Chapter 2

Question 1

a table or chart explaining the relationships be­tween pairs of variables; also called a tabular model

Answer 1

Schedule

Question 2

a graph formed by the plotting of data involving two variables and the connecting of the resulting points to form a line of infinite information from the data

Answer 2

Line graph

Question 3

a model that en­ ables an economist to see the maximum feasible amounts of two commodities that a business can produce when those items are competing for that business’s limited re­ sources

Answer 3

Production Possibilities Curve

Question 4

provides a visual explanation of how a complete national economic system functions.

Answer 4

Circular flow model

Question 5

the total expenditures made by all households

Answer 5

Consumption expenditures

Question 6

the resources used in producing the nation’s GDP: land, labor, financial capital, and entre­ preneurship

Answer 6

Factors of production

Question 7

the factor of production denoting all the natural resources that go into the production of goods

Answer 7

Land

Question 8

the factor of production denoting all human effort that goes into the creation of goods and services

Answer 8

Labor

Question 9

the tools business firms use to produce goods and services

Answer 9

(Real) capital

Question 10

the factor of production denoting the activity of creatively combining natural resources, human labor, and financial capital in unique ways to develop new and useful products and services

Answer 10

Entrepreneurship

Question 11

the payments business firms make in ex­change for the four factors of production

Answer 11

Factor costs

Question 12

payment for the use of an owner’s property

Answer 12

Rent

Question 13

factor costs involving all payments for labor used to produce goods or services

Answer 13

Wages

Question 14

an additional charge that a creditor demands from a borrower to cover the expense of the loan and to provide a profit; the factor cost involving the payments made on borrowed money

Answer 14

Interest

Question 15

factor costs involving the rewards entrepreneurs receive for successful risk taking

Answer 15

Profit

Question 16

payments of money or goods from the government to individuals for which no specific economic repayment is expected

Answer 16

Transfer payments

Question 17

a situation in which a government, business firm, or individual receives less income than is paid out in expenses

Answer 17

Budget deficit

Question 18

a situation in which a government, business firm, or individual receives more income than is paid out in expenses

Answer 18

budget surplus

Question 19

the vast collection of financial in­ stitutions that receive deposits of excess funds from households and that lend to business firms; includes commercial banks, savings and loan associations, credit unions, insurance companies, finance companies, and stockbrokerage firms

Answer 19

Financial market

Question 20

the action of withdrawing money from an account or borrowing money

Answer 20

Dissaving

Question 21

a situation in which governmental borrowing reduces the financial capital available to business firms

Answer 21

Crowding out

Question 22

table or chart explaining the relationships between pairs of variables; also called a schedule

Answer 22

Tabular Model