77 terms


Best describes personal disposable income
Income less than personal income taxes
Kara voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand she is now searching for a position in management. Kara presently is:
Frictionally Unemployed
Capital Stock
The maximum number of shares authorized under the terms of a corporation's articles of incorporation.
The income of households or individuals after taxes is called
Personal Disposable Income
Ways to calculate GDP: Expenditure Approach
-Personal Consumption (C) + Gross Private Domestic Investment (Ig) + Spending (G)+ Net Exports (Xn= Exports-Imports
- C + Ig + G + Xn
Net Exports
Exports - Imports
Most economists agree that the immediate cause of most business cycle variation is
An unexpected change in the level of total spending
Prices on average are rising
In comparing GDP data over a period of years, a difference between nominal and real GDP may arise because
The price level may change over time
In the resource market
Households sell resources to businesses
Economic systems differ according to which two main characteristics?
Who owns the factors of production, and the methods used to coordinate economic activity
GDP (Gross Domestic Product)
Market value of all final goods and services produced within the borders of a single country in a year
Characteristics of a Market System
- Freedom of Enterprise
- Competition in the product and resource market
- Private property
According to the Bureau of Labor Statistics, to be officially unemployed a person must:
Be in the labor force
A recession is defined as a period in which:
Real domestic output falls
Real GDP refers to:
GDP data that has been adjusted for changes in the price level
If intermediate goods and services were included in GDP:
GDP would be overstated
NFFI (Not Foreign Factor Income)
Measures US production abroad minus foreign production in the US
How will the market system accommodate change?
Prices and profits will be signals
How will the command system accommodate change?
Not very well
How will goods and services be produced in a market economy?
Labor and Capital
Work, manual, or physical work
The wealth, either money or property owned by a company or producer
How will goods and services be produced in a command economy?
Government will decide
Distinguishing factor in the market system
Wide-spread ownership of capital
GDP excludes:
The market value of unpaid work in the home
Frictional Unemployment
- Voluntary, in between jobs
- Historically 3%
Structural Unemployment
- Not voluntary, do not have skills necessary for employment, long term
- Historically 2%
Cyclical Unemployment
- Unemployed because economy is weak
- Historically 0% when economy is strong
Distinguishing feature in a command economy
Central planning
Firms are motivated to minimize production costs because:
Competitive pressures in the market will drive out higher-cost producers
Real GDP is:
The nominal value of all goods and services produced in the domestic economy corrected for inflation
GDP can be calculated by summing:
Consumption, Government Spending, Investments, and Net Exports
Transfer payments include:
- gifts
- social security benefits
- welfare assistance
A price index is:
A comparison of the current price of a market basket compared to a fixed reference point
In the circular flow model, the strength of the flow is the:
Strength of the economy
The economic function of profits and losses is to:
Signal that resources need to be reallocated
. The United States' economy is considered to be at full employment when:
About 4-5 percent of the labor force is unemployed
In national income accounting, consumption expenditures include:
Consumer durable goods, consumer non durable goods, and services
The phase of the business cycle in which real GDP is at a minimum is called:
The trough
In the simple circular flow model:
Businesses are sellers of final products
The value added of a firm is the market value of:
A firm's output - the value of the inputs bought from others
Transfer payments are:
Included in personal income
Demand pull-inflation:
Occurs when total spending in the economy is excessive
The U.S. public debt:
Consists of the historical accumulation of all Federal deficits and surpluses
If interest rates decrease, all else the same
Investment increase
In the Keynesian model tax cuts
Stimulate the economy by increasing consumer spending
The practical significance of the multiplier is that it:
Magnifies the initial changes in spending into larger changes in GDP.
The multiplier applies to:
Investments net exports, and government spending
In the late 1990s the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the:
Wealth effect
Exports have the same effect on the current size of GDP as:
At the point where the consumption schedule intersects the 45-degree line:
Saving is zero
The multiplier is:
Marginal Propensity to Save
Increase in savings that results from an increase in income
Marginal Propensity to Consume
Increase in desire to consume that results from an increase in income
Interest on the public debt
Must be paid to avoid a default
A government may use a stimulus package to:
Calculate spending and hence employment
Other things equal, an increase in an economy's exports will:
increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.
The largest part of the U.S. debt is held by
The U.S. public
Discretionary Spending
A spending category through which governments can spend through an appropriations bill.
Appropriations bill--> Discretionary spending
An act of a legislature authorizing money to be paid from the treasury for a specified use.
Significant contributor to the U.S. public debt?
- Recessions
- Increases in military spending
- Tax cuts and expenditure increases in the 1980s
The crowding out effect
The financing of a government deficit increases interest rates and, as a result, reduces investment spending.
The investment demand curve will shift to the right if:
Businesses become more optimistic about future business conditions
The equilibrium level of GDP
May be a recession
Keynes says an economy needs
Deficits during recessions and surpluses during inflations.
What do investment and government expenditures have in common?
Both injections to the circular flow
In an economy which trades with other economics, equilibrium GDP is determined at that point where:
S +imports + T = Ig + exports + G.
The best way to look at debts and deficit:
As a percent of GDP
The MPC is defined as
Change in consumption divided by change in income
The amount by which government spending is greater than tax revenues collected is the:
Budget Deficit
Investment spending in the United States tends to either increase or decrease from year to year because:
Changes in expected profits and changes in technology are different from year to year.
The intersection of the 45-degree line and the AE line shows
Equilibrium GDP
In the Keynesian model, an inflationary gap occurs if
Aggregate expenditures are too high
In a progressive tax system
Tax rates increase when income increases
The Treasury covers government budget deficits by:
Selling Treasury bonds inside and outside the United States
When the Federal Reserves increases the money supply
interest rates fall, business investment increases and GDP increases with a multiplier effect