chapter 1- abel

Question 1

macroecconomics

Answer 1

the study of the structure and performance of national economies and of the policies that governments us to try to afffect economic performance.

Question 2

average labor productivity

Answer 2

the amount of output produced per unit of labor input

Question 3

business cycle

Answer 3

short run, but sometimes sharp, contractions and expansions in economic activity

Question 4

unemployment

Answer 4

the number of people who are available for work and are actively seeking work but cannot find jobs

Question 5

inflation

Answer 5

when the prices of most goods and services are rising over time

Question 6

deflation

Answer 6

the prices of most goods and services fall over time

Question 7

open economy

Answer 7

has extensive trading and financial relationships with other national economies

Question 8

closed economy

Answer 8

does not interact economically with the rest of the world

Question 9

trade surplus

Answer 9

when exports exceed imports

Question 10

trade deficits

Answer 10

when imports exceed exports

Question 11

fiscal policy

Answer 11

determined at the national, state, and local levels concerns government spending and taxation

Question 12

monetary policy

Answer 12

determines the rate of growth of the nation’s money supply and is under the control of a government institution known as the central bank

Question 13

aggregation

Answer 13

the process of summing individual economic variables to obtain economy-wide totals

Question 14

economic theory

Answer 14

a set of ideas about the economy that has been organized in a logical framework

Question 15

economic model

Answer 15

a simplified description of some aspect of the economy, usually in mathematical form

Question 16

4 criteria for models or theory

Answer 16

1. are its assumptions reasonable and realistic?
2. is it understandable and manageable enough to be used in studying real problems?
3. does it have implications that can be tested by empirical analysis?
4. when the implications and the data are compared, are the implications of the theory consistent with the data?

Question 17

empirical analysis

Answer 17

evaluation by comparing implications with data obtained in the real world

Question 18

positive analysis

Answer 18

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

Question 19

normative analysis

Answer 19

tries to determine whether a certain policy should be used

Question 20

invisible hand

Answer 20

if there are free markets and individuals conduct their economic affairs in their own best interests, the overall economy will work well

Question 21

equilibrium

Answer 21

situation where there is no pressure for wages or prices to change

Question 22

classical approach

Answer 22

builds on smiths assumption that pursue their own economic self-interests and that prices adjust reasonably quickly to achieve equilibrium in all markets

Question 23

Keynesian approach

Answer 23

assumed that wages and prices adjust slowly. assumes that unemployment can persist because wages and prices don’t adjust to equalize the number of people that firms want to employ with the number of people who want to work. as opposed too the classical approach.

Question 24

stagflation

Answer 24

high unemployment and high inflation