Choices & Markets
The condition that exists because people have unlimited wants but limited resources.
What is scarcity?
The percentage of the labor force that is unemployed and actively looking for work.
What is the unemployment rate?
The total market value of all final goods and services produced within a country during a specific period.
What is gross domestic product, or GDP?
The total quantity of goods and services that households, businesses, the government, and foreign buyers want to purchase at different price levels.
What is aggregate demand?
The use of government spending and taxation to influence aggregate demand and stabilize the economy.
What is fiscal policy?
A student can spend Saturday studying for an economics test or working a $60 shift. If the student chooses to study, this is the value of the next-best alternative.
What is the $60 opportunity cost?
A worker who is temporarily unemployed while searching for a new job is experiencing this type of unemployment.
What is frictional unemployment?
In the equation (GDP = C + I + G + NX), this component includes purchases of new machinery, factories, and equipment by businesses.
What is investment, or (I)?
In the aggregate demand equation (AD = C + I + G + NX), this component represents spending by households on goods and services.
What is consumption, or (C)?
During a recession, the government increases spending on infrastructure and reduces taxes to encourage households and firms to spend more. This type of fiscal policy is being used.
What is expansionary fiscal policy?
On a production possibilities curve, a point located inside the curve represents this condition.
What is inefficient production, or underutilization of resources?
A market basket costs $250 in the base year and $275 in the current year. Using the base year as 100, this is the current Consumer Price Index.
What is 110?
An economy reports the following values, in billions of dollars: consumption of $700, investment of $200, government purchases of $250, exports of $100, and imports of $150. The economy’s GDP is this amount.
What is $1,100 billion?
If consumer confidence increases, households purchase more goods and services at every price level. This curve shifts in this direction.
What is a rightward shift of aggregate demand?
The marginal propensity to consume is 0.75. If government spending increases by $20 billion, the maximum change in real GDP predicted by the spending multiplier is this amount.
What is an increase of $80 billion?
Country A can produce either 12 cars or 36 computers, while Country B can produce either 8 cars or 16 computers. Based on opportunity cost, Country A should specialize in producing this good.
What are computers?
During a recession, 50 workers stop looking for jobs and are no longer counted as part of the labor force. Before they stopped searching, there were 1,000 people in the labor force and 100 unemployed workers. Assuming no other changes, the official unemployment rate changes from 10% to this percentage.
What is approximately 5.3%
A country’s nominal GDP is $1.2 trillion, and its GDP deflator is 120. Its real GDP is this amount.
What is $1 trillion?
The economy is operating below full employment. The government increases spending on roads, schools, and infrastructure. Assuming no other changes, identify the curve shift and the likely effects on real GDP and the price level.
What is an increase in aggregate demand, causing real GDP and the price level to rise?
The marginal propensity to consume is 0.80. The government decreases taxes by $30 billion. Ignoring crowding out, the maximum change in real GDP predicted by the tax multiplier is this amount.
What is an increase of $120 billion?
In a market, the government sets a binding price floor of $8. At that price, consumers demand 400 units, while producers supply 900 units. The government then lowers the price floor to $5, where quantity demanded and quantity supplied are both 700 units. By how many units does the surplus decrease?
What is 500 units?
Households become worried about the future and reduce their consumption spending. In response, firms experience lower sales, cut production, reduce investment, and lay off workers. The resulting decline in household income causes consumption to fall even further. This describes the phase of the business cycle and the economic process taking place.
What are a contraction or recession and the negative spending multiplier effect?
Country A and Country B each have a GDP of $500 billion. Country A has a population of 25 million, while Country B has a population of 50 million. Assuming everything else is equal, Country A has this advantage when comparing economic output per person.
What is twice the GDP per capita of Country B?
An economy begins in long-run equilibrium. A sudden increase in energy prices raises firms’ production costs. In the short run, identify the curve that shifts, the effect on real GDP and the price level, and the type of economic problem created.
What is a leftward shift of short-run aggregate supply, causing real GDP to decrease, the price level to increase, and stagflation to occur?
The government increases spending by $50 billion and pays for it by increasing taxes by $50 billion. If the marginal propensity to consume is 0.80, and crowding out is ignored, the overall change in real GDP is this amount.
What is an increase of $50 billion?