question
Command Economy
answer
Government owns all the factors of productions and determines how the resources are allocated
question
Market Economy
answer
Production and consumption are the result of decentralized decision made many individuals and firms
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Opportunity Cost
answer
What you give up when you make one choice over another
question
Factors of Production
answer
1. Land
2. Labor
3. Capital
4. Entrepreneurship
2. Labor
3. Capital
4. Entrepreneurship
question
Positive Economics
answer
Describes the way the economy actually works
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Normative Economics
answer
Describes the way the economy should work
question
Interest rates represent _________________________________
answer
the cost of money
question
Recession
answer
Falling GDP for two consecutive quarters
question
Expansion
answer
Increase in productivity and employment
question
Three Economic Goals
answer
1. Price Stability
2. Economic Growth
3. Full Emplyment
2. Economic Growth
3. Full Emplyment
question
What is the targeted inflation rate?
answer
2%
question
What is the targeted unemployment rate?
answer
4-5%
question
Absolute Advantage
answer
The ability to produce more of a good or service than another producer
question
Comparative Advantage
answer
The ability to produce a good or service at a lower opporunity cost than another producer
question
Invisible Hand Theory
answer
A market economy, through the price mechanism, will tend to distribute resources efficiently
question
What is change in demand caused by?
answer
Non-price determinants
question
What are non-price determinants?
answer
1. Changes in the prices of related goods
2. Changes in income
3. Changes in taste/preference
4. Changes in expectations
5. Changes in number of consumers
2. Changes in income
3. Changes in taste/preference
4. Changes in expectations
5. Changes in number of consumers
question
Normal Good
answer
A good for which, other things equal, an increase in income leads to an increase in demand
question
Inferior Good
answer
A good for which, other things equal, an increase in income leads to a decrease in demand
question
Individual Supply Curve
answer
Illustrates the relationship between quantity supplied and price for an individual producer
question
Market Supply Curve
answer
A graph of the quantity supplied of a good by all suppliers at different prices
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Price Ceiling
answer
A maximum on the price at which a good can be sold
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Price Floor
answer
A minimum on the price at which a good can be sold
question
Market for Loanable Funds
answer
The interaction of borrowers and lenders that determines the market interest rate and the quantity of loanable funds exchanged
question
Real GDP
answer
Total value of all goods and services produced in the economy during a given year, after adjustments for inflation
question
Inflation Rate =
answer
((Price Level Year 2- Price Level Year 1)/ Price Level Year 1) * 100
question
Shoe Leather Cost
answer
The resources wasted when inflation encourages people to reduce their money holdings, increased costs of transactions
question
Menu Costs
answer
The costs of changing prices
question
Unit of Account cost
answer
Makes money less reliable unit of measurement
question
Real Interest Rate =
answer
Nominal Interest Rate - Inflation Rate
question
Price Index
answer
A measurement that shows how the average price of a standard group of goods changes over time
question
Frictional Unemployment
answer
A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.
question
Structural Unemployment
answer
Unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one
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Cyclical Unemployment
answer
Unemployment that rises during economic downturns and falls when the economy improves
question
Supply-side economics
answer
The economic theory of "Reaganomics" that emphasized cutting taxes and government spending in order to stimulate investment, productivity, and economic growth by private enterprise
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Say's Law
answer
Supply creates its own demand
question
Classical Economics
answer
Idea that free markets can regulate themselves
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Keynesian Economics
answer
Theory based on the principles of John Maynard Keynes, stating that government spending should increase during business slumps and be curbed during booms.
question
Spending Multiplier=
answer
1/(1-MPC)
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Tax Multiplier=
answer
MPC/MPS
question
GDP Tank
answer
Represents production capacity, filled by demand, consumption, and investment
question
Milton Freidman
answer
Free market economist who gave evidence in the 1970s of a steady shift to the right, away from the liberalism of the 1960s.
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