Chapter 21: Economic Growth, the Financial System, and Business Cycles

Question 1

business cycle

Answer 1

alternating periods of economic expansion and economic recession

Question 2

long run economic growth

Answer 2

the process by which rising productivity increases the average standard of living

Question 3

labor productivity

Answer 3

the quantity of goods and services that can be produced by one worker or by one hour of work

Question 4

capital

Answer 4

manufactured goods that are used to produce other goods and services

Question 5

potential GDP

Answer 5

the level of real GDP attained when all firms are producing at capacity

Question 6

financial system

Answer 6

the system of financial markets and financial intermediaries through which firms acquire funds from households

Question 7

financial markets

Answer 7

markets where financial securities, such as stocks and bonds, are bought and sold

Question 8

financial inermediaries

Answer 8

firms, such as banks, mutual funds, pension funds, and insurance companies, that borrow funds from savers and lend them to borrowers

Question 9

market for loanable funds

Answer 9

the interaction of borrowers and lenders that determines the market interest rate and the quantity of loanable funds exchanged

Question 10

crowding out

Answer 10

a decline in private expenditures as a result of an increase in government purchases