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174 Cards in this Set

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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 an individual decides which brand of cereal to buy.
micro
Micro or macro: How the Fed influences consumer spending the in US.
macro
Micro or macro: How a household decides which brand of laundry detergent to buy.
micro
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
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
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