Chapter 7

Question 1

GDP

Answer 1

the total market value of all final goods and services

produced within a society over a certain period of time

Question 2

intermediate good

Answer 2

a good used in the production process that is not a final good or
service

Question 3

consumption expenditures

(C)

Answer 3

Consumer purchases

Question 4

private investment expenditures

(I)

Answer 4

Producer purchases

Question 5

government purchases

(G)

Answer 5

purchases of newly produced goods and services by local,

state, or federal government

Question 6

Import

Answer 6

A good or Service bought from a different country

Question 7

Export

Answer 7

A good or Service sold to a different country

Question 8

Net Exports

(NX)

Answer 8

Exports - Imports

Question 9

Trade Deficit

Answer 9

Export < Imports

Question 10

Trade Surplus

Answer 10

Exports > Imports

Question 11

Trade Surplus

Answer 11

Y = C + I + G + NX

Question 12

Industrially Advanced Countries (IAC’s)

Answer 12

high income countries with primarily
market based economies, large stocks of technologically advanced industrial capital,
and a highly educated and skilled workforce (e.g., U.S., Norway, Australia, Germany,
Japan)

Question 13

Less Developed Countries (LDC’s)

Answer 13

lower income countries which are held back
by some combination of poor economic institutions, undeveloped industrial capital,
and/or an uneducated and unskilled workforce (e.g., India, Ghana, Bangladesh, and
the Democratic Republic of the Congo)

Question 14

economic development

Answer 14

improvements over time in a society’s quality of life and

living standards

Question 15

economic growth

Answer 15

sustained increases over time in a society’s value of Real GDP

 graphically illustrated by an outward shift of the PPF
 measured quantitatively as the percentage increase in Real GDP

Question 16

GDP growth rate

Answer 16

annual percentage change in the value of real GDP

Question 17

catch-up effect

Answer 17

conjecture that (all other factors fixed) the growth rates of less
developed countries will exceed the growth rates of developed countries, allowing the
less developed countries to “catch up” over time

Question 18

Rule of 72

Answer 18

72/X = %

Question 19

physical capital

Answer 19

machines, building, factories, and other equipment used in the
production process

Question 20

human capital

Answer 20

– the knowledge, education, skills, experience, work ethic, interpersonal
skills, and other attributes of workers which determine productivity

Question 21

technology

Answer 21

the application of scientific and engineering principles to the problem
of production

Question 22

Vicious-cycle-of-poverty hypothesis

Answer 22

conjecture that poor countries will
remain poor since they do not have sufficient resources available to make the
investments in capital which are necessary for economic growth

Question 23

Capital flight

Answer 23

tendency for the rich in a poor country to invest their wealth in richer countries due to their economic stability

Question 24

brain drain

Answer 24

– tendency for the most highly talented people from developing
countries to become educated and then move to an already wealthy country

Question 25

Rule-of-Law

Answer 25

environment in which property rights and contracts are
respected and administered fairly and transparently, without favoritism
 countries lacking rule-of-law have difficulty achieving growth

Question 26

Crony Capitalism

Answer 26

environment in which well-connected unscrupulous
business people use corrupt political systems to their advantage in order to
obtain preferential treatment from government (e.g., government contracts,
subsidies, bailouts, tax loopholes)