Chapter 13 and 14 Economics Quiz – Flashcards
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the dollar value of all final goods and services produced in a country in a year.
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What is GDP?
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The value of home production Intermediate products Second-hand sales Non-market transactions
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What are excluded from GDP?
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The composition of the goods The quality of life
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What does GDP tell us nothing of?
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economic
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Despite its limitations, GDP is still the best measure of of __________ health.
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All the individuals and households and all the things they purchase
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What is the consumer sector?
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What businesses buy to produce their goods
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What is the investment sector?
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All the spending done by governments
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What is the government sector?
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Exports - imports. The number of goods brought in vs. the number of goods going out. This number is included in GDP.
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What is the foreign sector?
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It shows the aggregate (total) demand by all sectors of the economy.
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What is the output expenditure model?
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C+I+G+Xn
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What is the equation?
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Consumer- personal consumption expenditures Investment- Business expenditures Government- National defense, healthcare, roads, education Foreign- Buys imports
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How does each sector spend?
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The ups and downs of GDP
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What is a business cycle?
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A decline of GDP for 2 consecutive quarters (6 months)
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What is an recession?
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A period of increasing economic growth measured by GDP
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What is expansion?
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peak
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The recession begins when the economy reaches a ________, the point where real GDP stops going up.
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trough
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The recession ends when the economy reaches a ________, the turnaround point where real GDP stops going down
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A prolonged, severe recession
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What marks a depression?
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Mainly long periods of economic growth with short recessions about every 5-10 years
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Describe the business cycles since WWII
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A statistical series that can tell us whether or not we will be in recession or expansion
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What s the index of leading indicators?
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The length of the average work week or house building.
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Give an example of one these indicators?
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The percentage of people in the labor force that are unemployed.
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What is the unemployment rate?
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1. Discouraged workers are not counted in the labor force. 2. Part-time workers are counted as employed.
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What are the two reasons that the unemployment rate might be understated?
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People between jobs
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What is frictional unemployment?
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Occurs when a fundamental change in the economy reduces the demand for workers and their skills
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What is structural unemployment?
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Cyclical Unemployment
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____________ ___________ is directly related to swings in the business cycle.
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Unemployment that results in changes in weather or changes in demand for certain products
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What is seasonal unemployment?
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Unemployment related to technological improvements that replace the human work force
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What is technological unemployment?
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The lowest possible unemployment rate
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What is full employment?
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4.5%; When you eliminate cyclical and structural employment
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At what point is full employment reached?
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The magnitude of prices at a given point in time
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What is the price level?
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Determined by comparing the price level at the beginning and end of a period
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Hos is the rate of inflation computed?
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Price is falling, usually during recession
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What is deflation?
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1-3% Inflation
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What is creeping inflation?
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400-500% Inflation
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What is galloping inflation?
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Inflation above 500%
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What is hyperinflation?
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When all the sectors of the economy try to buy more goods and services than the economy can produce.
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Demand-Pull Theory
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Can cause demand for inflation, when the government increases spending, prices go up
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Federal Deficits
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drive up prices (cost-push inflation)
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Rising input costs
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Higher prices lead workers to demand higher wages. When they get higher wages, companies must raise their prices even higher. (Spiral repeats)
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Self-perpetuating spiral of wages and prices
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The most popular theory of the cause of inflation. The government prints a lot of money and the prices go up.
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Excessive monetary growth
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The dollar buys less (undervalued) Hurts people with fixed income Causes people to change spending habits which disrupts the economy Hurts savers
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Consequences of Inflation
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Total value of all goods and services that all firms would produce in a specific period of time at various price levels.
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What is aggregate supply?
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Price level
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What is labeled along the vertical axis?
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GDP Level
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What is labeled along the horizontal axis?
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Production costs
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What is aggregate supply tied to?
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Shift to the left
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Factors that increase costs do what to AS?
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Shift to the right
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Factors that decrease costs do what to AS?
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The total amount of GDP that would be purchased at various price levels
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What is aggregate demand?
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A decrease in savings Expectations of a strong economy Increase in transfer payments from gov't Deduction in taxes
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What increases AD?
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Increase in savings Expectation of a weak economy Decrease in transfer payments from gov't Increase in taxes
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What decreases AD?
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Where the aggregate supply meets the aggregate demand
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Where does the macroeconomic equilibrium occur?
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The price level and the amount of GDP
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What is established at this equilibrium?
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Government policies to increase or decrease aggregate demand
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Demand Side Policies
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Decrease in G Increase in T
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What does the government attempt to do when there is inflation?
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Increase G Decrease T
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What does the government attempt to do when there is recession?
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Increase or decrease G Increase or decrease T
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What is fiscal policy?
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Investment spending
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What is the most unstable type of spending?
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Every dollar spent has a multiple effect on total spending
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What is the multiplier effect?
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Government
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If businesses will not spend, who could take the place?
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Lower taxes
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In lieu of spending, what else can government do?
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Policies that are designed to go into effect automatically upon the entering of a recession or inflationary periods
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What are automatic stabilizers?
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aggregate supply
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Increase________ ________ to increase GDP
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Right
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Which way will the AS curve shift?
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Government
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Supply-siders advocate a smaller role for ___________.
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Removing the restrictions that the gov't places on businesses so that it is easier for the businesses to operate
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What is deregulation?
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Companies don't have as much tax burden and they are able to hire more workers
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How can lower tax rates stimulate economic growth?
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Changing the money supply is a better way of stabilizing the economy
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What do monetarists believe in?
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Decreasing the money supply
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What is contractionary monetary policy?
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Increasing the money supply
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What is expansionary monetary policy?
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Inflation
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What can too much monetary growth cause?
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In proportion to growth of the economy
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How should the money supply grow?
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Discretionary
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____________ fiscal policy requires action by Congress, the President, or an agency of government.
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Passive
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__________ fiscal policies are policies that take effect automatically. (Unemployment compensation)
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structural
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Those designed to strengthen the economy over a long period of time. (Welfare reform are called ____________ fiscal policies)
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The period of time that it takes to notice a problem
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What is the recognition of lag?
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administrative lag
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The _______________ is the time it take for laws to get passed
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implementation lag
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The _____________ is the time it takes before the projects are implemented
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grid lock
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Another of the main reasons for the decline of discretionary fiscal policy is the fact that politicians find it difficult to agree on policies, this is called_____________.
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Monetary Policy
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What has replaced fiscal policy as the primary way to stabilize the economy?
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Raise or lower the interest rates
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What does the Federal Reserve to do encourage or discourage borrowing?
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economic
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Political issues generally resolve around___________ issues such as spending, taxes, budgetary issues
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Their party, background, education
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What are the views of economists most influenced by?
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Council of Economists that advise the president
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What doe the Council of Economic Advisers do?
