Basic Economic Concepts (Unit 1)
Answer: This is the study of how individuals and societies allocate scarce resources.
Question: What is economics?
This measures the total monetary value of all final goods and services produced in a country over a period of time.
What is Gross Domestic Product (GDP)?
This curve shows the total quantity of goods and services demanded at different price levels in an economy.
What is aggregate demand (AD)?
This is anything widely accepted as a medium of exchange.
What is money?
This type of good has a limited supply and is rivalrous in consumption.
What is a scarce resource?
The next best alternative given up when making a choice.
What is opportunity cost?
This is the percentage change in the average price level of goods and services in an economy.
What is inflation?
This effect explains why higher price levels reduce consumer purchasing power, shifting AD left.
What is the wealth effect?
This is the most liquid measure of the money supply, including cash and checking deposits.
What is M1?
This economic indicator rises during expansions and falls during recessions.
What is GDP (or employment, etc.)?
This curve shows the maximum possible production of two goods with limited resources.
What is the production possibilities curve (PPC)?
The labor force divided by the total population of working-age individuals, multiplied by 100.
What is the labor force participation rate?
This is the equilibrium where aggregate demand equals aggregate supply in the short run.
What is short-run macroeconomic equilibrium?
This process allows banks to create money by lending out excess reserves.
What is the money multiplier?
A shift in this curve could result from a change in consumer confidence or government spending.
What is aggregate demand?
A situation where resources are not fully utilized, represented by a point inside the PPC.
What is inefficiency?
This type of unemployment occurs due to changes in the business cycle, such as during a recession.
What is cyclical unemployment?
A sustained increase in the general price level caused by an increase in production costs.
What is cost-push inflation?
The interest rate banks charge each other for overnight loans of reserves.
What is the federal funds rate?
This occurs when the economy operates at its maximum sustainable output, with no cyclical unemployment.
What is full employment?
This principle states that as production of one good increases, the opportunity cost of producing additional units rises.
What is the law of increasing opportunity cost?
This GDP calculation adjusts for changes in price levels to reflect real economic growth.
What is real GDP?
This model assumes prices are sticky in the short run but flexible in the long run.
What is the AD-AS model?
This tool of monetary policy involves the central bank buying or selling government
What are open market operations?
The relationship between unemployment and inflation, suggesting a trade-off in the short run.
What is the Phillips Curve?