Final Review Economics

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)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What term describes two goods that are used together? Complements

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

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

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

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

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

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

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

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

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

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

What term describes a condition of rising prices? Inflation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What term describes the amount of money borrowed? Principal

What term describes spreading out investments to reduce risk? Diversification

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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)

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

How many Federal Reserve Districts are there? 12

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

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

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

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

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?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Who issues United States paper currency? District Federal Reserve banks

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What term describes a collection of financial assets? Portfolio

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What term describes the legal obligation to pay debts? Liability

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What term describes a single seller in a market? Monopoly

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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)

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

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

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

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

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

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

What term describes a prolonged economic contraction? Recession

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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)

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

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

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

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