Chapter 11- Successes and Difficulties in the Market Economy

Question 1

the three grounds in which market economies are criticized severely in today’s world

Answer 1

1. business fluctuations (prosperity, high employment rates followed by decreased economic activity and unemployment)
2. inflation of money and prices
3. it is a competitive economic system that is hard, greedy, selfish, and unjust

Question 2

the recurrent fluctuation in the level of economic activity

Answer 2

business cycle

Question 3

the four main components of a cycle

Answer 3

expansion, peak, recession, trough

Question 4

part of a cycle in an industry that increases the amount of goods they produce

Answer 4

expansion

Question 5

cause the nation’s gross domestic product (GDP) to rise noticeably

Answer 5

expansion

Question 6

the value of all finished goods and services produced within a country during a year’s time

Answer 6

gross domestic product (GDP)

Question 7

used before the early 1990s

refers to the value of all finished goods and services produced by a nation’s citizens during a year’s time

Answer 7

gross national product

Question 8

the high point of a business cycle where activity is at its highest

Answer 8

the peak

Question 9

the phase which comes after a short or prolonged business boom has peaked out

a period of economic decline

Answer 9

recession

Question 10

although there is no clear distinction, the term _______________ is normally reserved for a recession that is unusually severe and long-lasting

Answer 10

depression

Question 11

the lowest point in a business cycle is called the

Answer 11

trough

Question 12

components of the economy that normally change before the rest of the economy

Answer 12

leading indicators

Question 13

two types of inflation

Answer 13

demand-pull inflation
cost-push inflation

Question 14

caused when the demand becomes greater than the supply, resulting in shortages

Answer 14

demand-pull inflation

Question 15

triggered when businesses face rising production costs, forcing them to increase the prices they charge for their goods

Answer 15

cost-push inflation

Question 16

the same outcome of both types of inflation

Answer 16

rising costs cause workers to demand more pay so that they can afford goods, while businesses pay for these wage-hikes by further increasing the prices of goods

Question 17

one of the most common tools for measuring the growth of inflations in the US is the

Answer 17

Consumer Price Index (CPI)

Question 18

prices are compared to the

Answer 18

base period

Question 19

the economic condition in which high inflation is combined with high unemployment, resulting in stagnation of productivity

Answer 19

stagflation

Question 20

the theory that reduction of taxes makes more money available for private investment in capital and research, thereby increasing productivity

Answer 20

supply-side economics