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Final Review Economics.

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1 Final Review Economics

2 Gross domestic product (GDP)
What term describes the total value of all final goods and services produced in a particular economy in a year? Gross domestic product (GDP)

3 What is a mutual fund? A device for pooling the savings of many investors and investing it in a variety of ways

4 Americans have a high standard of living and have shifted the production possibilities frontier outward via a good work ethic and what which allows an economy to produce more output from the same quantity resources? Technology

5 What would be the annual yield of a bond if the coupon rate was 8
What would be the annual yield of a bond if the coupon rate was 8.5%, maturity was 10 years, and the par value was $10,000? $850

6 Why might Soviet economic planners have favored heavy industry over the makers of consumer goods?
The products of heavy industry provide material for many other industries

7 What term describes a shared good or service for which it would be impractical to make consumers pay individually and to exclude non-payers? Public good

8 What “invisible hand” regulates the free market economy?
Competition and self-interests

9 How do public goods limit a free market economy?
They allow government, and not consumers, to make some economic decisions

10 What term describes an economy that is using all its resources to produce the maximum output of goods and services? Efficiency

11 Whether the benefits to society are greater than the total cost
What is critical in determining whether something is produced as a public good? Whether the benefits to society are greater than the total cost

12 What term describes a social philosophy based on the belief that democratic means should be used to evenly distribute wealth throughout a society? Socialism

13 What is the government’s role in controlling externalities in the American economy?
Government tries to encourage positive externalities and limit negative externalities

14 In 2009, a single parent with one child with an income level less than $15,000 per year falls below what? Poverty threshold

15 Since the 1930s, what term describes the main government effort to ease poverty by collecting taxes from individuals and redistributing some of those funds? Welfare

16 Providing additional goods and services
How does improved technology help create a higher standard of living for future generations? Providing additional goods and services

17 Why is a certificate of deposit considered a safe investment?
It is guaranteed by the federal government

18 What term describes direct payments of money to eligible poor people?
Cash transfers

19 What allows the United States economy to operate more efficiently and productively, increasing GDP and giving U.S. businesses a competitive advantage in the world? Technology

20 Respectively, what governmental health insurance covers people over 65 and what governmental health insurance covers the poor or unemployed? Medicare Medicaid

21 Production possibilities frontier
What term describes the line on a production possibilities graph that shows the maximum possible output? Production possibilities frontier

22 How do education programs make the economy more productive?
Adding to human capital and labor productivity

23 What term describes the tendency of suppliers to offer more of a good at a higher price?
Law of supply

24 What term describes goods and services provided for free or at greatly reduced prices, like food stamps and subsidized housing? In-kind benefits

25 What term describes consumers buying more of a good when its price is lowered?
Law of demand

26 In which direction will the demand curve for RVs shift as baby boomers start to retire?

27 What term describes goods for which demand falls as income increases?
Inferior goods

28 What causes a change in the demand curve or a shift in demand?
A change in an area other than price

29 How does the price range affect the elasticity of demand for a product?
Demand for a good can be inelastic at a low price, but elastic at a high price

30 What term describes a measure of how suppliers react to a change in price?
Elasticity of supply

31 Market supply schedule
What term describes the relationship between price and total quantity supplied by all firms? Market supply schedule

32 What term describes elasticity of supply that is less than 1 and is not very responsive to changes in price? Inelastic

33 What term describes the change in consumption resulting from a change in real income?
Income effect

34 A demand curve is only accurate for a specific set of market conditions and what is the only factor affecting demand on a demand curve? Price

35 What do economists call a situation in which consumers buy a different quantity than they did before, at every price? A change in demand

36 The best level of output occurs when marginal revenue is equal to what?
Marginal cost

37 What term describes a graphic representation of a demand schedule?
Demand curve

38 What does it mean when an economist says a consumer has demand for a good or service?
He is willing and able to buy the good or service at the specified price

39 What term describes two goods that are used together?

40 What term describes the income level below which income is insufficient to support a family or household? Poverty threshold

41 What term describes goods used in place of one another?

42 In a free market economy, who owns the factors of production?
Households Firms

43 What age group in the United States has the largest percentage of its members living in poverty?

44 It does not take into account income distribution
Why is the 2008 American median household income of $51,000 misleading? It does not take into account income distribution

45 If marginal cost becomes higher than price, what happens to a company?
The company will lose money on each additional unit produced

46 Marginal product of labor
What term describes the change in output that results from having one more worker? Marginal product of labor

47 What is the elasticity of supply for an orchard owner in the short run if the price he can get for his crop goes up? Inelastic

48 How long can a family collect aid from the Temporary Assistance for Needy Families (TANF) program?
A maximum of 5 years

49 The good becomes more expensive to produce
What effect does a rise in the cost of machinery or raw materials have on the cost of a good? The good becomes more expensive to produce

50 What term describes a condition of rising prices?

51 What term describes a chart that lists how much of a good a supplier will offer at different prices?
Supply schedule

52 Why does every decision involve trade-offs?
Everyone’s resources are limited

53 When the opportunity cost outweighs the benefits
When should one decide not to do or use one additional unit of some resource? When the opportunity cost outweighs the benefits

54 What does new technology generally do to production?
It lowers cost and increases supply

55 If a restaurant owner decides to serve only phở in his restaurant, what economic term describes the absence of hamburgers, French fries, and shakes? Trade-off

56 What term describes the additional cost of producing one more unit?
Marginal cost

57 Which political system believes in violent revolution and requires strict obedience to an authority, such as a dictator? Communism

58 What term describes a situation that occurs when a producer cannot offer a particular good or service at the current price? Shortage

59 What term describes a large capital investment to produce items used in other industries?
Heavy industry

60 What term describes when the government sets a price floor on earnings?
Minimum wage

61 The banking system was taken off the gold standard
As part of the nation’s recovery from the Great Depression of the 1930s, the banking system was reformed in what way? The banking system was taken off the gold standard

62 Production possibilities curve
What term describes a graph that shows alternative ways to use an economy’s resources? Production possibilities curve

63 What term describes the device that allows its holder to buy goods based on a promise to pay?
Credit card

64 How did collectives in the Soviet Union avoid the competition that drives a free market economy?
There were no incentives for competition because the government determined prices, wages, and products

65 Fractional reserve banking
What term describes a system that keeps only a small part of a deposit on hand and lends out the rest? Fractional reserve banking

66 What effect do low interest rates have on business investment?
They encourage investment

67 What term implies that there are limited quantities of resources to meet unlimited wants?

68 What is the difference between simple and compound interest?
Simple interest is paid on the principal only Compound interest is paid on both principal and accumulated interest

69 How does a bank make most of its profit on its business?
By earning interest on loans

70 What are the three factors of production?
Land, labor, capital

71 What term describes the amount of money borrowed?

72 What term describes spreading out investments to reduce risk?

73 When any effort by a government causes the supply of a good to rise, in what direction will the supply curve shift for that good? Right

74 What term describes the legal maximum that can be charged for a good?
Price ceiling

75 What term describes the point at which supply and demand come together?

76 Why does the government sometimes use an expansionary fiscal policy?
To encourage growth and try to stop or prevent a recession

77 How does a firm generally respond to a higher demand for its goods?
It raises prices

78 What term describes when quantity supplied exceeds quantity demanded at a certain price?

79 What term describes the federal government’s use of taxing and spending to keep the economy stable?
Fiscal policy

80 What term describes the idea that markets regulate themselves?
Classical economics

81 Expansionary policies
What term describes fiscal procedures that try to increase economic output? Expansionary policies

82 What term describes redirecting resources from being consumed today to create future benefits?

83 What term describes the idea that the government can, and should, regulate the economy?
Keynesian economics

84 Periods of recession/depression and inflation
What are the two main economic problems that Keynesian economics seeks to address? Periods of recession/depression and inflation

85 What term describes federal spending equal to federal revenue?
Balanced budget

86 How will the federal budget be affected when members of the baby boom generation begin to retire in large numbers? Increased deficits

87 It would be too inflexible
What is a major argument against a constitutional amendment requiring a balanced budget? It would be too inflexible

88 Federal Reserve Districts
What term describes the twelve banking regions created by the Federal Reserve Act? Federal Reserve Districts

89 Federal Open Market Committee (FOMC)
What term describes the Federal Reserve committee that makes key decisions about interest rates and the U.S money supply? Federal Open Market Committee (FOMC)

90 Respectively, what term describes a situation in which the government spends more than it takes in and what term describes a situation in which the government takes in more than it spends? Budget deficit Budget surplus

91 How many Federal Reserve Districts are there?

92 What term describes when quantity demanded exceeds quantity supplied at a certain price?
Shortage Excess demand

93 What term describes the rate the Federal Reserve charges for emergency loans to commercial banks?
Discount rate

94 What term describes the alternative that is given up because of a decision?

95 What banks must join the Federal Reserve System?
All nationally chartered banks

96 Which of the following is not one of the three key economic questions that are addressed to deal with limited economic resources? What goods and services should be produced? How should these goods and services be produced? Who consumes these goods and services?

97 How does each society determine who will consume what is produced?
It is a combination of social values and goals

98 To improve its standard of living, a nation’s economy must do what?
Grow through innovation

99 What type of economy makes economic decisions based on exchange or trade?

100 How are traditional economies characterized?
Small, close communities that avoid change and new technology

101 Most modern economies have what type of economy which is characterized by limited governmental involvement? Mixed

102 Respectively, what term describes a market in which households purchase the goods and services that firms produce and what term describes a market in which firms purchase the factors of production from households? Product market Factor market

103 What term describes a formula that tells how much money will be created by an initial cash deposit?
Money multiplier

104 What term describes a situation in which resources are distributed according to price?
Free market

105 Why do people need to buy and sell products or services?
No one is self-sufficient

106 What term describes dividing up goods and services without regard to price?

107 What provides a language of exchange where producers can measure demand and consumers express demand for a product? Price

108 What term describes factors that make it difficult for new firms to enter a market?
Barriers to entry

109 What term describes an illegal grouping of companies that discourages competition like a cartel?

110 What term describes a market with many well-informed buyers and sellers, identical products, and free entry and exit? Perfect competition

111 So that no individual can control the price
Why does a perfectly competitive market require many participants as both buyers and sellers? So that no individual can control the price

112 What is the relationship between start-up costs and a competitive market?
Markets with high start-up costs are less likely to be perfectly competitive

113 Advances in what can transform a good from an expensive luxury to a mid-priced good?

114 Factors that reduce supply can shift the supply curve in what direction?

115 Who issues United States paper currency?
District Federal Reserve banks

116 What term describes production costs or externalities paid by the general public?
Spillover costs

117 Open market operations
What term describes the buying and selling government securities to change the supply of money? Open market operations

118 Who is considered the banker for the United States government?
Federal Reserve

119 What does monetary policy do? It alters the supply of money

120 How does the cost-push theory explain inflation?
Producers raise prices in order to meet increased costs Wage increases cause increased prices Rising wages cause higher prices

121 What term describes the point at which the quantity supplied and quantity demanded are the same?

122 What does the Lorenz Curve illustrate about the economy?
The distribution of income

123 What typically happens to the inflation rate when unemployment falls to very low levels?
It rises

124 What term describes a tax in which the percentage paid increases as income increases?
Progressive tax

125 What term describes monetary policy that reduces the money supply?
Tight money policy

126 It increases the money supply
How does reducing the required reserves by the Fed affect the money supply? It increases the money supply

127 How does the Fed encourage banks to loan more money?
By reducing the discount rate

128 What term describes a tax for which the percentage of income paid in taxes remains the same for all income levels? Flat tax Proportional tax

129 What do local governments spend the bulk of their revenue on?
Public school systems

130 To what part of an industry does a worker’s education contribute?
Human capital

131 What term describes a delay in implementing monetary or fiscal policy?
Inside lag

132 What is the difference between a shortage and scarcity?
Shortages can be temporary or long-term Scarcity always exists

133 If a person has just enough money to buy one DVD and chooses DVD #1 instead of DVD #2, what economic term describes DVD #2? Opportunity cost

134 What term describes a collection of financial assets?

135 What term describes a phrase that refers to the trade-offs that nations face when choosing whether to produce more or less military or consumer goods? Guns and butter

136 What term describes an economic system characterized by private or corporate ownership of capital goods? Free enterprise

137 What term describes a period of change in which an economy moves away from a centrally planned economy toward a market-based system? Transition

138 The United States’ mixed economy is based on what?
Based on the principles of the free market, but allows some government intervention

139 What early free market term describes a doctrine that permits the conduct of business with minimal government intervention? Laissez faire

140 How is government intervention in a modern economy useful?
Governments are more able to meet some needs and wants and all members of society have an opportunity participate

141 Respectively, what term describes a tax on the value of a property and what term describes a tax on the dollar value of a good or service being sold? Property tax Sales tax

142 Keep order, provide vital services, and promote the general welfare
The United States government has a free enterprise economy, but it still intervenes in what instances? Keep order, provide vital services, and promote the general welfare

143 How does the concept of a balanced budget apply to state government?
Only the operating budget must be balanced

144 What are the major sources of revenue for most state governments?
Sales and individual income taxes

145 The result of free enterprise’s economic rights is extensive what which is the rivalry among sellers to attract customers while lowering costs? Competition

146 Public disclosure laws
What term describes restrictive laws that require companies to provide full information about their products in order to protect the public’s well-being? Public disclosure laws

147 What is the purpose of free enterprise?
To give consumers freedom of choice

148 What term describes the study of the economic behavior and decision making of small units, such as individuals and businesses? Microeconomics

149 What term describes a period of macroeconomic expansion followed by a period of contraction that may last many years? Business cycle

150 Why are patents a form of monopoly that society allows?
Encourages firms to research and develop new products that benefit society as a whole

151 Monopolistic competition
What term describes many companies in an open market selling similar products? Monopolistic competition

152 What term describes a market structure dominated by a few large, profitable firms that produce 70% - 80% of the market output? Oligopoly

153 What term describes an agreement among members of an oligopoly to set prices and production levels?

154 What term describes setting the market price below the cost in the short term to drive competitors out of business? Predatory pricing

155 What is the only way that a cartel is able to survive?
Every member keeps to the agreed output levels

156 What term describes government policies that keep firms from controlling the price and supply of important goods? Antitrust laws

157 What is the purpose of both deregulation and antitrust laws?
Promote competition

158 What term describes an authorization from the local government to carry on an enterprise?
Business license

159 What term describes the most attractive alternative that is given up when a decision is made?
Opportunity cost

160 What term describes the government no longer deciding what role each company can play in the market and how much it can charge? Deregulation

161 What term describes a payment to employees other than wages or salaries?
Fringe benefit

162 What term describes a business in which all partners share in both responsibility and liability?
General partnership

163 What must an owner of a sole proprietorship do if the business fails?
Pay all the business debts

164 What term describes the legal obligation to pay debts?

165 What is the term for the joining of two or more firms involved in different stages of producing the same good or service? Vertical merger

166 What term describes a retail outlet owned and operated by its members?
Consumer cooperative

167 What term describes a semi-independent business that pays fees to a parent company for exclusive rights to do business in a certain area? Business franchise

168 What is a common factor in all nonprofit business?
Pay no income tax

169 Why are U.S. firms moving manufacturing jobs overseas?
Labor costs less overseas

170 What term describes a government institution that insures customer deposits against bank failure?

171 Obtain lower prices for members
What is the function of retail or purchasing cooperative businesses or co-ops? Obtain lower prices for members

172 Nonprofit organization
What term describes organizations such as museums, the Red Cross, and churches that promote a benefit to society? Nonprofit organization

173 What is an example of a tax for which the percentage of income paid in taxes decreases as income increases? Sales tax

174 What term describes a business in which only one person has unlimited personal liability for the business’s actions? Limited partnership

175 What term describes taking out a part of an employee’s income as it is earned for taxes?

176 To discourage the use of these products
What is the main purpose of federal taxes on tobacco and alcohol products? To discourage the use of these products

177 Why does the federal government collect income taxes in installments rather than waiting until April 15th? It is more convenient for the government and taxpayers to collect in installments

178 What term describes the theory that suggests that completion of college indicates that a job applicant is intelligent and hard-working? Screening effect

179 What term describes a company that has the exclusive right to sell a new good or service for a specific time period? Patent

180 Imperfect competition
What term describes a market structure that does not meet the conditions of perfect competition? Imperfect competition

181 Individual income taxes
In 2010, the federal government collected approximately $2.16 trillion in tax revenue and 42% came from what source? Individual income taxes

182 What term describes a single seller that has the right to sell goods in an exclusive market?

183 What term describes money lawmakers have a choice about spending?
Discretionary spending

184 What is the difference between Medicare and Medicaid?
Medicare is for people over age 65 Medicaid is for low-income families

185 What term describes a social welfare programs from which people benefit if they meet certain eligibility requirements? Entitlements

186 What term describes assets such as land and buildings?
Real property

187 The baby boomer generation will qualify for both programs
Why are Social Security and Medicare spending expected to increase further in the near future? The baby boomer generation will qualify for both programs

188 What term describes spending that is equivalent to revenue?
Balanced budget

189 What term describes spending for day-to-day expenses?
Operating budget

190 On average, 28% of total compensation in the U. S
On average, 28% of total compensation in the U.S. economy today is comprised of what? Benefits

191 Why do many firms hire temporary workers to do a particular job?
They can quickly adjust their workforce It is easier to fire temporary workers Some workers prefer flexible work arrangements Temporary workers are usually paid less

192 What term describes a single seller in a market?

193 What term describes a wage that produces neither a surplus of labor nor a shortage of labor?
Equilibrium wage

194 What term describes the invisible barrier that keeps women and minorities from advancing to the top ranks in business? Glass ceiling

195 What is the underground economy?
The products and income that are not reported as incomes to the government

196 What term describes an organization of workers that tries to improve working conditions, wages, and benefits for its members? Labor union

197 Non-discrimination laws
What types of laws are designed to help minorities gain education and access to job experience and close the wage gap? Non-discrimination laws

198 What term describes a period of macroeconomic expansion followed by a period of contraction?
Business cycle

199 Collective bargaining
What term describes the process by which union and company representatives meet to negotiate and form a new labor contract? Collective bargaining

200 What term describes an organized work stoppage intended to force an employer to address union demands? Strike

201 The responsibility for the business is shared
What is the major advantage of a business that is a partnership rather than a sole proprietorship? The responsibility for the business is shared

202 What term describes a portion of corporate profits paid out to stockholders?

203 What term describes a settlement technique in which a third party reviews a case and imposes a legally binding decision? Arbitration

204 Blue-collar workers have industrial jobs
What is generally the difference between blue-collar workers and white-collar workers? Blue-collar workers have industrial jobs White-collar workers have professional or clerical jobs

205 What term describes the share representing a portion of ownership in a company?

206 What term describes anything that is used to determine value?
Medium of exchange

207 Articles of partnership
What term describes a legal agreement that sets out each partner’s rights and responsibilities in a particular partnership? Articles of partnership

208 What is the primary goal of a labor union?
Secure its workers’ jobs

209 What term describes money that can be easily divided into smaller units of value?

210 What is considered a negative impact caused by a strike?
Loss of profits

211 What term describes the coins and paper bills used as money in a society?

212 What term describes the direct exchange of one good for another?

213 What term describes money that has value because the government has ordered that it is an acceptable means to pay debts? Fiat money

214 What is the gold standard?
A system in which a country’s money is backed with gold

215 State-chartered banks
During the Free Banking Era between 1837 and 1863, what dominated U.S. banks? State-chartered banks

216 Buying bonds at a discount
Investors earn interest on the bonds they buy, but what other way can investors make money from bond purchases? Buying bonds at a discount

217 Why would an investor buy a junk bond?
Junk bonds pay a potentially higher level of interest than other bonds

218 What term describes a period during which the stock market falls steadily?
Bear market

219 What term describes a bond issued by a state or local government authority?
Municipal bond

220 What term describes a business that specializes in trading stocks?
Brokerage firm

221 Respectively, what term describes the option to sell shares of stock at a specified time in the future and what term describes the option to buy shares of stock at a specified time in the future? Put option Call option

222 What are the Dow and the S&P 500?
Indexes that show the performance of limited but representative stocks

223 Gross domestic product (GDP)
What term describes the dollar value of all final goods and services produced within a country’s borders in a given year? Gross domestic product (GDP)

224 What term describes an institution for receiving, keeping, and lending money?

225 What term describes the loss of the value of capital equipment that results from normal wear and tear? Depreciation

226 What is a certificate of incorporation?
A license to form a corporation issued by the state government

227 Closely held corporation
What type of corporation issues stock to only a few people, often family members? Closely held corporation

228 What term describes a certificate issued by a corporation promising to repay the amount it has borrowed? Bond

229 What are intermediate goods?
Goods used in the production of final goods

230 What term describes a prolonged economic contraction?

231 What term describes a steady, long-term increase in real GDP?
Economic growth

232 What are the leading economic indicators supposed to predict?
Business cycles

233 What term describes the process of increasing the amount of capital per worker?
Capital deepening

234 What term describes the lowest point in an economic contraction?

235 How does one describe the saving rate?
Proportion of disposable income that is saved

236 What term describes GDP expressed in unchanging prices, divided by the total population?
Real GDP per capita

237 Increased capital deepening
If the government uses tax money to pay for long-term investments such as roads or other infrastructure, what happens to the economy? Increased capital deepening

238 What is labor productivity? The amount of output produced per worker

239 Seasonal unemployment
What term describes when a period of steady work is followed by a period of unemployment each year? Seasonal unemployment

240 Cyclical unemployment
What term describes when unemployment rises during economic downturns and falls when the economy improves? Cyclical unemployment

241 Technological progress
What term describes an increase in efficiency gained by producing more output without using more inputs? Technological progress

242 What is the term for a situation in which a person is overqualified for the job he or she has?

243 What term describes the study of how people make decisions to satisfy their needs and wants?

244 Respectively, what term describes the rate of inflation excluding the effects of food and energy prices and what term describes the percentage rate of change in price levels over time? Core inflation rate Inflation rate

245 What does “full employment” mean?
There is no cyclical unemployment

246 Consumer Price Index (CPI)
What term describes a price index determined by measuring the price of goods meant to represent the “market basket” of a typical urban consumer? Consumer Price Index (CPI)

247 What term describes the ability to purchase goods and services?
Purchasing power

248 Who buys and sells stocks on a minute-by-minute basis to try to make a profit?

249 What term describes rising wages causing higher prices which cause higher wages?
Wage-price spiral

250 Structural unemployment
What term describes when the skills of workers do not match the jobs that are available? Structural unemployment

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