Chapter 15 Vocab: Economic and Environmental Policy: Contributing to Prosperity

Question 1

Economy

Answer 1

A system for the exchange of goods and services between the producers of those goods and services and the consumers of them.

Question 2

Laissez-faire economics

Answer 2

A classic economic philosophy holding that owners of business should be allowed to make their own production and distribution decisions without government regulation or control.

Question 3

Regulation

Answer 3

Government restrictions on the economic practices of private firms.

Question 4

Economic efficiency

Answer 4

An economic principle holding that firms should fulfill as many of society’s needs as possible while using as few of its resources as possible. The greater the output (production) for a given input (for example, an hour of labor), the more efficient the process.

Question 5

Deregulation

Answer 5

The rescinding of excessive government regulations for the purpose of improving economic efficiency.

Question 6

Economic equity

Answer 6

The situation in which the outcome of an economic transaction is fair to each party. An outcome can usually be considered fair if each party enters into a transaction freely and is not unknowingly at a disadvantage.

Question 7

Externalities

Answer 7

Burdens that society incurs when firms fail to pay the full costs of production. An example of an externality is the pollution that results when corporations dump industrial wastes into lakes and rivers.

Question 8

Fiscal policy

Answer 8

A tool of economic management by which government can attempt to maintain a stable economy through its taxing and spending policies. (See also “demand-side economics;” “monetary policy;” “supply-side economics.”)

Question 9

Economic depression

Answer 9

A very severe and sustained economic downturn. Depressions are rare in the United States; the last one was in the 1930s.

Question 10

Economic recession

Answer 10

A moderate but sustained downturn in the economy. Recessions are part of the economy’s normal cycle of ups and downs.

Question 11

Demand-side economics

Answer 11

A form of fiscal policy that emphasizes “demand” (consumer spending). Government can use increased spending or tax cuts to place more money in consumers’ hands and thereby increase demand. (See also “fiscal policy;” “supply-side economics.”)

Question 12

Supply-side economics

Answer 12

A form of fiscal policy that emphasizes “supply” (production). An example of supply-side economics is a tax cut for business. (See also “demand-side economics;” “fiscal policy.”)

Question 13

Budget deficit

Answer 13

The situation in which the government’s expenditures exceed its tax and other revenues.

Question 14

National debt

Answer 14

The total cumulative amount that the U.S. government owes to creditors.

Question 15

Balanced budget

Answer 15

The situation in which the government’s tax and other revenues for the year are roughly equal to its expenditures.

Question 16

Monetary policy

Answer 16

A tool of economic management based on manipulation of the amount of money in circulation. (See also “fiscal policy.”)

Question 17

Inflation

Answer 17

A general increase in the average level of prices of goods and services.