualitative costs, which are difficult to quantify
- Production at any point along the PPF is _____.
- attainable and efficient
- Production at any point inside the PPF is _____.
- attainable and inefficient
- Production at any point outside the PPF is _____.
- currently unattainable; impossible
- What causes the PPF to curve?
- the law of increasing opportunity costs
- As production approaches a point closer to either end of the frontier, the trade-offs become _____.
- increasingly costly
- What the PPF represents a nation's production possibilities, what do the two axes represent?
- production of capital goods; production of consumer goods
- True or false: Every point along the PPF is efficient.
- true
- True or false: On the PPF, as production approaches a point closer to either axis, the opportunity cost of a trade-off decreases.
- false - On the PPF, as production approaches a point closer to eithe raxis, the opportunity cost of a trade-off INCREASES.
- True or false: Without trade, a point above or to the right of the PPF is unattainable.
- true
- True or false: If the PPF is a straight line with a slope of -1, the two gods concerned are very different.
- false - If the PPF is a straight line with a slope of -1, the two goods concerned are very SIMILAR.
- True or false: We ease political pressure with goods and services.
- false - We SATISFY WANTS with goods and services.
- True or false: The PPF is often used to graphically represent the trade-off between the production of capital goods and the production of missiles.
- false - The PPF is often used to graphically represent the trade-off between the production of capital goods and the production of CONSUMER GOODS.
- True or false: A movement along the PPF represents a trade-off.
- true
- True or false: the law of increasing opportunity costs explains why the PPF is usually curved.
- true
- What law is demonstrated by the expression, "It's easy to make milk out of cows; it is more difficult to make nuclear missiles out of cows?"
- law of increasing opportunity costs
- What are the four factors of production?
- natural resources (land), human resources (labor), capital, entrepreneurial talent
- What are "natural resources?"
- land and rraw goods in their natural environment
- What are "capital resources?"
- the things we produce to help us produce other things
- What are "human resources?"
- the human part of the production process; the mental and physical efforts of humans in the production process
- What is "entreprenturial talent?"
- the resources we use to either improve the output of the production process or to create new output
- How are natural resources paid for?
- rent
- How are capital resources paid for?
- interest
- How are human resources paid for?
- wages
- How is entreprenurial talent paid for?
- profit
- Which factor of production?: an oil reserve
- natural resources
- Which factor of production?: the initiative to combine water, lemons, and sugar to make lemonade for sale
- entreprenurial talent
- Which factor of production?: a rain forest
- natural resources
- Which factor of production?: buildings
- capital resources
- Which factor of production?: the knoeledge and training required to answer phones and schedule appointments for a dentist's office
- human resources
- Which factor of production?: machinery
- capital resources
- Which factor of production?: a laborer's training
- human resources
- Which factor of production?: the knowledge needed to design an advertising campaign
- human resources
- Which factor of production?: lumber
- capital resources
- Which factor of production?: the land on which a factory is built
- natural resources
- Which factor of production?: the ability to create and operate a new summer camp
- entreprenurial talent
- Which factor of production?: the ability to organize and train writers to produce exams, workbooks, flashcards, and other materials
- entreprenturial talent
- Which factor of production?: a printing press
- capital resources
- Which factor of production?: raw goods
- natural resources
- Which factor of production?: a mainframe computer
- capital resources
- True or false: As factors of production, education and training are considered capital resources.
- False - As factors of production, education and training are considered HUMAN resources
- True or false: The basic problem of economics is neo-conservatism.
- False - The basic problem of economics is SCARCITY
- True or false: The study of economics assumes humans have unlimited wants and limited resources with which to satisfy those wants.
- True
- True or false: The four factors of production are technology, strategy, savvy, and sapience.
- False - The four factors of production are NATURAL RESOURCES, CAPITAL RESOURCES, HUMAN RESOURES, and ENTREPRENEURIAL TALENT.
- True or false: An increase in a factor of production, ceteris paribus, will cause the PPF to expand outward.
- True
- True or false: In the language of economics, "entrepreneurship" is something that creates wealth.
- False - In the language of economics, PRODUCTION is something that creates wealth.
- True or false: TANSTAAFL stands for "Economists have a poor sense of humor."
- False - "TANSTAAFL" means "THERE AIN'T NO SUCH THING AS A FREE LUNCH"
- True or false: Natural resources include fossil fuels, trees, and coal mines.
- True