Chapter 2 Key Terms

Question 1

Factors of production, or inputs

Answer 1

the labor, machinery, buildings and natural resources used to make outputs

Question 2

Outputs

Answer 2

the goods and services that consumers and other want to acquire

Question 3

Gross domestic product (GDP)

Answer 3

a measure of the size of the economy – the total amount it produces in a year

Question 4

Open economy

Answer 4

exports and imports constitute a large share of the GDP (e.g., the Netherlands)

Question 5

Closed economy

Answer 5

exports and imports constitute a small share of the GDP (e.g., the USA)

Question 6

Recession

Answer 6

a period of time during which the total output of the economy falls

Question 7

Transfer payments

Answer 7

sums of money that certain individuals receive as outright grants from the government rather than as payments for services rendered

Question 8

Progressive tax

Answer 8

when the ratio of taxes to income rises as income rises

Question 9

Mixed economy

Answer 9

an economy with some public influence over the workings of free markets; there may also be some public ownership mixed in with private property

Question 10

Real GDP

Answer 10

adjustment of the GDP for changes in the purchasing power of money, that is, it corrects for inflation