MARKET STRUCTURE
In a perfectly competitive market, individual firms are called this because they accept the going market price.
Price takers
According to the GDP spending identity Y ≡ C + I + G + (X − M), what does the letter 'G' represent?
Government spending (on goods and services)
Money serves three functions: medium of exchange, unit of account, and this third one.
Store of value
The unemployment rate equals the number of unemployed people divided by this.
The labor force (employed + unemployed actively seeking work)
The financial system serves four key roles: connecting savers to borrowers, providing liquidity, sharing risk, and this fourth role involving gathering and processing data about investment opportunities.
Processing/providing information (information aggregation)
A monopoly can maintain market power through these — obstacles that prevent new competitors from entering the market. Name one example.
Barriers to entry (e.g., patents, control of key resources, economies of scale, network effects)
GDP can be measured three equivalent ways: the production approach, the income approach, and this third approach.
The expenditure (spending) approach
This "cost" of inflation describes the wasted time and resources people spend making more frequent trips to the bank to avoid holding devalued cash.
Shoe-leather cost
Short-term unemployment caused by workers switching jobs or new graduates entering the workforce is called this type.
Frictional unemployment
This stock index, launched in 1971, is heavily weighted toward technology companies and is home to firms like Apple, Microsoft, and NVIDIA.
NASDAQ
A profit-maximizing monopolist produces where these two things are equal.
Marginal Revenue = Marginal Cost (MR = MC)
This economist, who published "The Wealth of Nations" in 1776, described the self-regulating market as an "invisible hand."
Adam Smith
The Quantity Theory of Money in growth terms states: m + v ≈ π + y. If money supply grows 6% and real GDP grows 2% (with stable velocity), what is the predicted inflation rate?
4%
When wages are "sticky" downward but the price level rises, workers' purchasing power falls. This type of wage — adjusting for inflation — declines.
Real wages
The Gordon Growth Model prices a stock as P = D ÷ (R − g). According to this formula, stock prices can change if dividends (D) change, expected return (R) changes, or this third factor changes.
Expected future growth (g)
This type of price discrimination charges each individual buyer exactly their maximum willingness to pay, capturing all consumer surplus.
First-degree (perfect) price discrimination
When a U.S. company imports machinery from Germany, this component of the GDP identity decreases (becomes more negative).
Net exports (X − M)
The Quantity Theory of Money works best in the long run because of this condition — but breaks down in the short run when prices and wages are sticky.
Velocity is stable
At very high wage levels, working more earns enough that workers prefer leisure over extra income. This force, which offsets the substitution effect, causes the labor supply curve to bend backward.
Income effect
This index tracks approximately 2,000 smaller U.S. companies and is the primary benchmark for small-cap stocks.
Russell 2000
Compared to perfect competition, monopoly leads to higher prices, lower output, and this economic inefficiency — represented by a triangle on a supply-demand graph.
Deadweight loss (welfare loss)
RFK's famous 1968 speech argued that GDP fails to measure this — things that make life worthwhile such as health, education, and community.
Quality of life / human wellbeing
This policy tool — a rule or commitment (like an inflation target or fixed exchange rate) that anchors the public's inflation expectations — is called a ________.
Nominal anchor
During the COVID-19 recession, U.S. unemployment spiked from about 3.5% to this approximate peak within just two months (spring 2020).
~14.8%
The S&P 500 tracks 500 large U.S. companies, while this index tracks only 30 "blue-chip" companies and is price-weighted rather than market-cap weighted.
The Dow Jones Industrial Average (DJIA)