Chapter 2 - The US Economy

Question 1

This chapter will answer 3 questions about American economics. What are they?

Answer 1

1. WHAT America produces
2. HOW America produces
3. FOR WHOM America produces

Question 2

What are the 2 subcategories of the question: WHAT America produces?

Answer 2

1. Mix of output
2. How outputs are measured

Question 3

How many mixes of output are there and what are they? (in decreasing order)

Answer 3

4 - Consumer goods, investment goods, government services, and net exportss

Question 4

What are the 3 types of consumer goods?

Answer 4

1. Durable goods
2. Nondurable goods
3. Services

Question 5

What is the largest and fastest growing component of consumption?? Give some examples

Answer 5

SERVICES - medical care, entertainment, utilities, etc

Question 6

Describe durable goods

Answer 6

expected to last at LEAST 3 years, expensive and often purchased on credit, CYCLICAL - very sensitive to economic trends

Question 7

Under the 3 types of consumer goods, under which category is the most money spent?

Answer 7

nondurable goods

Question 8

What is the definition of investment goods?

Answer 8

Plant, machinery, and equipment that are produced for use in the BUSINESS sector

Question 9

Why do businesses need to spend money to maintain equipment?

Answer 9

Machinery gets worn out. production possibilities curve shifts inward. we want to expand the curve ideally

Question 10

Items at the store are considered which type of output??

Answer 10

They are considered INVESTMENT goods until they’re sold

Question 11

What is the definition of government services?

Answer 11

Federal, state, and local governments purchase resources to police the streets, teach classes, write laws, and build highways

Question 12

Are income transfers counted in GDP? Give some examples of income transfers.

Answer 12

NOT counted. food stamps - not counted bc they’ll already be counted under consumer non durable goods

Question 13

Which parts of government use more scarce resources??

Answer 13

State and local use way more of our scarce resources than federal

Question 14

What is the formula for net exports? Do we want it to be a big or small number?

Answer 14

net exports = exports-imports. We want this to be a big number

Question 15

How are outputs measured?

Answer 15

GDP - Total value of final goods and services produced in a country during a given period of time

Question 16

How can total output be measured?

Answer 16

Multiplying the physical output of each good by its price

Question 17

GDP = _________*________

Answer 17

output * price

Question 18

What is nominal GDP?

Answer 18

The value of GDP measured in current dollars. Output and price are taken from the SAME YEAR

Question 19

Why is it useless to compare nominal GDP from one year to another?

Answer 19

INFLATION

Question 20

Which type of GDP is useless for comparing year to year?

Answer 20

Nominal GDP

Question 21

What is the best measure of GDP? Why?

Answer 21

Real GDP because it’s an inflation adjusted value that measures output at CONSTANT prices

Question 22

When comparing year 1 and year 2, nominal GDP would be found by calculating ____ while real GDP would be found by calculating ______

Answer 22

nominal = year 1 output, year 1 prices vs year 2 output, year 2 prices

real- year 1 output, year 1 prices vs year 2 output YEAR 1 PRICES

Question 23

What is per capita GDP and what is it an indicator of?

Answer 23

Total GDP divided by total population. Indicator of how much each person would get if all output were split evenly

Question 24

What are the 3 subcategories under HOW america produces

Answer 24

-Factors of production
-business organization
-government regulation

Question 25

NOT NAMING THEM, what is the definition of the factors of production

Answer 25

Resource input used to produce goods and services

Question 26

What are the 2 factors of quality

Answer 26

productivity - output per unit of input (output per labor hour)
human capital (knowledge and skills possessed by work force)

Question 27

Why does the US have high productivity?

Answer 27

We use highly educated workers in production processess

Question 28

What is factors mobility?

Answer 28

Reallocating resources from one industry to another

Question 29

What are the 3 different business organizations

Answer 29

Corporations
partnerships
proprietorships

Question 30

DIFFERENTIATE between the 3 business organizations

Answer 30

corporations are own by many individuals who own shares (stocks) in the corporation and have limited liability.
PARTNERSHIPS are owned by a small number of individuals who share liability
PROPRIETORSHIPS are owned by ONE individual who has SOLE liability

Question 31

What are the 4 parts of government regulation

Answer 31

1. Provide legal framework (rules of the game)
2. Protect consumers (prevent businesses from becoming too powerful)
3. Protect labor
4. protect environment (chemical disposals)

Question 32

As countries develop, distribution of income becomes more _____

Answer 32

equal

Question 33

Taxes and transfers are used by the government to ________

Answer 33

redistribute income

Question 34

What is progressive tax?

Answer 34

tax rates rise as incomes rise. (federal income tax). Makes after tax income more equal

Question 35

What is regressive tax?

Answer 35

Tax rates fall as incomes rise (usually state tax) makes after tax distribution less equal. ex- 6% tax on100grand income is gonna be a different percentage of income for everyone

Question 36

What is the largest income transfer program?

Answer 36

Social Security

Question 37

What do income transfers do?

Answer 37

Gives lower income households more output than the market itself would provide

Question 38

On the production possibilities curve, something must exist. What is it??

Answer 38

Line must be TOUCHING both axes