Chapter 2 - The US Economy Flashcards

1
Q

This chapter will answer 3 questions about American economics. What are they?

A
  1. WHAT America produces
  2. HOW America produces
  3. FOR WHOM America produces
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2
Q

What are the 2 subcategories of the question: WHAT America produces?

A
  1. Mix of output
  2. How outputs are measured
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3
Q

How many mixes of output are there and what are they? (in decreasing order)

A

4 - Consumer goods, investment goods, government services, and net exportss

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4
Q

What are the 3 types of consumer goods?

A
  1. Durable goods
  2. Nondurable goods
  3. Services
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5
Q

What is the largest and fastest growing component of consumption?? Give some examples

A

SERVICES - medical care, entertainment, utilities, etc

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6
Q

Describe durable goods

A

expected to last at LEAST 3 years, expensive and often purchased on credit, CYCLICAL - very sensitive to economic trends

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7
Q

Under the 3 types of consumer goods, under which category is the most money spent?

A

nondurable goods

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8
Q

What is the definition of investment goods?

A

Plant, machinery, and equipment that are produced for use in the BUSINESS sector

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9
Q

Why do businesses need to spend money to maintain equipment?

A

Machinery gets worn out. production possibilities curve shifts inward. we want to expand the curve ideally

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10
Q

Items at the store are considered which type of output??

A

They are considered INVESTMENT goods until they’re sold

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11
Q

What is the definition of government services?

A

Federal, state, and local governments purchase resources to police the streets, teach classes, write laws, and build highways

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12
Q

Are income transfers counted in GDP? Give some examples of income transfers.

A

NOT counted. food stamps - not counted bc they’ll already be counted under consumer non durable goods

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13
Q

Which parts of government use more scarce resources??

A

State and local use way more of our scarce resources than federal

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14
Q

What is the formula for net exports? Do we want it to be a big or small number?

A

net exports = exports-imports. We want this to be a big number

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15
Q

How are outputs measured?

A

GDP - Total value of final goods and services produced in a country during a given period of time

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16
Q

How can total output be measured?

A

Multiplying the physical output of each good by its price

17
Q

GDP = _________*________

A

output * price

18
Q

What is nominal GDP?

A

The value of GDP measured in current dollars. Output and price are taken from the SAME YEAR

19
Q

Why is it useless to compare nominal GDP from one year to another?

A

INFLATION

20
Q

Which type of GDP is useless for comparing year to year?

A

Nominal GDP

21
Q

What is the best measure of GDP? Why?

A

Real GDP because it’s an inflation adjusted value that measures output at CONSTANT prices

22
Q

When comparing year 1 and year 2, nominal GDP would be found by calculating ____ while real GDP would be found by calculating ______

A

nominal = year 1 output, year 1 prices vs year 2 output, year 2 prices

real- year 1 output, year 1 prices vs year 2 output YEAR 1 PRICES

23
Q

What is per capita GDP and what is it an indicator of?

A

Total GDP divided by total population. Indicator of how much each person would get if all output were split evenly

24
Q

What are the 3 subcategories under HOW america produces

A

-Factors of production
-business organization
-government regulation

25
Q

NOT NAMING THEM, what is the definition of the factors of production

A

Resource input used to produce goods and services

26
Q

What are the 2 factors of quality

A

productivity - output per unit of input (output per labor hour)
human capital (knowledge and skills possessed by work force)

27
Q

Why does the US have high productivity?

A

We use highly educated workers in production processess

28
Q

What is factors mobility?

A

Reallocating resources from one industry to another

29
Q

What are the 3 different business organizations

A

Corporations
partnerships
proprietorships

30
Q

DIFFERENTIATE between the 3 business organizations

A

corporations are own by many individuals who own shares (stocks) in the corporation and have limited liability.
PARTNERSHIPS are owned by a small number of individuals who share liability
PROPRIETORSHIPS are owned by ONE individual who has SOLE liability

31
Q

What are the 4 parts of government regulation

A
  1. Provide legal framework (rules of the game)
  2. Protect consumers (prevent businesses from becoming too powerful)
  3. Protect labor
  4. protect environment (chemical disposals)
32
Q

As countries develop, distribution of income becomes more _____

A

equal

33
Q

Taxes and transfers are used by the government to ________

A

redistribute income

34
Q

What is progressive tax?

A

tax rates rise as incomes rise. (federal income tax). Makes after tax income more equal

35
Q

What is regressive tax?

A

Tax rates fall as incomes rise (usually state tax) makes after tax distribution less equal. ex- 6% tax on100grand income is gonna be a different percentage of income for everyone

36
Q

What is the largest income transfer program?

A

Social Security

37
Q

What do income transfers do?

A

Gives lower income households more output than the market itself would provide

38
Q

On the production possibilities curve, something must exist. What is it??

A

Line must be TOUCHING both axes