ADE 2

Question 1

Eurosystem

Answer 1

the system made up of the ECB plus the national central banks of each of the 16 countries comprising the European Monetary Union

Question 2

Gross domestic product (GDP)

Answer 2

the market value of all final goods and services produced within a country in a give period of time

Question 3

GDP deflator

Answer 3

a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100

Question 4

Inflation

Answer 4

an increase in the overall level of prices in the economy

Question 5

Indirect tax

Answer 5

a tax that is livied on goods and services bought

Question 6

Inflation rate

Answer 6

the percentage change in the price index from the preceding period

Question 7

Inflation tax

Answer 7

the revenue the government raises by creating money

Question 8

Law of demand

Answer 8

the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises

Question 9

Fixed costs

Answer 9

costs that are not determined by the quantity of output produced

Question 10

Fiat money

Answer 10

money without intrinsic value that is used as money because of government decree

Question 11

Fractional-reserve banking

Answer 11

a banking system in which banks hold only a fraction of deposits as reserve

Question 12

Investment

Answer 12

spending on capital equipment, inventories and structures, including household purchases of new housing

Question 13

Externality

Answer 13

the uncompensated impact of one person’s actions on the well-being of a bystander (a third party)

Question 14

Future value

Answer 14

the amount of moeny in the future that an amount of moeny today will yield, given prevailing interest rates

Question 15

Federal Reserve (Fed)

Answer 15

the central bank of the United States

Question 16

Financial intermediaries

Answer 16

financial institutions through which savers can indirectly provide fuds to borrowers

Question 17

Human capital

Answer 17

the accumulation of investments in people, such as education and on-the -job training

Question 18

In-kind transfers

Answer 18

transfers to the poor given in the form of goods and services rather than cash

Question 19

Financial system

Answer 19

the group of institutions in the economy that help to match one person’s saving with another person’s investment

Question 20

Labour force

Answer 20

the total number workers, including both the employed and the unemployed

Question 21

Imports

Answer 21

goods produced abroad and purchase for use in the domestic economy

Question 22

Government purchases

Answer 22

spending on goods and services by local, state and national governments

Question 23

Import quota

Answer 23

a limit on the quantity of a good that can be produced abroad and sold domestically

Question 24

Gross domestic product per head

Answer 24

the market value of all final goods and services produced within a country in a given period of time divided by the population of a country to give a per capita figure

Question 25

Frictional unemployment

Answer 25

unemployment that results because it takes time for workers to seach for the jobs that best suit their tastes and skills

Question 26

Exports

Answer 26

goods produced domestically and sold abroad

Question 27

Law of supply

Answer 27

the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises

Question 28

Factors of production

Answer 28

the inputs used to produce goods and services

Question 29

Labour force participation rate (or economic activity rate)

Answer 29

the percentage of the adult population that is in the labour force

Question 30

Indexation

Answer 30

the automatic correction of a money amount for the effects of inflation by law or contract