Volume 1- Chapter 4 Flashcards
Define economics
Economics is a social science that focuses on understanding production, distribution, and consumption of goods and services.
What is the focus of a market economy?
Investment, production, and distribution of goods and services are guided by price signals created by supply and demand.
What are the two main areas of study in economics?
- Microeconomics
- Macroeconomics
What does microeconomics generally apply to?
Individual markets of goods and services.
What is the focus of macroeconomics?
Broader issues such as employment levels, interest rates, inflation, recessions, and overall health of the economy.
Who are the three broad groups that interact in the economy?
- Consumers
- Businesses
- Governments
What is a market?
Any arrangement that allows buyers and sellers to conduct business with one another.
What determines the price of a product in the marketplace?
The interaction of demand for and supply of a product.
What is the law of demand?
The higher the price, the lower the demand; and the lower the price, the higher the demand.
What is the law of supply?
The higher the price of a good, the greater the quantity supplied.
What is market equilibrium?
A state where the number of buyers and sellers is in balance, allowing anyone who wants to buy or sell a product to do so.
What is gross domestic product (GDP)?
The total market value of all the final goods and services produced in a country over a given period.
What are the three methods to measure GDP?
- Expenditure approach
- Income approach
- Production approach
What does the expenditure approach add up?
Everything that consumers, businesses, and governments spend money on during a certain period.
What is nominal GDP?
The dollar value of all goods and services produced in a given year at prices that prevailed in that same year.
What is real GDP?
A measure that removes the changes in output attributable to inflation, showing true productivity growth.
What factors contribute to gains in productivity?
- Technological advances
- Population growth
- Improvements in training, education, and skills
What are business cycles?
Fluctuations in the economy that include periods of economic expansion followed by periods of economic contraction.
Fill in the blank: Economic growth occurs when an economy is able to produce more _______ over time.
output
True or False: An increase in nominal GDP always indicates a real increase in economic growth.
False
What is long-term economic growth?
The economy tends to move in cycles including periods of economic expansion and contraction.
What are business cycles?
Fluctuations in economic activity that affect the value of investments over time.
What is the average growth of real GDP in Canada since the 1960s?
About 3.4%.
What characterizes an economic expansion?
Increase in real GDP and significant economic growth.