Section 1

Question 1

Economics

Answer 1

System of production, distributing and using wealth

Question 2

Politics

Answer 2

Set of institutions and rules by which social and economic interactions are governed.

Question 3

Market-clearing Equilibrium

Answer 3

The price at which the number of goods supplied equals the number demanded-the point at which supply curves intersect

Question 4

Flow variable

Answer 4

The measure of something over a period of time

Question 5

Stock variable

Answer 5

the measure of something right now

Question 6

GDP

Answer 6

The market value of all final goods/services produced in the nation during a period of time

Question 7

Microeconomics

Answer 7

the study of economic behavior in particular markets

Question 8

Macroeconomics

Answer 8

study of the economic behavior of the entire economy by total production and employment

Question 9

Expansion

Answer 9

A period when the economy grows

Question 10

Contraction

Answer 10

A period when the economy goes down

Question 11

Recession

Answer 11

A period of decline in economic activity lasting more than a few months

Question 12

Depression

Answer 12

A severe and prolonged reduction in economic activity

Question 13

Inflation

Answer 13

An increase in the economy’s average price level

Question 14

Demand-side economics

Answer 14

The macro policy that focuses on shifting the aggregate demand curve as a way of promoting full employment and price stability.

Question 15

supply-side economics

Answer 15

A macro policy that focuses on the rightward shift of the aggregate supply curve through tax-cuts

Question 16

Stagflation

Answer 16

A contraction of a nation’s output accompanied by inflation in the price level.

Question 17

Resources

Answer 17

the inputs, or factors, of production, used to produce the goods and services that people want

Question 18

Scarcity

Answer 18

When the amount of people’s desire exceeds the amount of available at a zero price

Question 19

Rational self-interest

Answer 19

Each individual tries to maximize the expected benefit achieved with a given cost

Question 20

Important Questions for Political Economy

Answer 20

• What is happening?
• Why?
• Who gains and who loses?
• Does it matter?
• If so, what can be done and by whom?

Question 21

Political Economy

Answer 21

1. In terms of the real-world problems on which it focuses
2. In terms of how these problems are analyzed
3. In terms of the currents of economic thought from which it draws

Question 22

6 Conceptions of Political Economy

Answer 22

• Classical political economy
• Marxist economics
• Institutional economics
• Keynesian economics
• Neoclassical economics
• Modern political economy

Question 23

Business Cycle

Answer 23

1. Expansion- A period when the economy grows
2. Contraction- A period when the economy goes down.
3. Recession- Period of decline in economic activity lasting more than a few months
4. Depression- A prolonged and severe reduction in economic activity

Question 24

Marginal

Answer 24

Incremental, additional, or extra: used to describe a change in an economic variable

Question 25

Economic fluctuations

Answer 25

The rise and fall of economic activity relative to the long-term growth trend of the economy

Question 26

Economic theory model

Answer 26

A simplification of reality used to make predictions about cause and effect in the real world.

Question 27

Association-is-causation fallacy

Answer 27

The incorrect idea that if two variables are associated in time, one must necessarily cause the other

Question 28

Fallacy of composition

Answer 28

The incorrect belief that what is true for the individual, or part, must necessarily be true for the group, or whole

Question 29

Adam Smith

Answer 29

1. The Theory of Moral Sentiments, 1759

2. The Wealth of Nations, 1776

Question 30

Thomas Malthus

Answer 30

“An Essay on the Principle of Population”

Question 31

4 Demographic transitions

Answer 31

1. Agrarian, high birthrates and death rates
2. Large families, lower death rates and higher productivity
3. Smaller families, urbanization
4. low birthrates and death rates, dense urban areas, small families

Question 32

David Ricardo

Answer 32

“On the Principles of Political Economy and Taxation”

Question 33

Comparative Advantage

Answer 33

The ability of a country or firm to produce a particular good or service more efficiently than other goods or services, such that its resources are most efficiently employed in this activity.

Question 34

Absolute Advantage

Answer 34

The ability of a country or firm to produce more of a particular good or service than other countries or firms using the same amount of effort and resources.

Question 35

Protectionism

Answer 35

the theory or practice of shielding a country’s domestic industries from foreign competition by taxing imports.

Question 36

Economic Rent

Answer 36

“payment beyond what is necessary to keep land or labor or capital in its present use”

Question 37

Transfer Earnings-

Answer 37

“part of a payment that keeps land, labor, or capital in a particular use”

Question 38

Glut

Answer 38

An excessively abundant supply of something

Question 39

John Stuart Mill

Answer 39

“Principles of Political Economy”

Question 40

Economy

Answer 40

The structure of economic activity in a community, a region, a country, a group of countries, or the world

Question 41

C+I+G+(X-M)= GDP

Answer 41

C= Private Consumption
I= Gross Investment
G= Government Spending
X= Exports
I=Imports

Question 42

Factors of Production

Answer 42

• Land
• Labor
• Capital
• Human Capital