Unit 1: Principles of Economics
Why must individuals and societies make choices about how to use resources?
Because resources are scarce (scarcity).
According to the law of demand, what happens to quantity demanded when price rises?
Quantity demanded falls
What model shows how money and resources move between households and businesses?
Circular flow model
What type of fiscal policy is used to stimulate the economy during a recession?
Expansionary fiscal policy
What economic concept explains why producing more of one good means producing less of another?
Trade-offs (opportunity cost)
What term describes the next best option you give up when making a decision?
Opportunity cost
What causes a movement along the demand curve rather than a shift of the curve?
A change in price
What does GDP measure in an economy?
The market value of all final goods and services produced within a country.
Who is responsible for controlling the U.S. money supply?
The Federal Reserve
If inflation is rising and the Fed wants to slow the economy, what type of monetary policy should it use?
Contractionary monetary policy
What does a point inside a production possibilities frontier show about resource use?
Underutilization or inefficiency
What market condition exists when quantity demanded is greater than quantity supplied?
Shortage
Which part of the business cycle is marked by declining GDP and rising unemployment?
Recession
What happens to interest rates when the Fed increases the money supply?
Interest rates fall
If a country specializes based on comparative advantage, what is the overall economic result?
Increased total output and gains from trade
What happens to a PPF when there is an improvement in technology?
The PPF shifts outward
If supply increases and demand stays the same, what happens to equilibrium price?
It decreases
What type of unemployment occurs when workers are between jobs?
Frictional unemployment
What is it called when the government spends more money than it collects in taxes?
Budget deficit
What happens to equilibrium price when demand increases but supply stays the same?
Equilibrium price increases
Which economic system relies on voluntary exchange and the “invisible hand”?
Market economy (capitalism)
Name one factor that would cause demand for a product to increase.
Increase in income, increase in population, change in consumer tastes, price of substitutes, etc.
What index is used to measure changes in the cost of living over time?
Consumer Price Index (CPI)
Which international organization works to reduce barriers to global trade?
World Trade Organization (WTO)
What trade policy raises government revenue while making imported goods more expensive?
Tariffs