Basic Economic Concepts
This is the next best alternative given up when a decision is made.
What is opportunity cost?
The law stating that as price increases, quantity demanded decreases.
What is the law of demand?
The total market value of all final goods and services produced in a country.
What is GDP?
This institution controls monetary policy in the U.S.
What is the Federal Reserve?
Government spending and taxation policies fall under this.
What is fiscal policy?
Long-run economic growth is shown by this shifting to the right.
What is LRAS (Long-Run Aggregate Supply)?
On a PPC graph, show the change.
(what happens)
Curve shifts outward biased toward computers
This curve shows the maximum combinations of two goods an economy can produce.
What is the Production Possibilities Curve (PPC)?
A shift to the right of the supply curve indicates this.
What is an increase in supply?
This adjusts GDP for inflation.
What is Real GDP?
The interest rate banks charge each other overnight.
What is the federal funds rate?
Increasing government spending shifts AD in this direction.
What is right?
Investments in education and skills improve this.
What is human capital?
(b) What happens to the opportunity cost of computers?
Decreases
When an economy is producing at a point inside the PPC, it is experiencing this.
What is inefficiency or underutilization?
This measures responsiveness of quantity demanded to price changes.
What is price elasticity of demand?
The three components of Aggregate Demand are C, I, G, and this.
What is (X – M) net exports?
Buying government bonds will do this to the money supply.
What is increase the money supply?
This type of fiscal policy is used to combat recession.
What is expansionary fiscal policy?
Technological progress increases this.
What is productivity?
Is this economic growth? Explain.
Yes, because productive capacity increases
This occurs when one country can produce a good at a lower opportunity cost than another.
What is comparative advantage?
If demand is inelastic, total revenue will do this when price increases.
What is increase?
This curve shows combinations of inflation and unemployment in the short run.
What is the Phillips Curve?
This ratio determines how much banks must hold in reserves.
What is the reserve requirement?
A decrease in interest rates is an example of this type of policy.
What is expansionary monetary policy?
This measures output per worker.
What is labor productivity?
(d) If the economy was previously inefficient, how would that appear on the graph?
Point inside the PPC
This type of economy blends government control with market forces.
What is a mixed economy?
A price ceiling below equilibrium leads to this.
What is a shortage?
A sustained increase in the overall price level is called this.
What is inflation?
This shows the relationship between interest rates and money demand/supply.
What is the money market graph?
This problem occurs when government borrowing raises interest rates and reduces private investment.
What is crowding out?
This policy encourages saving and investment by lowering taxes on capital.
What is supply-side policy?
The government imposes a tax on gasoline. Demand for gasoline is relatively inelastic.
What happens to equilibrium price and quantity?
Price ↑, Quantity ↓