AP Macro - Unit 1: Text. Mod. 1-3

Question 1

individual choice

Answer 1

decisions by individuals about what to do, which necessarily involve decisions about what not to do

Question 2

Economy

Answer 2

a system for coordinating a society’s productive and consumptive activities

Question 3

market economy

Answer 3

the decisions of individual producers and consumers largely determine what, how and for whom to produce, with little gov. involvement in the decisions

Question 4

command economy

Answer 4

industry is publicly owned and a central authority makes production and consumption deciisons

Question 5

incentives

Answer 5

rewards/punishments that motivate particular choices

Question 6

property rights

Answer 6

establish ownership and grant individuals the right to trade goods and services with each other

Question 7

Marginal Analysis

Answer 7

the study of costs and benefits of doing a little bit more of an activity versus a little bit less

Question 8

marginal decisions
marginal benefit
marginal cost

Answer 8

1. tradeoffs at the margin: doing a lil more v. a lil less
   2.the gain from doing something one more time
   3.the cost of doing something one more time

Question 9

The Economy’s Resources/ factors of production

Answer 9

land, labor, capital, entreprenuership

Question 10

Resource

Answer 10

anything that can be used to produce something else

Question 11

land and labor resources

Answer 11

land: anything from nature: minerals, timber, petroleum, water
labor: the effort of workers

Question 12

opportunity cost
true cost= price +opportunity cost

Answer 12

“the real cost”; the value of the next best alternative that you must give up in order to get the item

Question 13

capital resources and entrepreneurship

Answer 13

Capital: manufactured goods used to make other goods and services: machinery, tools, buildings
Entrepreneurship: risk taking, innovation, the organization of resources for production

Question 14

Scarce

Answer 14

a scarce resource is not available in sufficient quantities to satisfy all ways a society wants to use it

Question 15

economic aggregates: GDP

Answer 15

economic measures that summarize data across many different markets.
aggregate: collection/total
= GDP:which measures the total value of all the goods and services produced in a country

Question 16

Positive Economics

Answer 16

describe the way the economy actually works. descriptive: ‘what is’

Question 17

Normative economics

Answer 17

saying how the economy SHOULD work. prescription: ‘what should be’

Question 18

value added tax

Answer 18

national sales tax, which is the main source of government revenue in many european

Question 19

business cycle

Answer 19

alternation between economic downturns, recessions, and economic upturns: expansions.
(short-run)

Question 20

recession

Answer 20

period of economic downturn. Output and employment are falling

Question 21

expansion

Answer 21

“recoveries” period of economic upturn. output and employment rising

Question 22

depression

Answer 22

very deep and prolonged down turn (last one was in 1930s)

Question 23

Employment
+
Unemployment
=
labor force

Answer 23

employment: number of people currently working for pay in the economy
unemployment: number of people actively looking for work but aren’t employed

Question 24

unemployment rate

Answer 24

rate of the labor force that is unemployed

Question 25

Real GDP

Answer 25

real gross domestic product: inflation-adjusted measure of the value of all goods and services produced in an economy

Question 26

output

Answer 26

quantity of goods and services produced. Inc. output –> dec. unemployment

Question 27

aggregate output

Answer 27

the economy’s total production of goods and services for a given time period. (long run)
:real GDP

Question 28

inflation
deflation

Answer 28

1. rising overall price level: cash loses value
2. falling overall price level: hold onto your cash! this will hurt a recession b/c no one will want to invest their money that is now valuableer

Question 29

price stability

Answer 29

overall price level changes slowly if at all. avoids uncertainty: STABLE

Question 30

economic growth

Answer 30

an increase in the maximum amount of goods and services an economy can produce/ output. LONG RUN
in the long run little bumps are unrecognizable
- expansion of the economy’s production Possibilities (the economy CAN produce more) the curve moves out

Question 31

Other things Equal Assumption “ceteris paribus assumption”

Answer 31

all other relevant factors remain unchanged

Question 32

trade-off

Answer 32

give up something to have something else

Question 33

Production Possibilities Curve (PPC)

Answer 33

illustrates the trade-offs facing an economy that produces only 2 goods. It shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced
*economy preforms better with more employment
-linear line

Question 34

efficient

Answer 34

an economy reaches this when there is no way to make anyone better off without making at least someone worse off.

Question 35

productive efficiency
allocative efficiency

Answer 35

1.is achieved by an economy if it produces at a part on its PPC
2.achieved if it produces at the point along its PPC that makes consumers as well off as possible

Question 36

technology

Answer 36

source of economic growth.
the technical means for producing goods and services

Question 37

model

Answer 37

a simplified representation used to better understand a real-life situation. i.e. a graph, equation, computer simulation, real but simplified economy

Question 38

law of increasing opportunity cost

Answer 38

graph similar to PPC, but is a curved line that indicates how as an economy produces more of one product the amount of the alternative they give up is greater

Question 39

Growth, the long view

Answer 39

Real GDP per capita v. years. In the long run, little ups and downs are not noticeable and its only the great depression and great recession that manage to poke out