Ch. 3-Society's Ec. Prob.

Question 0

How or Input Question

Answer 0

Asks how the economy will produce its goods and services; one of four fundamental economic questions that every society must answer

Question 1

What or Output Question

Answer 1

Asks what goods and services the economy will produce and in what quantities; one of four fundamental economic questions that every society must answer

Question 2

Production Technology

Answer 2

A blueprint or method for transferring inputs into outputs

Question 3

For Whom or Distribution Question

Answer 3

Asks who will receive the various goods and services that are produced; one of the four fundamental economic questions that every society must answer

Question 4

Now Versus the Future Question

Answer 4

Asks whether society will favor the current generation over future generations, or the reverse; one of the four fundamental economic questions that every society must answer

Question 5

Production Possibilities

Answer 5

The economy’s capacity for producing goods and services, assuming that it produces them effectively.

Question 6

Production Possibilities Frontier

Answer 6

A graphical representation of the economy’s capacity for producing goods and services, assuming that it produces them effectively

Question 7

Demand Pull Inflation

Answer 7

Price inflation resulting from the attempt to purchase more goods and services than the economy is capable of producing

Question 8

Current issue with Demand Pull Inflation

Answer 8

Many economists argued that the United States was living beyond its means by 1999 and 2000 when the unemployment rate fell as low as 3.9 percent. They believe that unemployment rates below 5 percent are not sustainable and will eventually lead to ever increasing inflation if the federal government allows unemployment to stay so low. The slowdown of the economy in 2000 and the recession of 2001 quickly brought the unemployment rate up to the 6 percent range, so their belief was not tested. The unemployment rate moved below 5% only again in late 2005 and remained there through 2006 and most of 2007,and inflation increased. But then the economy went into a deep recession that raised the unemployment rate to 10.1% by. October, 2009. The economy is now way below its production possibilities frontier.

Question 9

Long-Run Economic Growth

Answer 9

A persistent increase in the economy’s potential for producing goods and services.

Question 10

Labor Force Participation

Answer 10

The percentage of the population that joins the labor force

Question 11

Investment

Answer 11

A flow variable that refers to the increase in the stock of capital during the year

Question 12

Flow variable

Answer 12

A variable that can be measured only with reference to a period of time

Question 13

Stock Variable

Answer 13

A variable that can be measured at a given point in time

Question 14

Labor productivity

Answer 14

The amount of output produced per worker

Question 15

Investment in Human Capital

Answer 15

Expenditures on education, both formal education received in school and on-the-job training provided by business firms

Question 16

Human Capital

Answer 16

The market value of all accumulated knowledge and skills