Macroeconomics - Ch 6

Question 1

Business Cycle

Answer 1

Long-run economic growth and the short-run fluctuations in output and employment

Question 2

Recession

Answer 2

Negative growth; output and living standards decline

Question 3

Real GDP (Real Gross Domestic Product)

Answer 3

Measures the value of final goods and services within the borders of a country during a specific period of time (typically a year)

Question 4

Nominal GDP

Answer 4

Totals the dollar value of all goods and services produced within the borders of a country using their current prices during the year they were produced; doesn’t account for price increases from year to year

Question 5

Unemployment

Answer 5

state a person is in if he or she cannot get a job despite being willing to work and actively seeking work

Question 6

Inflation

Answer 6

Increase in the overall level of prices

Question 7

Modern Economic Growth

Answer 7

Output per person rises

Question 8

Purchasing Power Parity

Answer 8

Adjusts GDP for the fact that prices are much lower in some countries than others

Question 9

Savings

Answer 9

Occurs when current consumption is less than current output (or when current spending is less than current income)

Question 10

Investment

Answer 10

Happens when resources are devoted to increasing future output

Question 11

Financial Investment

Answer 11

Purchase of assets like stocks, bonds, and real estate in the hope of reaping a financial gain

Question 12

Economic Investment

Answer 12

Creation and expansion of business enterprises, specifically spending on the production and accumulation of newly created capital goods such as machinery, tools, factories, and warehouses

Question 13

Expectations

Answer 13

Macroeconomics must account for; changing expectations have effect on current behavior; have large effect on economic growth since pessimism will lead to less current investment and less future consumption

Question 14

Shocks

Answer 14

Situations in which firms were expecting one thing to happen but then something else happened

Question 15

Demand shocks

Answer 15

unexpected changes in the demand for goods and services

Question 16

Supply shocks

Answer 16

unexpected changes in the supply of goods and services

Question 17

Positive demand shock

Answer 17

situation in which the demand turns out to be higher than expected

Question 18

Negative demand shock

Answer 18

situation in which demand turns out to be lower than expected

Question 19

Sticky prices (inflexible prices)

Answer 19

prices that are slow to change; help to explain how unexpected changes in demand lead to fluctuations in GDP and employment that occur over the course of the business cycle

Question 20

Inventory

Answer 20

A store of output that has been produced but not yet sold; can be allowed to grow or decline in periods when demand is unexpectedly low or high

Question 21

The Great Recession

Answer 21

Downturn in the economy from 2007-2009

Question 22

Flexible prices

Answer 22

React within seconds to changes in supply and demand; typical of commodities, raw materials (corn, oil, natural gas)

Question 23

Price war

Answer 23

a price cut matched by a competitor