Flashcards in Chapter 1 Deck (16):
The set of social arrangements that answers four fundamental questions: What is produced?, How are goods and services produced?, Who will produce?, and For whom is it produced?
Represents one end of the economic spectrum in which most economic decisions about what to produce, how to produce, who will produce,
and for whom to produce are made by buyers and sellers.
An institution that brings together buyers and sellers of goods or services.
Represents one end of the economic spectrum in which the government either makes most economic decisions or at least strongly influences them.
Markets where the buyers and sellers make transactions without the government’s approval.
Occurs when workers in a particular small job are allowed to focus on the types of production where they have an advantage.
economies of scale
Describes a situation in which, for goods and services, as the level of production increases, the average cost of producing each individual unit declines.
Goods and services that are produced domestically and sold in other countries. An increase in exports adds to gross domestic product (GDP) since the good was produced locally.
Goods and services that are produced abroad and then purchased domestically. An increase in imports lowers gross domestic product (GDP) since domestic dollars are spent on foreign goods. Net exports, or the trade balance, provide a measure of the gap between exports and imports.
gross domestic product
The market value of all final goods and services produced in the economy during a defined period of time.
Focuses on the actions of particular actors within the economy, such as households, workers, and businesses.
Looks at the economy as a whole, focusing on issues like the growth rate of production of goods and services, unemployment, the inflationary increase in prices, and levels of exports and imports.
One of the two main tools of macroeconomic policy. Monetary policy involves policies that affect bank lending, interest rates, and financial capital markets.
One of the two main tools of macroeconomic policy. Set of policies relating to government spending, taxation, and borrowing.
circular flow diagram
Type of diagram that can show, for example, the economy as consisting of two groups—households and firms—that interact in two general markets: markets for goods and services and markets for factors of production.