Unit 2 Terms

Question 1

Factor Markets

Answer 1

Markets where factors of production (land, labor, capital) are bought and sold.

Question 2

Consumer Spending

Answer 2

The total expenditure by households on goods and services over a specified period.

Question 2

Government Spending

Answer 2

Expenditures by the government on goods and services, including public services and infrastructure.

Question 3

Tax Revenue

Answer 3

The income that the government receives from taxation.

Question 4

Disposable Income

Answer 4

The amount of money that households have available for spending and saving after taxes have been deducted.

Question 5

Government Transfers

Answer 5

Payments made by the government to individuals without any goods or services being received in return,
E.X. Social Security.

Question 6

Private Savings

Answer 6

The portion of households’ income that is not consumed and is saved for future use.

Question 7

Financial Markets

Answer 7

Markets that facilitate the buying and selling of financial securities, such as stocks or bonds.

Question 8

Government Borrowing

Answer 8

The act of the government raising funds by issuing debt (bonds) to cover budget deficits.

Question 9

Investment Spending

Answer 9

Expenditures on capital goods that will be used for future production.

Question 10

Inventories

Answer 10

The stock of goods and materials that a business holds for the purpose of future sales.

Question 11

Exports

Answer 11

Goods and services produced domestically and sold to foreign markets.

Question 12

Imports

Answer 12

Goods and services produced abroad and purchased by domestic consumers.

Question 13

Aggregate Spending

Answer 13

The total spending in an economy, including consumption, investment, government spending, and net exports.

Question 14

Net Exports

Answer 14

The value of a country’s export minus its imports.

Question 15

Employed

Answer 15

Individuals who are currently working or engaged in productive activities.

Question 16

Labor Force

Answer 16

The total number of people who are willing and able to work, including both the employed and unemployed.

Question 17

Unemployment Rate

Answer 17

The percentage of the labor force that is unemployed and actively seeking employment.

Question 18

Discouraged Workers

Answer 18

Individuals who have stopped looking for work because they believe no jobs are available for them.

Question 19

Underemployed

Answer 19

Workers who are employed part-time or in positions that do not utilize their skills and abilities fully.

Question 20

Frictional Unemployment

Answer 20

Short-term unemployment that occurs when people are between jobs or entering the workforce.

Question 21

Structural Unemployment

Answer 21

Long-term unemployment resulting from the changes in the economy that create a mismatch between skills and job requirements

Question 22

Natural Rate of Unemployment

Answer 22

The level of unemployment that exists when the economy is at full employment, including frictional and structural unemployment.

Question 23

Cyclical Unemployment

Answer 23

Unemployment that results from economic recessions and downturns.

Question 24

Inflation

Answer 24

The rate at which the general level of prices for goods and services rises, eroding purchasing power.

Question 25

Deflation

Answer 25

A decrease in the general price of goods and services.

Question 26

Price Stability

Answer 26

A situation in which prices in an economy do not change significantly over time.

Question 27

Real Wage

Answer 27

Wages adjusted for inflation, reflecting the purchasing power of the income earned.

Question 28

Real Income

Answer 28

Income adjusted for inflation, representing the actual purchasing power of income over time.

Question 29

Aggregate Price Level

Answer 29

A measure of the overall level of prices in the economy, often represented by a price index.

Question 30

Market Basket

Answer 30

A collection of goods and services used to measure changes in the price level of an economy.

Question 31

Consumer Price Index (CPI)

Answer 31

An index that measures the average change over time in the prices paid by consumers for a market basket of consumer goods and services.

Question 32

Producer Price Index (PPI)

Answer 32

An index that measures the average change over time in the selling prices received by domestic producers for their output.

Question 33

Nominal Interest Rate

Answer 33

The interest rate before adjusting for inflation, representing the percentage increase in money that the borrower pays to the lender.

Question 34

Real Interest Rate

Answer 34

The interest rate adjusted for inflation, representing the true cost of borrowing.

Question 35

Disinflation

Answer 35

A reduction in the rate of inflation, indicating a slowdown in the rate at which prices are rising.

Question 36

Aggregate Output

Answer 36

The total quantity of goods and services produced in an economy over a specific period.

Question 37

Real GDP

Answer 37

Gross Domestic Product adjusted for inflation, representing the value of all final goods and services produced in an economy in a given year.

Question 38

Nominal GDP

Answer 38

Gross Domestic Product measured at the current market prices, unadjusted for inflation.

Question 39

GDP Deflator

Answer 39

A measure of the level of prices of all new, domestically produced, final goods and services in an economy - compares Nominal and Real GDP.

Question 40

GDP per Capita

Answer 40

A measure of the economic output per person, calculated by dividing the GDP by the population

Question 41

Business Cycle

Answer 41

The fluctuations in an economic activity that an economy experiences over time, consisting of expansions and contractions.

Question 42

Recessions

Answer 42

A period of economic decline characterized by falling GDP, rising unemployment, and reduced consumer spending.

Question 43

Economic Growth

Answer 43

An increase in the production of goods and services in an economy over a period of time.

Question 43

Output Gap

Answer 43

The difference between actual output and potential output in an economy, indicating whether the economy is underperforming or overheating.