Ch. 1

Question 1

average labor productivity

Answer 1

= total output / employment

amount of output produced per unit of labor input

Question 2

fiscal policy

Answer 2

government spending and taxation

Question 3

positive analysis

Answer 3

examines economic consequences of a policy but doesn’t address the question of whether those consequences are desirable

Question 4

normative

Answer 4

tries to determine whether a certain policy should be used

Question 5

Classical econ

Answer 5

invisible hand - if there are free markets & individuals conduct their economic affairs in their own best interests, the econ will work well

given resources, the use of free markets will make ppl as well off as possible

assumes wage & price flexibility

gov should have very limited role

Question 6

Keynesian econ

Answer 6

assume wages & prices adjust slowly

UE persists bc wages and prices don’t adjust to equalize the number of people being hired and people looking for work

solution: increase gov purchases

Question 7

stagflation

Answer 7

high UE + inflation

Question 8

can average labor productivity fall even when total output is rising? Why?

Answer 8

yes, bc ave. labor productivity will fall if output and employment are both rising, but employment is rising faster

Question 9

can unemployment rate rise even when total output is rising? why?

Answer 9

yes, bc ave. labor productivity may be rising (with employment constant) so that output is rising; but labor force may be increasing as well, so that the unemployment rate is rising