Chapter 11

Question 1

When aggregate demand increases faster than the economy’s productive capacity. Can result from an increase in the money supply or an increase in the use of credit

Answer 1

Demand pull inflation

Question 2

The percentage of people in the civilian labor force who are unemployed

Answer 2

Unemployment rate

Question 3

A representation of a sample of commonly purchased consumer items

Answer 3

Market basket

Question 4

The total amount of goods and services produced throughout the economy

Answer 4

Aggregate supply

Question 5

The total amount of spending by individuals and businesses

Answer 5

Aggregate demand

Question 6

A decrease in the average price level of all goods and services in an economy. Increases the purchasing power of the dollar

Answer 6

Deflation

Question 7

When producers raise prices to cover higher resource costs

Answer 7

Cost-push inflation

Question 8

An increase in the average price level of all products in an economy. Usually occurs when aggregate demand increases faster than aggregate supply and reduces the purchasing power of the dollar

Answer 8

Inflation

Question 9

The lowest income that a family or household of a certain size or composition needs to maintain a basic standard of living

Answer 9

Poverty Threshold

Question 10

The unemployment rate fluctuates in a predictable way from season to season as a result of regular occurrences including holidays, the school year, harvest schedules, and industry production schedules

Answer 10

Seasonal unemployment

Question 11

Unemployment resulting from recessions and economic downturns, stops growth from happening. Sales fall -> Staff reduced to cut costs -> Unemployment increases -> No one is buying -> Staff reduced to cut costs

Answer 11

Cyclical Unemployment

Question 12

The worst degree of inflation, where it is increasing at a rate of several hundred percent a year

Answer 12

Hyperinflation

Question 13

When workers are moving from one job to another. Includes people who leave one job to look for another and new entrants and re-entrants into the labor force

Answer 13

Frictional unemployment

Question 14

Only 5% of a population is unemployed

Answer 14

Full Employment

Question 15

Workers who have jobs beneath their skill level or who want to work full-time but are only able to find part-time jobs. Represents wasted resources and lost output

Answer 15

Underemployment

Question 16

People who once held productive jobs but have given up looking for work

Answer 16

Marginally attached workers

Question 17

Illustrates the amount that a nation’s distribution of income varies from a perfectly proportional distribution of income

Answer 17

Lorenz Index

Question 18

A statistical measure of income inequality. Ranges from 0.0, where each household receives an equal share of the total income, to 1.0, where one household receives all of the income

Answer 18

Gini Index

Question 19

The percentage of individuals or families in the total population that are living in poverty

Answer 19

Poverty rate

Question 20

Explain demand-pull inflation and cost-push inflation

Answer 20

Demand-pull inflation is when the total spending by individuals and businesses increases faster than products can be produced. Cost-push is when prices are raised by producers to cover higher resource costs.

Question 21

Explain how unemployment affects the economy

Answer 21

Unemployment causes sales to fall because people are buying less, which causes businesses to make less money, causing them to fire people to cut costs, causing less people to buy products, which repeats.