CHAPTER 2

Question 1

Economy

Answer 1

The sum of all economic activity within a given region.

Question 2

Economics

Answer 2

The study of how a society uses its scarce resources to produce and distribute goods and services.

Question 3

Factors of Production

Answer 3

Economic resources, including natural resources, human resources, capital, entrepreneurship, and knowledge.

Question 4

Scarcity

Answer 4

A condition of any productive resource that has finite supply.

Question 5

Economic Indicators

Answer 5

Statistics that measure the performance of the economy.

Question 6

Consumer Price Index (CPI)

Answer 6

A monthly statistic that measures changes in the prices of a representative collection of consumer goods and services.

Question 7

Producer Price Index (PPI)

Answer 7

A statistical measure of price trends at the producer and wholesaler levels.

Question 8

Gross Domestic Product (GDP)

Answer 8

The value of all the final goods and services produced by businesses located within a nation’s borders; excludes outputs from overseas operations of domestic companies.

Question 9

Economic System

Answer 9

The rules by which a society allocates economic resources.

Question 10

Planned System

Answer 10

Economic system in which the government controls most of the factors of production and regulates their allocation.

Question 11

Free-Market System

Answer 11

Economic system in which decisions about what to produce and in what quantities are decided by the market’s buyers and sellers.

Question 12

Capitalism

Answer 12

Economic system based on economic freedom and competition.

Question 13

Regulation

Answer 13

Relying more on laws and policies than on market forces to govern economic activity.

Question 14

Deregulation

Answer 14

Removing regulations to allow the market to prevent excesses and correct itself over time.

Question 15

Monetary Policy

Answer 15

Government policy and actions taken by the Federal Reserve Board to regulate the nation’s money supply.

Question 16

Fiscal Policy

Answer 16

Use of government revenue collection and spending to influence the business cycle.

Question 17

Demand

Answer 17

Buyers’ willingness and ability to purchase products at various price points.

Question 18

Supply

Answer 18

A specific quantity of a product that a seller is able and willing to provide at a particular date at various prices.

Question 19

Demand Curve

Answer 19

A graph of the quantities of a product that buyers will purchase at various prices.

Question 20

Supply Curve

Answer 20

A graph of the quantities of a product that sellers will offer for sale, regardless of demand, at various prices.

Question 21

Equilibrium Price

Answer 21

The point at which quantity supplied equals quantity demanded.

Question 22

Competition

Answer 22

Rivalry among businesses for the same customers.

Question 23

Pure Competition

Answer 23

A situation in which so many buyers and sellers exist that no single buyer or seller can individually influence prices.

Question 24

Monopoly

Answer 24

A situation in which one company dominates a market to the degree that it can control prices.

Question 25

Monopolistic Competition

Answer 25

A situation in which many sellers differentiate their products from those of competitors in at least some small way.

Question 26

Oligopoly

Answer 26

A market situation in which
a small number of suppliers, sometimes only two, provide a particular good or service.

Question 27

Recession

Answer 27

A period during which national income, employment, and production all fall; often defined as at least six months of decline in the GDP.

Question 28

Business Cycles

Answer 28

Fluctuations in the rate of growth that an economy experiences over a period of several years.

Question 29

Unemployment Rate

Answer 29

The portion of the labor force (those ages 16 and older who have or are looking for a job) currently without a job.

Question 30

Inflation

Answer 30

An economic condition in which prices rise steadily throughout the economy.

Question 31

Deflation

Answer 31

An economic condition in which prices fall steadily throughout the economy.

Question 32

Money

Answer 32

Anything generally accepted as a means of paying for goods and services; serves as a medium of exchange, a unit of accounting, a store of value, and a standard of deferred value.

Question 33

Fiat Money

Answer 33

Official currencies issued and maintained through government fiat, or proclamation.

Question 34

Cryptocurrency

Answer 34

Currency represented by digital tokens.

Question 35

Money Supply

Answer 35

The amount of money in circulation at any given time.

Question 36

Federal Reserve System

Answer 36

The central banking system of the United States; responsible for regulating banks and implementing monetary policy.

Question 37

Federal Funds Rate

Answer 37

The interest rate that member banks charge each other to borrow money overnight from the funds they keep in their Federal Reserve accounts.

Question 38

Discount Rate

Answer 38

The interest rate that member banks pay when they borrow funds from the Fed.

Question 39

Prime Rate

Answer 39

The interest rate a bank charges its best loan customers.

Question 40

Investment Banks

Answer 40

Firms that offer a variety of services related to initial public stock offerings, mergers and acquisitions, and other investment matters.

Question 41

Commercial Banks

Answer 41

Banks that accept deposits, offer various checking and savings accounts, and provide loans; note that this label is often applied to banks that serve businesses only, rather than consumers.

Question 42

Fintech

Answer 42

Technologies with the potential to improve or disrupt financial services.

Question 43

Neobanks

Answer 43

Banks that provide services entirely through mobile and digital channels.