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