Definitions

Question 1

Three Goals of Macroeconomics

Answer 1

Economic Growth
Stable Prices
Full Employment

Question 2

Economic Growth

Answer 2

achieved by increasing the economy’s ability to produce goods and services

• indicated by measuring the growth rate of production
• indicated by increases in the quantities of the resources used to produce goods

Question 3

Stable Prices

Answer 3

achieved by avoiding or limiting fluctuations and inflationary expansions of business cycles
-indicated by month-to-month and year-to-year changes in various economic measures

Question 4

Full Employment

Answer 4

achieved when all available resources are used to produce goods and services
-commonly indicated by the employment of labor resources

Question 5

Peak

Answer 5

the transition of a business cycle from an expansion and a contraction

Question 6

Trough

Answer 6

a low turning point or local minimum of a business cycle

Question 7

Expansion

Answer 7

the period of a business cycle during which total production and total employment are increasing

Question 8

Contraction

Answer 8

the economy as a whole is in a decline

• occurs after the business cycle peaks, but before it becomes a trough
• said to occur when a country’s real GDP has declined for 2 or more consecutive quarters

Question 9

Recession

Answer 9

a general slowdown in economic activity

-occurs when there is a widespread drop in spending

Question 10

Depression

Answer 10

a sustained, long-term downturn in economic activity in one or more economies
-characterized by its length; by abnormally large increases in unemployment

Question 11

Real GDP

Answer 11

measure of value of economic output adjusted for price changes ( taking the quantities of one year and multiplying them by the base year prices)

Question 12

Price Level

Answer 12

measure of the average foods and services in the economy

Question 13

Natural Rate of Unemployment

Answer 13

normal rate of unemployment consisting of frictional unemployment plus structural unemployment

Question 14

Frictional Unemployment

Answer 14

short-term unemployment that arises from the process of matching workers with jobs

Question 15

Structural Unemployment

Answer 15

unemployment that arises from a persistent mismatch between the skills and attributes of workers and the requirements of jobs

Question 16

Potential GDP

Answer 16

The level of Real GDP attained when all firms are producing at capacity

Question 17

Consumer Confidence

Answer 17

measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation

Question 18

Producer Confidence

Answer 18

sentiment indicator for the manufacturing industry

Question 19

Procyclical Measures

Answer 19

describes how an economic quantity is related to economic fluctuations
-moving in the same direction of the overall economic cycle: rising when the economy is strengthening and falling when weakening

Question 20

Countercyclical Measures

Answer 20

describes how an economic quantity is related to economic fluctuations
-moving in the opposite direction of the overall economic cycle: rising when the economy is weakening, and falling when the economy is strengthening

Question 21

Taxes

Answer 21

an involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government activities

Question 22

Transfer Payments

Answer 22

a payment to individuals by the federal government through various social benefit programs

Question 23

Benefits of Recession

Answer 23

enables assessment of the effectiveness of a family budget and community crisis management plans
-encourage self employment

Question 24

Stagflation

Answer 24

a condition of slow economic growth and relatively high unemployment

Question 25

Full Employment Equilibrium

Answer 25

level of employment rates when there is NO CYCLICAL UNEMPLOYMENT - when the economy is employing all of its available resources - potential GDP = real GDP

Question 26

Recessionary Gap

Answer 26

summarizes the situation where an economy is operating at or below its full employment equilibrium -potential GDP > real GDP

Question 27

Inflationary Gap:

Answer 27

amount by which the real GDP exceeds potential GDP | -above full employment equilibrium

Question 28

Short Run AS Curve

Answer 28

captures the relationship between real production and the price level

Question 29

Long Run AS Curve

Answer 29

conceptual time or period in which there are no fixed factors of production as to changing the output level by changing the capital stock or by entering or leaving an industry

Question 30

Price Index

Answer 30

normalized average of prices for a given class of goods or services in a given region, during a given interval of time

Question 31

Money

Answer 31

any asset that people are generally willing to accept in exchange for goods and services or for payments of debts

Question 32

Commodity

Answer 32

a good used as money that also has value of independent of its use as money

Question 33

Fiat Money

Answer 33

money; such as paper currency; that is authorized by a central bank or government body and that doesn't have to be exchanged by the central bank for gold or some other commodity