Econ in the Real World
What is the difference between nominal GDP and real GDP?
Nominal GDP measures output using current prices; real GDP adjusts for inflation.
What does M1 include?
Cash and checking deposits.
What is “purchasing power parity”, and how is it used?
It compares currencies based on the cost of identical goods in different countries.
Which system relies on supply and demand to make decisions?
Market economy.
What happens to price when demand increases and supply stays the same?
Price goes up.
Name one major cause of inflation.
Increased demand or rising production costs.
What’s the main risk of printing too much money to pay off national debt?
Hyperinflation.
How can a country manipulate its currency to boost exports?
By devaluing its currency to make exports cheaper and more competitive abroad.
What is a mixed economy?
An economy with both private enterprise and government involvement.
When a product’s demand is inelastic, what happens to total revenue if the price increases?
Total revenue increases.
What U.S. government agency prints money?
The U.S. Treasury.
What is the “velocity of money”?
The rate at which money changes hands in the economy.
What does it mean if a country has a trade deficit?
It imports more than it exports.
What does “laissez-faire” mean in economics?
Let it be; no government interference in markets.
What kind of good do people buy more of when their income rises?
Normal good.
What is the current Federal Reserve interest rate used to influence inflation called?
The Federal Funds Rate.
Why is cryptocurrency not considered “money” by most economists?
It lacks wide acceptability, stable value, and consistent regulation.
Name two benefits of international trade.
More variety, lower prices, economic growth.
What is meant by the term “market failure”?
A situation where the market does not allocate resources efficiently on its own.
What is the difference between absolute advantage and comparative advantage?
Absolute = producing more with same resources. Comparative = producing at lower opportunity cost.
What does GDP stand for, and what does it measure?
Gross Domestic Product; the total value of goods and services produced in a country.
What happens to the value of money when inflation rises rapidly?
Its purchasing power decreases because prices rise faster than wages or savings.
What is the name of the agreement that reduced trade barriers between the U.S., Canada, and Mexico?
NAFTA.
What economic philosophy argues that self-interest in free markets leads to efficient outcomes?
→ Classical economics / Invisible hand theory (Adam Smith).
Classical economics / Invisible hand theory (Adam Smith).
What is “capital flight”?
Large-scale exit of financial assets from a country due to instability or risk.