Chapter 2

Question 1

paradox of thrift

Answer 1

When families ans businesses are woried about the possibility of economic had times, they prepare by cutting their spending. This reduction depresses the economy

Question 2

Self-regulating economy

Answer 2

Problems such as unemployment are resolved without government intervention, through the working of the invisible hand.

Question 3

Keynesian economics

Answer 3

Economic slumps are caused by inadequate spending, and they can be mitigated by government intervention

Question 4

Monetary policy

Answer 4

Uses changes in the quantity of money to alter interest rates and affect overall spending

Question 5

Fiscal policy

Answer 5

Uses changes in government spending and taxes to affect overall spending

Question 6

Recessions

Answer 6

Periods of economic downturn when output and employment are falling

“contractions”

Question 7

Expansions

Answer 7

Periods of economic upturn when output and employment are rising

“recoveries”

Question 8

Business cycle

Answer 8

The short-run alternation between recesisions and expansions

Question 9

Business-cycle peak

Answer 9

The point at which the economy turns from expansion to recession

Question 10

Business-cycle trough

Answer 10

The point at which the economy turns from recession to expansion

Question 12

Indicator os conditions in the labor market

Answer 12

Unemployment rate

Question 13

Long-run economic growth

Answer 13

The sustained upward trend in the economy’s out put over time

Question 14

Inflation

Answer 14

A rising overall level of prices

Question 15

deflation

Answer 15

A falling overall level of prices

Question 16

Money supply

Answer 16

The total quantity of assets that can be readily used to make purchases

overall prices in the long run determined by changes in money supply

Question 17

Hyperinflation

Answer 17

In which prices rise by thousands or hundreds of thousands of percent

Question 18

Price stability

Answer 18

When the overall level of prices changes slowly or not at all

Question 20

Open economy

Answer 20

An economy that trades goods and services with other countries

Question 21

Trade deficit

Answer 21

When the value of goods and services bought from foreigners is more than the value of goods and services it sells to them

imports > exports

Question 22

Trade surplus

Answer 22

When value of goods and services bought from foreigners is less than the value of the goods and services it sells to them

exports > imports

Question 23

Long-run growth per capita

Answer 23

A sustained upward trend output per person is the key to higher wages and a rising standard of living