Chapter 4 | Overview of Economics Flashcards
__________ generally applies to individual markets of goods and services. It looks at how businesses decide what to produce and who to produce it for, and how individuals and households decide what to buy.
Microeconomics generally applies to individual markets of goods and services. It looks at how businesses decide what to produce and who to produce it for, and how individuals and households decide what to buy.
_________ focuses on broader issues such as employment levels, interest rates, inflation, recessions, government spending, and the overall health of the economy. It also deals with economic interactions between countries in our increasingly connected global economy.
Macroeconomics focuses on broader issues such as employment levels, interest rates, inflation, recessions, government spending, and the overall health of the economy. It also deals with economic interactions between countries in our increasingly connected global economy.
The three broad groups that interact in the economy include _____, ____, and ________.
The three broad groups that interact in the economy include consumers, businesses, and governments
Which field of economics addresses the questions found below?
Why have the number of jobs fallen in the last year?
Will lower interest rates stimulate growth in the economy?
How can a nation improve its standard of living?
ANSWER: Macro Economics
FILL IN THE BLANK: ________ set out to maximize their satisfaction and well-being within the limits of their available resources, which might include income from employment, investments, or other sources.
ANSWER: CONSUMERS set out to maximize their satisfaction and well-being within the limits of their available resources, which might include income from employment, investments, or other sources.
A ________ is any arrangement that allows buyers and sellers to conduct business with one another.
ANSWER: A MARKET is any arrangement that allows buyers and sellers to conduct business with one another.
The price paid for any product is largely determined by the ________ for and _______ of that product in the marketplace.
ANSWER: The price paid for any product is largely determined by the demand for and supply of that product in the marketplace.
The quantity supplied of a good or service is _ _ _ _ _
ANSWER:
The quantity supplied of a good or service is the total amount that producers are willing to supply at a particular price during a given time period.
At this price, the number of buyers and sellers are in balance. Anyone who wants to buy the product can do so, and anyone who wants to sell the product can do so.
ANSWER: EQUILIBRIUM PRICE
_______________ is the total market value of all the final goods and services produced in a country over a given period.
ANSWER: Gross Domestic Product (GDP)
NOTE ONLY: A final good is something purchased by the ultimate end user. Goods that are used in the manufacture of final goods are intermediate goods.
For example, a Dell computer is a final good, whereas the Intel Pentium chip inside it is an intermediate good, because it is a part of the computer.
Only the market value of the Dell computer, the final good, is included in GDP. If the market value of all the Pentium chips were added together with the market value of all the Dell computers, GDP would be overstated.
NOTE ONLY: A final good is something purchased by the ultimate end user. Goods that are used in the manufacture of final goods are intermediate goods.
For example, a Dell computer is a final good, whereas the Intel Pentium chip inside it is an intermediate good, because it is a part of the computer.
Only the market value of the Dell computer, the final good, is included in GDP. If the market value of all the Pentium chips were added together with the market value of all the Dell computers, GDP would be overstated.
Name the two generally accepted ways of measuring GDP.
ANSWER: the expenditure approach and the income approach.
This approach to measuring GDP starts from the idea that total spending on goods and services should equal the total income generated by producing all of those goods and services. GDP using the income approach adds up all of the income generated by this economic activity.
ANSWER: Income approach
This type of unemployment is closely tied to changes in technology, international competition, and government policy. It typically lasts longer than frictional unemployment because workers must retrain or possibly relocate to find a job.
ANSWER: STRUCTURAL UNEMPLOYMENT
The more common way of calculating GDP is to add up everything that consumers, businesses, and governments spend money on during a certain period. Included in the calculation are business investments and all of the exports and imports that flow through the economy.
ANSWER: Expenditure approach
_________ is the dollar value of all goods and services produced in a given year at prices that prevailed in that same year.
ANSWER: Nominal gross domestic product (nominal GDP) is the dollar value of all goods and services produced in a given year at prices that prevailed in that same year.
TRUE OR FALSE: Changes in nominal GDP from year to year can be misleading because they reflect not only changes in output but also changes in the prices of goods and services.
ANSWER: TRUE
An increase in nominal GDP can occur in the current year compared to the previous year for either, or both, of two reasons:
Outline 2 reasons for GDP growth?
ANSWER:
An increase in nominal GDP can occur in the current year compared to the previous year for either, or both, of two reasons:
- The economy expanded, and more goods and services were produced in the current year than in the previous year; thus, the nation was more productive.
- Prices increased, and consumers had to pay more for goods and services in the current year than they did in the previous year; thus, the nation experienced inflation.
To measure a nation’s true productivity in a year, we need to look at _______________. This measure removes the changes in output that are attributable to inflation and allows us to see how much GDP has grown, based solely on productivity.
To measure a nation’s true productivity in a year, we need to look at real gross domestic product (real GDP).
This measure removes the changes in output that are attributable to inflation and allows us to see how much GDP has grown, based solely on productivity.
Growth in GDP results from a variety of factors, but a few key factors contribute to gains in productivity:
List 3
Growth in GDP results from a variety of factors, but a few key factors contribute to gains in productivity:
• Technological advances
• Population growth
• Improvements in training, education, and skills
These factors contribute to growth in GDP and make nations wealthier.
What phase of the business cycle is characterised by:
- Inflation, and therefore the prices of goods and services, is stable.
- Businesses adjust inventories and invest in new capacity to meet increased demand and avoid shortages.
- Corporate profits rise.
ANSWER: EXPANSION
An expansion is a period of significant economic growth and business activity during which GDP expands until it reaches a peak.
The ________ is the top of the cycle between the end of an expansion and start of a contraction.
The peak of the business cycle is the top of the cycle between the end of an expansion and start of a contraction.
This is the price where the demand for a product or a service is equal to the supply of the product or service. Both consumers and producers are satisfied, thereby keeping the price of the product or the service stable.
ANSWER: Equilibrium Price
This phase of the business cycle is characterized by:
- Demand begins to outstrip the capacity of the economy to supply it.
- Labour and product shortages cause wage and price increases, and inflation rises accordingly.
- Interest rates rise and bond prices fall, which dampens business investment and reduces sales of houses and other big-ticket consumer goods.
ANSWER: THE PEAK
