Principles Of Macroeconomics - Chapter 2

Front 1

What do economists use as a substitute for a laboratory when applying the scientific method.

Give an example.

Back 1

Natural experiments offered by history.

An example is the war in the middle east which interrupted the flow of crude oil, causing oil prices to skyrocket around the world.

Front 2

What is the Circular-Flow diagram?

Back 2

The circular flow diagram is a visual model of the economy. It includes only two types of decision-makers: households and firms.

Front 3

In the Circular-flow diagram, what role do firms play?

Back 3

Firms produce and sell goods and services. Firms hire and use factors of production.

Front 4

In the circular-flow diagram, what role do households play?

Back 4

Households buy and consume goods and services. Households own and sell factors of production.

Front 5

In the circular-flow diagram, what are factors of production?

Back 5

Factors of production include labor, land and capitol ( buildings and machines ).

Front 6

In the circular flow diagram, what are the two markets in which households and firms interact?

Back 6

The market for goods and services and the market for factors of production.

Front 7

What does the inner loop of the circular flow diagram represent?

Back 7

The flow of inputs and outputs. Inputs and outputs are the use of factors of production and goods and services.

Front 8

What does the outer loop of the circular flow diagram represent?

Back 8

The flow of dollars

Front 9

In the circular flow diagram, in what form do dollars flow from firms to households?

Back 9

Dollars flow from firms to households as income ( wages ), rent ( use of land & capital ), and profit ( paid to owners of firms who are members of households ).

Front 10

What is the production possibilities frontier?

Back 10

The production possibilities frontier is a graph that shows various combinations of output that the economy can produce given the constraints of raw material and production technology.

Front 11

What is an efficient outcome?

Back 11

An efficient outcome is one in which the economy is getting all it can from the scarce resources it has available.

Front 12

In the production possibilities frontier, what characterizes an efficient outcome?

Back 12

An efficient outcome is represented by a point that lies on the production possibilities frontier ( rather than inside the frontier ).

Front 13

In the production possibilities frontier, what characterizes an inefficient outcome?

Back 13

An inefficient outcome is represented by a point that lies inside the production possibilities frontier.

Front 14

What is microeconomics?

Back 14

Microeconomics is the study of how households and firms make decisions and how they interact in specific markets.

Front 15

What is macroeconomics?

Back 15

Macroeconomics is the study of economy wide phenonoma.

Front 16

How is "positive analysis" different from "normative analysis" ?

Back 16

Positive analysis consists of descriptive statements that say how the world is. Normative analysis consists of prescriptive statements that tell how the world ought to be.

Front 17

In addition to facts, what is needed to evaluate normative statements?

Back 17

Evaluating normative statements involves values as well as facts.

Front 18

What is the Council of Economic Advisers?

Back 18

The Council of Economic Advisers consists of three members and a staff of several dozen economists. Its only duties are to advise the president and to write the annual "Economic Report of the President"

Front 19

What do economists at the Department of the Treasury do?

Back 19

Economists at the Department of the Treasury help design tax policy.

Front 20

What do economists at the Department of Labor do?

Back 20

Economists at the Department of Labor analyze data on workers and those looking for work in order to help formulate labor-market policies.

Front 21

What do economists at the Department of Justice do?

Back 21

Economists at the Department of Justice help enforce the nation's antitrust laws.