Chapter 1,6,7,8 Review

Question 1

Economics

Answer 1

Is the study if how an individual, family, business, or society makes decisions in the face if scarcity.

Question 2

Scarcity

Answer 2

Reflects the gap between human wants and the limited availability of resources such as goods, services or factors of production.

Question 3

Adam Smith

Answer 3

Considered the founder of modern economics.

Question 4

Division of Labor

Answer 4

The way in which different workers divide required tasks to produce a good or service.

Question 5

Specialization

Answer 5

Workers or firms focus on simpler tasks within a complex production process.

Question 6

Economies of Scale

Answer 6

As the level of production increases, the cost per unit falls.

Question 7

Microeconomics

Answer 7

Focuses on the actions of individual agents within the economy, like households, workers, and businesses.

Question 8

Macroeconomics

Answer 8

Looks at the economy as a whole. Focuses on broad issues such as growth of production, the number of unemployed people, the inflationary increase in prices, government deficits, and levels of exports and imports.

Question 9

Monetary Policy

Answer 9

Interest rates, the availability of credit in the economy, and the extent of borrowing.

Question 10

Fiscal Policy

Answer 10

Government spending and taxes.

Question 11

John Maynard Keynes

Answer 11

As opposed to classical economic thinking, which believed in a minimal role for government, he proposed a much more active role for government especially in times of macroeconomic slow down, in times of recession.

Question 12

Theory

Answer 12

• Is a simplified representation of how two or more variables interact with each other.
• More abstract

Question 13

Models

Answer 13

• Tests theories
• More applied or empirical representation

Question 14

Traditional Economy

Answer 14

What you produce is what you consume; little economic growth, little efficiency.

Question 15

Command Economy

Answer 15

The government owns the resources, little private property, virtually no markets; Education, health, are provided by the government. Little incentives for improvement.

Question 16

Market Economy

Answer 16

Decentralized decisions, private property, prices determined by markets. High inequality; Markets undersupply public goods and damage the environment.

Question 17

Mixed Economy

Answer 17

Elements of command and market. Most common, virtually all countries are mixed, with wide variations.

Question 18

Underground Economies

Answer 18

Are markets where the buyers and sellers make transactions without the government’s approval.

Question 19

Globalization

Answer 19

An increase in international exchanges in goo and services, capital, and labor.

Question 20

Exports

Answer 20

are the goods and services that one produces domestically and sells abroad.

Question 21

Imports

Answer 21

Are the goods and services that one produces abroad and then sells domestically.

Question 22

Gross Domestic Product (GDP)

Answer 22

Measures the size of total production in an economy.

Question 23

Trade Balance

Answer 23

Gap between exports and imports.

Question 24

Trade Surplus

Answer 24

Exports are larger than its imports (positive balance)

Question 25

Trade Deficit

Answer 25

Imports are larger than its exports (negative balance)

Question 26

Gross National Product (GNP)

Answer 26

Includes what is produced domestically and what is produced by domestic labor and business abroad in a year.

Question 27

Depreciation

Answer 27

The process by which capital ages over time and therefore loses its value.

Question 28

Recession

Answer 28

A significant decline in GDP

Question 29

Depression

Answer 29

An especially lengthy and deep decline in output.

Question 30

Exchange Rate

Answer 30

The value or price of one currency in terms of another currency.

Question 31

Standard of Living

Answer 31

All elements that affect people's happiness and well-being, whether they are bought and sold in the market or not.

Question 32

Modern Economic Growth

Answer 32

The period of rapid economic growth from 1870 onward.

Question 33

Industrial Revolution

Answer 33

Refers to the widespread use of power-driven machinery, and the economic and social changes that resulted in the first half of the 1800s.

Question 34

Rule of Law

Answer 34

The process of enacting laws that protect individual and entity rights to use their property as they see fit. Laws must be clear, public, fair, and enforced, and applicable to all members of society.

Question 35

Contractual Rights

Answer 35

The rights of individuals to enter into agreements with others regarding the use of their property providing recourse though the legal system in the event of noncompliance.

Question 36

Production Function

Answer 36

The relationship between inputs used in production and the quantity of output.

Question 37

Aggregate Production Function

Answer 37

A production function extended to the whole economy.

Question 38

Labor Productivity

Answer 38

Is the value that each employed person creates per unit of their input.

Question 39

Determinants

Answer 39

- Human capital - Technological change - Economies of scale

Question 40

Human Capital

Answer 40

Is the accumulated knowledge (from education and experience), skills, and expertise that the average worker in an economy possesses.

Question 41

Technological Change

Answer 41

Is a combination of invention—advances in knowledge—and innovation, which is putting those advances to use in a new product or service.

Question 42

Compound Growth Rates

Answer 42

The rate of growth when multiplied by a base that includes past GDP growth.

Question 43

Physical Capital

Answer 43

The plant and equipment that firms use in production; this includes infrastructure.

Question 44

Infrastructure

Answer 44

A component of physical capital such as roads and rail systems.

Question 45

Capital Deepening

Answer 45

When society increases the level of capital per person.

Question 46

Convergence

Answer 46

Happens when poorer countries grow faster than richer countrie

Question 47

Employed

Answer 47

Number of persons currently working for pay.

Question 48

Unemployed

Answer 48

Out of work and actively looking for a job.

Question 49

Out of the labor force

Answer 49

Out of paid work and not actively looking for a job.

Question 50

Labor force

Answer 50

Employed + unemployed

Question 51

Adult population

Answer 51

Any person 15 and over

Question 52

Employment rate

Answer 52

Employed as a percentage of adult population.

Question 53

“Hidden Unemployment”

Answer 53

Part-time or temporary workers looking for full-time or permanent work.

Question 54

Underemployed

Answer 54

Individuals who are employed in a job that is below their skills.

Question 55

Discouraged workers

Answer 55

Those who have stopped looking for employment due to lack of suitable positions available.

Question 56

Labor Force Participation Rate

Answer 56

The percentage of adults in an economy who are either employed or who are unemployed and looking for a job.

Question 57

Implicit contract.

Answer 57

Which is that the employer will try to keep wages from falling when the economy is weak or the business is having trouble, and the employee will not expect huge salary increases when the economy or the business is strong.

Question 58

Efficiency wage theory

Answer 58

Argues that workers' productivity depends on their pay, and so employers will often find it worthwhile to pay their employees somewhat more than market conditions might dictate.

Question 59

Adverse selection of wage cuts argument

Answer 59

Points out that if an employer reacts to poor business conditions by reducing wages for all workers, then the best workers, those with the best employment alternatives at other firms, are the most likely to leave.

Question 60

Insider-outsider model

Answer 60

Argues that those already working for firms are “insiders,” while new employees, at least for a time, are “outsiders.”

Question 61

Relative wage coordination argument

Answer 61

Points out that even if most workers were hypothetically willing to see a decline in their own wages in bad economic times as long as everyone else also experiences such a decline, there is no obvious way for a decentralized economy to implement such a plan.

Question 62

Frictional Unemployment

Answer 62

Occurs in the meantime, as workers move between jobs.

Question 63

Structural Unemployment

Answer 63

Are individuals who have no jobs because they lack skills valued by the labor market, either because demand has shifted away from the skills they do have, or because they never learned any skills.