Unit 4 Review Sheet

Question 1

subsidy

Answer 1

A government payment that supports a business or market; causes the supply of a good to increase

Question 2

monetary policy

Answer 2

Influencing the cost or amount of money provided to promote a healthy economy

Question 3

fiscal policy

Answer 3

Using the government’s revenue to maintain a stable economy and/or to also do anything to influence the economy for the better

Question 4

ceteris paribus

Answer 4

A Latin phrase that means “all things held under constraint” or “all equal”

Question 5

disequilirbium

Answer 5

If the market price or quantity supplied is anywhere but at equilibrium, the market is said to be at disequilibrium.

Question 6

marginal product of labor

Answer 6

The change in output from hiring one additional unit of labor or worker

Question 7

increasing marginal returns

Answer 7

Occurs when marginal production levels increase with new investment

Question 8

diminishing marginal returns

Answer 8

Occurs when marginal production levels decrease with new investment

Question 9

equilibrium price

Answer 9

When supply and demand are both at an equal state

Question 10

surplus

Answer 10

Causes a drop in prices as the supply for a good is greater than the demand for that good

Question 11

shortage

Answer 11

Causes prices to rise as the demand for a good is greater than the supply of that good

Question 12

GDP

Answer 12

Gross domestic product: the dollar value of all goods and services produced within a country in a given year; tells the overall health of the economy

Question 13

nominal GDP

Answer 13

GDP is evaluated at the current market

Question 14

real GDP

Answer 14

RGDP: a measure of a country’s total economic output that is adjusted for price changes

Question 15

unemployment

Answer 15

Percentage of nation’s labor force that does not have a job and possibly in need of government assistance

Question 16

inflation

Answer 16

The percentage change in prices over time

Question 17

deflation

Answer 17

Decrease in the general price level of goods and services

Question 18

What is the law of demand? Does it have an indirect or direct relationship with price?

Answer 18

The law of demand states that when a good’s price is lower, consumers will buy more of it. When the price is higher, consumers will buy less of it.

Question 19

What is the law of supply? Does it have an indirect or direct relationship with price?

Answer 19

An increase in price results in an increase in quantity supplied. There is a direct relationship between price and quantity

Question 20

How does price affect the demand of an elastic good?

Answer 20

Increasing prices results in a decrease in revenue because there’s less of a demand

Question 21

How does price affect the demand of an inelastic good?

Answer 21

Decreasing prices results in a increase in revenue because there’s more of a demand

Question 22

What is the difference between change in demand and change in quantity demanded?

Answer 22

The change in demand is the amount of demand on the whole curve while quantity demanded is the realistic amount of demand being provided

Question 23

What causes a shift in the demand curve?

Answer 23

They’re caused by changes in income, consumer expectations, population, demographics, consumer tastes and advertising.

Question 24

What is the difference between change in supply and change in quantity supply?

Answer 24

The amount of demand causes a shift in the supply curve to either change to left or right

Question 25

When would the government use contractionary fiscal policy?

Answer 25

During inflation (decreasing got spending and increasing taxes)

Question 26

When would the government use expansionary fiscal policy?

Answer 26

Help the economy by increasing govt spending and decreasing taxes

Question 27

When would the Federal Reserve use contractionary monetary policy?

Answer 27

Increasing reserve requirement, decc. Money supply, high inflation

Question 28

When would the Federal Reserve use expansionary monetary policy?

Answer 28

When there’s a recession and there needs to be an increase in the money supply to flow and lower interest rates

Question 29

Identify the parts of the business cycle.

Answer 29

peak, trough, expansion, recession