Defining Terms + Main Q's

Question 1

What is GDP?

Answer 1

Gross Domestic Product is a measure of total output produced by an economy during a period of a year. It measures

• economic activity
• size and growth of our circular flow

Question 2

What event spurred macro economics?

Answer 2

The great depression of 1930.

Question 3

What are the three main goals of policy makers?

Answer 3

• Economic growth
• low unemployment
• low stable inflation

Question 4

What are the three specific measurements that economists measure to see of a country is achieving its goals?

Answer 4

• GDP
• Inflation (inflation rate = consumer price index)
• Unemployment rate (unemployment/total labor force*100)

Question 5

What are the advantages of using GDP as a measure of economic growth?

Answer 5

• best indicator to measure living standards between countries yearly
• helps predict trends
• gives info. about the size and performance of an economy

Question 6

What are the disadvantages of GDP?

Answer 6

• doesn’t account for illegal activities
• private good + services aren’t measured
• second hand sales aren’t measured

Question 7

What is the difference between Nominal GDP and Real GDP?

Answer 7

Nominal GDP - GDP not adjusted for inflation

Real GDP - adjusted for inflation

Question 8

Define the term Depression

Answer 8

Depression is a severe recession

Question 9

What is happening when there is a contraction?

Answer 9

The economy is going too slow

Question 10

What can governments do to the economy?

Answer 10

They can increase injections or lower withdrawals to stabilize the economy and avoid a recession.

Question 11

Define Inflation

Answer 11

Inflation is when prices are rising due to more available goods

Question 12

What is the consumer price index?

Answer 12

The CPI tracks the prices of a specified set of consumer goods and services, providing a measure of percentage change of inflation.

Question 13

What is the human development index?

Answer 13

The HDI helps measure an economies overall achievement in its social and economic goals like:

• health
• level of education
• living standards

Question 14

What are the 3 basic questions an economic system must answer?

Answer 14

• What to produce?
• How to produce?
• For whom to produce?

Question 15

What are the factors of produce?

Answer 15

Land , Labor , Capital, Enterprise

Question 16

What is fiscal policy?

Answer 16

Fiscal policy is the use of government revenue collection and expenditure to influence a country’s economy.

Question 17

What happens during a recession?

Answer 17

• Gov spending (injections) goes up

- taxes go down

Question 18

what happens during a boom?

Answer 18

• taxes go up

- gov spending goes down

Question 19

Define Comparative advantage

Answer 19

Comparative advantage is and economies ability to produce a particular good or service at a lower opportunity cost than other countries.

Question 20

Define Opportunity cost

Answer 20

The loss of other alternatives when one alternative is chosen.