Unit 1- Basic Economic Concepts
The principle that resources are limited but human wants are unlimited.
Scarcity
This term refers to the period between a peak and a trough in the economy.
What is a Recession?
The total value of all final goods and services produced within a country’s borders, regardless of the nationality of the producer.
What is Gross Domestic Product (GDP)?
The organization that facilitates the exchange of money and credit within the economy.
What is a Financial Institution?
A policy designed to reduce the volatility of the business cycle by stabilizing inflation and unemployment over time.
What is Stabilization Policy?
The theory that countries should specialize in producing goods in which they have a comparative advantage.
What is Comparative Advantage?
The total value of goods and services that could be produced with the resources available, assuming full employment.
What is the Production Possibilities Curve (PPC)
The total market value of all final goods and services produced in a country, adjusted for inflation, over a specific period of time.
Real GDP
This approach to calculating GDP adds up all the expenditures on final goods and services.
What is the Expenditure Approach?
This type of interest rate is charged by central banks to commercial banks when they borrow funds.
What is the Discount Rate?
This term refers to the impact of government fiscal and monetary policies on long-run economic growth.
What is the Long-Run Phillips Curve?
A tax placed on imported goods to protect domestic industries.
What is a Tariff?
This principle states that the opportunity cost increases as more of a good is produced.
What is the Law of Increasing Opportunity Cost?
This indicator measures the percentage of the labor force that is unemployed and actively seeking work.
What is the Unemployment Rate?
The value of all final goods and services produced by a nation’s residents, regardless of where the production takes place.
What is Gross National Product (GNP)?
For example, if a company based in the United States has a factory in China and produces goods there, the value of those goods would be included in the US GNP.
A market in which short-term borrowing and lending of money takes place, often with maturities of one year or less.
What is the Money Market?
A situation where both inflation and unemployment are high, which may result from incorrect fiscal or monetary policy decisions.
What is Stagflation?
This occurs when the value of a country’s currency falls relative to other currencies.
What is Currency Depreciation?
A situation where the quantity demanded equals the quantity supplied at a given price.
What is Market Equilibrium?
A prolonged period of increasing economic activity, characterized by rising GDP and low unemployment
What is an Economic Expansion?
The relationship between the overall level of prices and the quantity of goods and services demanded in an economy.
What is Aggregate Demand?
This term refers to a financial intermediary that facilitates the exchange of capital between savers and borrowers.
What is a Financial Intermediary?
The phenomenon where long-run economic growth is impeded due to policies that distort market incentives.
What is Misallocation of Resources?
The international financial organization created to promote global trade and economic stability.
What is the International Monetary Fund (IMF)?
The idea that economic agents make decisions based on their limited understanding of the world and available information.
What is Bounded Rationality?
The difference between a country’s total exports and total imports.
What is the Trade Balance?
The total quantity of goods and services that producers in an economy are willing and able to supply at different price levels.
What is Aggregate Supply?
This measure of money supply includes cash, checking deposits, and easily convertible near money.
What is M1?
This term refers to the situation when inflation expectations become ingrained in the economy, making it more difficult to control inflation without causing significant economic slowdown.
What is the Inflationary Spiral?
The economic situation where a country’s domestic currency becomes more valuable relative to foreign currencies.
What is Currency Appreciation?