Economic Foundations
01 — When quantity demanded exceeds quantity supplied at the current price.
What is a shortage?
06 — In this economic system, government makes the major production and distribution decisions.
What is a command economy?
11 — When a product’s price falls, quantity demanded usually rises; when price rises, quantity demanded usually falls.
What is the Law of Demand?
16 — The total market value of final goods and services produced within a country; C + I + G + NX.
What is Gross Domestic Product (GDP)?
21 — These are the federal government’s two main fiscal policy tools.
What are taxes and government spending?
02 — Every society must decide these three things.
What are what to produce, how to produce, and for whom to produce?
07 — The United States fits this system because markets guide many choices while government also regulates and provides services.
What is a mixed economy?
12 — A change in the product’s own price causes this rather than shifting the entire demand curve.
What is movement along the demand curve?
17 — The business cycle moves through these four phases or turning points in order.
What are expansion, peak, contraction, and trough?
22 & 26 — Congress and the president control one of these policies; the Federal Reserve controls the other.
What are fiscal policy and monetary policy?
03 — A new or improved product or production method that can increase efficiency and economic growth.
What is innovation?
08 — When a command economy moves toward a free market, workers and businesses may gain more of this ability to choose.
What is economic freedom? (Also accept greater choice or opportunity.)
13 — Pepsi and Coke are examples of these goods; when one becomes more expensive, demand for the other tends to rise.
What are substitutes?
18 — This index tracks changes in the prices of a typical basket of consumer goods and services.
What is the Consumer Price Index (CPI)?
23 — When federal spending exceeds tax revenue, the government has this.
What is a budget deficit?
04 — The incentive that leads businesses to produce goods they expect consumers will buy.
What is the profit motive?
09 — Roads, parks, and national defense are examples of these government-provided goods or services.
What are public goods?
14 — This shift means consumers are willing and able to buy more at every price.
What is a rightward shift, or increase, in demand?
19 — Adults without jobs who are available for work and actively seeking work are counted this way.
What is unemployed?
24, 25 & 28 — Real GDP has fallen and unemployment has risen for eight months. Name the condition and one appropriate policy response.
What is a recession; use expansionary policy by increasing spending, cutting taxes, increasing the money supply, or lowering interest rates?
05 — The value of the next-best alternative given up when a choice is made.
What is opportunity cost?
10 — In the circular flow, workers provide this to government as an employer and receive wages in return.
What is labor?
15 — If supply increases while demand stays the same, these two equilibrium changes usually occur.
What are a lower equilibrium price and a higher equilibrium quantity?
20 — Production and prices are rising while unemployment is falling. Name the phase and one reason GDP alone cannot measure standard of living.
What is expansion; GDP omits factors such as income distribution, health, education, leisure, or environmental quality?
27, 29 & 30 — Increasing the money supply to fight recession is one type of policy; decreasing it or raising rates to fight inflation is the other.
What are expansionary monetary policy and contractionary monetary policy?