Econ/Finance Unit 5 Test Review

Questions and Answers

What term is used in macroeconomics to describe the total supply and the total demand?

aggregate

Which terms can be used to describe David, who lost his job due to decreased production?

Seasonally unemployed

Unemployed (correct)

Cyclically unemployed (correct)

Frictionally unemployed

Describe the circular flow model.

The model represents the movement of money throughout the economy.

What is the difference between inflation and deflation?

Inflation can result from rising demand and reduces the value of money. Deflation can result from falling demand and boosts the value of money. Signup and view all the answers

How do consumers' feelings about the economy help contribute to growth?

Positive consumer attitudes influence spending habits. Signup and view all the answers

What decisions does the business cycle help businesses make? (Select all that apply)

Whether to increase or decrease production Signup and view all the answers

The exchange of factors of production for income occurs in the?

factor market Signup and view all the answers

What is the name of the period when an economy begins to shrink?

recession Signup and view all the answers

Does a depression always follow a recession?

False Signup and view all the answers

What are the signs of low inflation?

Demand steadily rises; prices continue to increase; the economy grows in a healthy way. Signup and view all the answers

Cost-push inflation occurs when?

producers need more money to make and distribute goods. Signup and view all the answers

The most common measure of inflation is a statistic called the?

consumer price index Signup and view all the answers

Study Notes

Aggregate Supply and Demand

The term "aggregate" describes total supply and total demand in macroeconomics.

Types of Unemployment

Cyclical unemployment refers to job loss due to decreased production, as seen with individuals like David, who lost his car design job.

Circular Flow Model

Represents the flow of money within the economy, illustrating how goods, services, and income circulate.

Inflation vs. Deflation

Inflation is driven by rising demand, decreasing money value.
Deflation occurs from falling demand, increasing money value.

Consumer Sentiment and Economic Growth

Positive consumer attitudes enhance spending habits, stimulating economic growth.

Business Cycle Decisions

Businesses use the business cycle to determine:
- To expand or reduce operations
- To increase or decrease production levels
- To hire additional staff or implement layoffs
- To invest in growth or prioritize savings

Factor Market

The exchange of production factors for income takes place in the factor market, linking labor and capital with earnings.

Recession

A recession marks a period when the economy begins to shrink, characterized by reduced economic activity.

Relationship Between Recession and Depression

A depression follows a recession only if the latter is unusually prolonged. A depression implies a severe and lasting economic downturn.

Signs of Low Inflation

Indicators include:
- Steady rise in demand
- Continuous price increases
- Healthy economic growth

Cost-Push Inflation

Occurs when producers face rising costs for making and distributing goods, necessitating higher prices.

Consumer Price Index

The most common measure of inflation is the consumer price index (CPI), tracking changes in price levels over time.

Description

Prepare for your Unit 5 Test in Economics and Finance with these flashcards. This review covers key terms such as aggregate supply and demand, types of unemployment, and the circular flow model, ensuring you have a solid understanding of macroeconomic concepts.