Chapter 20 - Introduction to Macroeconomics

Question 1

microeconomics

Answer 1

Examines the functioning of individual industries and the behavior of individual decision-making units—firms and households.

Question 2

macroeconomics

Answer 2

Deals with the economy as a whole. Macroeconomics focuses on the determinants of total national income, deals with aggregates such as aggregate consumption and investment, and looks at the overall
level of prices instead of individual prices.

Question 3

aggregate behavior

Answer 3

The behavior of all households and firms together.

Question 4

sticky prices

Answer 4

Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded.

Question 5

business cycle

Answer 5

The cycle of short-term ups and downs in the economy.

Question 6

aggregate output

Answer 6

The total quantity of goods and services produced in an economy in a given period.

Question 7

recession

Answer 7

A period during which aggregate output declines. Conventionally, a period in which aggregate output declines for two consecutive quarters.

Question 8

depression

Answer 8

A prolonged and deep recession.

Question 9

expansion or boom

Answer 9

The period in the business cycle from a trough up to a peak during which output and employment grow.

Question 10

contraction, recession, or slump

Answer 10

The period in the business cycle from a peak down to a trough during which output and employment fall.

Question 11

unemployment rate

Answer 11

The percentage of the labor force that is unemployed.

Question 12

inflation

Answer 12

An increase in the overall price level.

Question 13

hyperinflation

Answer 13

A period of very rapid increases in the overall price level.

Question 14

deflation

Answer 14

A decrease in the overall price level.

Question 15

circular flow

Answer 15

A diagram showing the income received and payments made by each sector of the economy.

Question 16

transfer payments

Answer 16

Cash payments made by the government to people who do not supply goods, services, or labor in exchange for these payments. They include Social Security benefits, veterans’ benefits, and welfare payments.

Question 17

Treasury bonds, notes, and bills

Answer 17

Promissory notes issued by the federal government when it borrows money.

Question 18

corporate bonds

Answer 18

Promissory notes issued by firms when they borrow money.

Question 19

shares of stock

Answer 19

Financial instruments that give to the holder a share in the firm’s ownership and therefore the right to share in the firm’s profits.

Question 20

dividends

Answer 20

The portion of a firm’s profits that the firm pays out each period to its shareholders.

Question 21

fiscal policy

Answer 21

Government policies concerning taxes and spending.

Question 22

monetary policy

Answer 22

The tools used by the Federal Reserve to control the quantity of money, which in turn affects interest rates.

Question 23

Great Depression

Answer 23

The period of severe economic contraction and high unemployment that began in 1929 and continued throughout the 1930s.

Question 24

fine-tuning

Answer 24

The phrase used by Walter Heller to refer to the government’s role in regulating inflation and unemployment.

Question 25

stagflation

Answer 25

A situation of both high inflation and high unemployment.