question

inputs

answer

labor, machinery, buildings and other resources used to produce outputs

question

outputs

answer

goods and services that the economy produces

question

growth policy

answer

government policy intended to make the economy grow faster in the long run

question

labor productivity

answer

amount of output a worker turns out in an hour (or week or year) of labor; if output is measured by GDP, it is GDP per hour of work

question

potential GDP

answer

real GDP that the economy would produce if its labor and other resources were fully employed

question

labor force

answer

number of people holding or seeking jobs

question

production function

answer

volume of outputs that can be produced from given inputs given the available technology

question

real GDP per capita

answer

ratio of real GDP to the populatioin

question

unemployment rate

answer

number of unemployed people, expressed as a percentage of the labor force

question

frictional unemployment

answer

unemployment that is due to normal turnover in the labor market; includes people who are temporarily between jobs because they are moving or changing occupations, or are unemployed for similar reasons

question

structural unemployment

answer

refers to workers who have lost their jobs because they have been displaced by automation, because their skills are no longer in demand or because of similar reasons

question

cyclical unemployment

answer

unemployment attributable to a decline in the economy's total production; rises during recession and falls as prosperity is restored

question

full employment

answer

situation in which everyone who is willing and able to work can find a job

question

unemployment insurance

answer

government program that replaces some of the wages lost by eligible workers who lose their jobs

question

purchasing power

answer

volume of goods and services that a given sum of money will buy

question

real wage rate

answer

wage rate adjusted for inflation

question

relative price

answer

item's price in terms of some other item rather than in terms of dollars

question

real rate of interest

answer

percentage increase in purchasing power that the borrower pays to the lender for the privilege of lending

question

nominal rate of interest

answer

percentage by which the money the borrower pays back exceeds the money that he borrowed, making no adjustment for any decline in the purchasing power of this money

question

economic growth

answer

notion that standards of living rise from one year to the next

question

redistribution by inflation

answer

in general, those who lend money are apt to be victimized by inflation, and borrowers often gain from inflation

question

expected rate of inflation

answer

often inaccurate prediction put forth by economists and added to the real rate of interest to get the nominal rate of interest

question

capital gain

answer

difference between the price at which an asset is sold and the price at which it was bought

question

discouraged worker

answer

unemployed person who gives up looking for work and is therefore no longer counted as part of the labor force

question

human capital

answer

amount of skill embodied in the workforce; most commonly measured by the amount of education and training

question

convergence hypothesis

answer

nations with low levels of productivity tend to have high productivity growth rates, so that international productivity differences shrink over time

question

capital

answer

available supply of plant, equipment and software

question

investment

answer

flow of resources into the production of new capital; labor, steel and other inputs devoted to the construction of factories, warehouses, railroads and other pieces of capital during some period of time

question

capital formation

answer

refers to the process of building up the capital stock; synonymous with investment

question

property rights

answer

laws and/or conventions that assign owners the rights to use their property as they see fit (within law)

question

on-the-job training

answer

skills that workers acquire while at work, rather than in school or in formal vocational training programs

question

invention

answer

act of discovering new products or new ways of making products

question

innovation

answer

act of putting new ideas into effect by, for example, bringing new products to market, changing product designs and improving the way in which things are done

question

research and development (R&D)

answer

activities aimed at inventing new products or processes, or improving existing ones

question

cost disease of the personal services

answer

service activities that require direct personal contact tend to rise in price relative to other good and services

question

aggregate demand

answer

total amount that all consumers, business firms and government agencies spend on final goods and services

question

consumer expenditure

answer

total amount spent by consumers on newly produced goods and services (excluding purchases of new homes); abbreviated C

question

investment spending

answer

sum of the expenditures of business firms on new plant and equipment and households on new homes. Financial "investments" are not included; abbreviated I

question

government purchases

answer

refer to the goods and services purchased by all levels of government; abbreviated G

question

net exports

answer

difference between exports (X) and imports (IM); indicates the difference between what we sell to foreigners and what we buy from them; abbreviated X - IM

question

national income

answer

sum of the incomes that all individuals in the economy earned in the forms of wages, interest, rent and profits; excludes government transfer payments and is calculated before any deductions are taken for income taxes

question

disposable income

answer

sum of the incomes of all individuals in the economy after all taxes have been deducted and all transfer payments have been added; abbreviated DI

question

transfer payments

answer

sums of money that the government gives certain individuals as outright grants rather than as payments for services rendered to employers; examples are Social Security and unemployment benefits

question

scatter diagram

answer

graph showing the relationship between two variables (such as consumer spending and disposable income)

question

consumption function

answer

show the relationship between total consumer expenditures and total disposable income in the economy, holding all other determinants of consumer spending constant

question

marginal propensity to consume

answer

ratio of changes in consumption relative to changes in disposable income that produce the change in consumption; the slope of consumption on a graph; abbreviated as MPC

question

money-fixed asset

answer

asset whose value is a fixed number of dollars

question

C + I + G + (X - IM)

answer

equation for aggregate demand

question

circular flow diagram

answer

depicts a large tube in which an imaginary fluid circulates in clockwise direction; represents interactions within a market economy

question

equilibrium

answer

refers to a situation in which neither consumers nor firms have any incentive to change their behavior (they are content to continue as things are)

question

expenditure schedule

answer

shows the relationship between national income (GDP) and total spending

question

induced investment

answer

part of investment spending that rises when GDP rises and falls when GDP falls

question

Y = C + I + G + (X - IM)

answer

condition for equilibrium

question

income-expenditure diagram

answer

plots total real expenditure (on the vertical axis) against real income (on the horizontal axis); also called the 45° line diagram

question

recessionary gap

answer

amount by which the equilibrium level of GDP falls short of potential GDP

question

inflationary gap

answer

amount by which equilibrium real GDP exceeds the full employment level of GDP

question

coordination failure

answer

occurs when party A would like to change his behavior if party B would change hers, and vice versa, and yet the two changes do not take place because the decisions of A and B are not coordinated

question

multiplier

answer

ratio of the change in equilibrium GDP (Y) divided by the original change in spending that causes the change in GDP

question

induced increase in consumption

answer

increase in consumer spending that stems from an increase in consumer incomes; represented on the graph as a movement along a fixed consumption function

question

autonomous increase in consumption

answer

increase in consumer spending without an increase in consumer incomes; represented on a graph as a shift of the entire consumption function

question

aggregate demand curve

answer

downward-sloping relationship displayed when equilibrium real GDP demanded is lower when prices are higher

question

full-employment level of GDP

answer

GDP that would be produced if the labor force were fully employed; potential GDP

question

opportunity cost

answer

value of the next best alternative that must given up because of that decision

question

abstraction

answer

ignoring many details so as to focus on the most important elements of a problem

question

theory

answer

deliberate simplification of relationships used to explain how those relationships work

question

correlation

answer

tendency of variables to go up and down together

question

economic model

answer

simplified, small0scale version of some aspect of the economy; often expressed in equations, by graphs or in words

question

resource

answer

instruments provided by nature or by people that are used to create goods and services

question

opportunity cost

answer

value of the next best alternative that decision forces the decision maker to forgo

question

rational decision

answer

decision that best serves the objectives of the decision maker, whatever those objectives may be

question

output

answer

goods and services produced by a firm or economy

question

input

answer

used by a firm or an economy; labor, raw materials, electricity and other resources it uses to produce its outputs

question

production possibilities frontier

answer

shows the different combinations of various goods that a producer can turn out given the available resources and existing technology

question

principle of increasing costs

answer

states that as the production of a good expands, the opportunity cost of producing another unit generally increases

question

efficiency

answer

describes production that, given the current technology, is at its maximum; there is no way one can produce larger amounts of any output without using larger input amounts or giving up some quantity of another output

question

allocation of resources

answer

refers to the society

question

division of labor

answer

breaking up a task into a number of smaller, more specialized tasks so that each worker can become more adept at a particular job

question

comparative advantage

answer

situation in on country produces a good less inefficiently than another country relative to other goods

question

market system

answer

form of economic organization in which resource allocation decisions are left to individual producers and consumers, acting in their own best interests without central direction

question

invisible hand

answer

phrase used by Adam Smith to describe how, by pursuing their own self-interests, people in a market system are led to promote the well-being of the community

question

quantity demanded

answer

number of units of a good that consumers are willing and can afford to buy over a specified period of time

question

demand schedule

answer

table showing how the quantity demanded of some product during a specified period of time changes as the price of that product changes, holding all other determinants of quantity demanded constant

question

demand curve

answer

graphical depiction of a demand schedule; shows how the quantity demanded of some product will change as the price of that product changes during a specified period of time, holding all other determinants of quantity demanded constant

question

shift in demand curve

answer

occurs when any relevant variable other than price changes

question

quantity supplied

answer

number of units that sellers want to sell over a specific period of time

question

supply schedule

answer

table showing how the quantity supplied of some product changes as the price of that product changes during a specified period of time, holding all other determinants of quantity supplied constant

question

supply curve

answer

graphical depiction of a supply schedule; shows how the quantity supplied of some product will change as the price that product changes during a specified period of time, holding all other determinants of quantity supplied constant

question

supply-demand diagram

answer

graphs the supply and demand curves together; determines the equilibrium price and quantity

question

shortage

answer

excess of quantity demanded over quantity supplied

question

surplus

answer

excess of quantity supplied over quantity demanded

question

equilibrium

answer

situation in which there are no inherent forces that produce change

question

law of supply and demand

answer

states that in a free market the forces of supply and demand generally push the price toward the level at which quantity supplied and quantity demanded are equal

question

price ceiling

answer

maximum that the price charged for a commodity cannot legally exceed

question

price floor

answer

legal minimum below which the price charged for a commodity is not permitted to fall

question

aggregation

answer

combining many individual markets into one overall market

question

aggregate demand curve

answer

show the quantity of domestic product that is demanded at each possible value of the price level

question

aggregate supply curve

answer

shows the quantity of domestic product that is supplied at each possible value of the price level

question

inflation

answer

refers to sustained increase in the general price level

question

recession

answer

period of time during which the total output of the economy declines

question

gross domestic product (GDP)

answer

sum of the money values of all final goods and services produced in the domestic economy and sold on organized markets during a specified period of time, usually a year

question

nominal GDP

answer

calculated by valuing all outputs at current prices

question

real GDP

answer

calculated by valuing outputs of different years at common prices; far better measure of changes in total production

question

final goods and services

answer

products or services purchased by their ultimate users

question

intermediate good

answer

good purchased for resale or for use in producing another good

question

deflation

answer

refers to a sustained decrease in the general price level

question

stagflation

answer

inflation that occurs while the economy is growing slowly or in a recession

question

stabilization policy

answer

name given to government programs designed to prevent or shorten recessions and to counteract inflation

question

voluntary exchange

answer

trade in which both parties are willing participants

question

marginal analysis

answer

evaluation of impact of changes

question

marginal cost

answer

additional cost incurred by a one-unit increase in output

question

externality

answer

effect on third parties that are not part of an economic transaction

question

productivity

answer

output per hour of work

question

scarcity

answer

situation in which the amount of an item available is less than people want

question

choice

answer

decision made from a set of alternatives

question

capital good

answer

resources used in production process

question

exchange

answer

increases production because it permits specialization

question

market system

answer

system in which people can trade with others

question

movement along a supply or demand curve

answer

change in price causing a change in quantity supplied or demanded

question

macroeconomics

answer

study of behavior of an entire economy

question

microeconomics

answer

study of individual decision-making unites

question

unemployment

answer

people willing to work but without jobs

Macroeconomics: Principles and Policy – Chapters 1-8 – Flashcards

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