unit 4.
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Questions and Answers

Which of the following is a type of inflation that is generally defined as price increases of 50% or more per month?

  • Structural
  • Hyperinflation (correct)
  • Frictional
  • Deflation

    • What is the economic situation defined by an inefficient distribution of goods and services in the free market called?

  • Negative externality
  • Positive externality
  • Market failure (correct)
  • Standard of living

    • What is the percentage of workers searching for work called?

  • Unemployment rate (correct)
  • Gross domestic product (GDP)
  • Consumer price index (CPI)
  • Underemployment

    • Which of the following is a type of unemployment that occurs when people change their jobs?

    <p>Frictional unemployment</p> Signup and view all the answers

    What is the formula for calculating Gross Domestic Product (GDP)?

    <p>C+I+G+X</p> Signup and view all the answers

    Which of the following is a type of inflation that is characterized by a general decline in prices for goods and services?

    <p>Deflation</p> Signup and view all the answers

    What is the measure used by economists to calculate the economy's inflation rate?

    <p>Consumer Price Index (CPI)</p> Signup and view all the answers

    Which of the following is a type of unemployment that occurs when workers' skills do not match the jobs available?

    <p>Structural unemployment</p> Signup and view all the answers

    What is the term used to describe the underuse of a worker because the job does not utilize their skills, is part-time, or leaves them idle?

    <p>Underemployed</p> Signup and view all the answers

    What is the term used to describe the material well-being of the average person in a given population?

    <p>Standard of living</p> Signup and view all the answers

    What is the term used to describe the economic situation defined by an inefficient distribution of goods and services in the free market?

    <p>Market failure</p> Signup and view all the answers

    What is the term used to describe a cost that spills over to a third party in an economic transaction?

    <p>Negative externality</p> Signup and view all the answers

    What is the term used to describe a benefit that spills over to a third party in an economic transaction?

    <p>Positive externality</p> Signup and view all the answers

    Which of the following is a tool used by the Federal Reserve for monetary policy?

    <p>Open market operations</p> Signup and view all the answers

    What is the purpose of the discount rate set by the Federal Reserve?

    <p>To influence the amount of loanable funds banks have available</p> Signup and view all the answers

    What is the reserve ratio?

    <p>The minimum percentage of bank deposits required to be available for withdrawal</p> Signup and view all the answers

    Which of the following is a tool used for fiscal policy?

    <p>Taxation</p> Signup and view all the answers

    What is the goal of supply-side economics?

    <p>To provide consumers with more products and service options</p> Signup and view all the answers

    What is the goal of demand-side economics?

    <p>To reduce taxes and increase consumer spending</p> Signup and view all the answers

    What is fractional reserve banking?

    <p>A system in which only a fraction of bank deposits are required to be available for withdrawal</p> Signup and view all the answers

    What is globalization?

    <p>A system in which products, technology, information, and jobs spread across national borders and cultures</p> Signup and view all the answers

    What is GATT?

    <p>The General Agreement on Tariffs and Trade, the first trade organization with the purpose of reducing trade barriers</p> Signup and view all the answers

    What is the purpose of international trade?

    <p>To reduce trade barriers</p> Signup and view all the answers

    Which of the following is a trade barrier that seeks to limit all trade from a nation?

    <p>Embargoes</p> Signup and view all the answers

    What is the purpose of the World Trade Organization (WTO)?

    <p>To replace GATT in 1995</p> Signup and view all the answers

    Which of the following refers to goods a country buys from another country?

    <p>Imports</p> Signup and view all the answers

    What is the term used to describe a situation where a country's exports are higher than its imports?

    <p>Surplus</p> Signup and view all the answers

    What is the theory or practice of shielding a country's domestic industries from foreign competition by taxing imports?

    <p>Protectionism</p> Signup and view all the answers

    Which action does the Federal Reserve commonly take to enact a tight-money policy?

    <p>Increasing reserve requirements</p> Signup and view all the answers

    How does selling bonds on the open market affect bond prices and interest rates?

    <p>Bond prices fall and interest rates increase</p> Signup and view all the answers

    What is the effect of higher interest rates on lending?

    <p>Higher interest rates discourage lending</p> Signup and view all the answers

    How does less lending affect aggregate demand?

    <p>Less lending decreases aggregate demand</p> Signup and view all the answers

    What is the effect of decreased aggregate demand on GDP growth?

    <p>Decreased aggregate demand decreases growth in GDP</p> Signup and view all the answers

    What is the effect of decreased aggregate demand on the general price level?

    <p>Decreased aggregate demand lowers the general price level</p> Signup and view all the answers

    What is the Fed's most common action to enact a tight-money policy?

    <p>Selling bonds on the open market</p> Signup and view all the answers

    What is the potential consequence of contracting the money supply too much?

    <p>Aggregate demand may decrease to a level where unemployment increases</p> Signup and view all the answers

    What does the Fed aim to decrease by enacting a tight-money policy?

    <p>Reserves available for loans</p> Signup and view all the answers

    What is the potential consequence of decreasing reserves available for loans?

    <p>Aggregate demand decreases, GDP growth decreases, and the general price level lowers</p> Signup and view all the answers

    Which states have no individual income tax?

    <p>Alaska, Florida, South Dakota, Texas, and Washington</p> Signup and view all the answers

    What is the range of corporate income tax rates among states?

    <p>One percent to twelve percent</p> Signup and view all the answers

    Which types of taxes do most states levy?

    <p>Income taxes, corporate income taxes, sales taxes, and various fees</p> Signup and view all the answers

    What is a balanced budget?

    <p>Total government revenue from all sources is equal to total government spending</p> Signup and view all the answers

    Which budget covers day-to-day expenses?

    <p>Operating budget</p> Signup and view all the answers

    Which budget is not subject to balanced budget requirements?

    <p>Capital budget</p> Signup and view all the answers

    Which expenses do capital budgets fund?

    <p>Major construction and maintenance projects, land acquisition</p> Signup and view all the answers

    Which states are required to have a balanced budget?

    <p>All states, except Vermont</p> Signup and view all the answers

    Which states have no individual or corporate income taxes?

    <p>Nevada and Wyoming</p> Signup and view all the answers

    Which types of taxes do states levy on businesses and professionals?

    <p>Property taxes, fees related to businesses, and license fees for professionals</p> Signup and view all the answers

    Which of the following is NOT a requirement to be included in the GDP?

    <p>The good or service must be produced by a foreign country.</p> Signup and view all the answers

    Which of the following sectors is NOT included in the calculation of GDP?

    <p>Imports</p> Signup and view all the answers

    Which letter is used to represent net exports in the GDP equation?

    <p>X</p> Signup and view all the answers

    Which one of these is the most accurate description of nominal GDP?

    <p>Nominal GDP is GDP in terms of the current value of goods and services.</p> Signup and view all the answers

    Which one of these is the most accurate description of real GDP?

    <p>Real GDP is the GDP if prices were to remain constant from year to year.</p> Signup and view all the answers

    What is the purpose of comparing nominal GDP to a base year when calculating real GDP?

    <p>To factor out rising prices</p> Signup and view all the answers

    Which phase of the business cycle is characterized by a prolonged economic contraction lasting two or more quarters (six months or more)?

    <p>Recession</p> Signup and view all the answers

    What is the term used to describe an extended period of high unemployment and reduced business activity?

    <p>Depression</p> Signup and view all the answers

    What is the term used to describe periods during which prices rise at the same time there is a slowdown in business activity; a stagnation of business activity and inflation of prices?

    <p>Stagflation</p> Signup and view all the answers

    What is the final phase of the business cycle, characterized by the point at which real GDP and employment stop declining?

    <p>Trough</p> Signup and view all the answers

    Which type of unemployment occurs when workers' skills do not match the jobs that are available?

    <p>Structural Unemployment</p> Signup and view all the answers

    Based on the text, which type of unemployment occurs when industries slow or shut down for a season or make seasonal shifts in their production schedules?

    <p>Seasonal Unemployment</p> Signup and view all the answers

    What is the normal unemployment rate in an economy that is working properly?

    <p>4 to 6 percent</p> Signup and view all the answers

    What is the definition of full employment according to the text?

    <p>The level of employment reached when there is no cyclical unemployment</p> Signup and view all the answers

    What is the definition of the unemployment rate according to the text?

    <p>The percentage of the labor force that is unemployed</p> Signup and view all the answers

    What causes inflation according to the quantity theory?

    <p>Too much money in the economy</p> Signup and view all the answers

    Which of the following is a major cause of poverty?

    <p>Lack of education</p> Signup and view all the answers

    What is the poverty threshold for a household of 4 in 2019?

    <p>$25,750</p> Signup and view all the answers

    Which theory attributes inflation to too much money in the economy?

    <p>The quantity theory</p> Signup and view all the answers

    Which government program provides block grants to states for implementing their own assistance programs?

    <p>Temporary Assistance for Needy Families (TANF)</p> Signup and view all the answers

    According to Keynesian economics, what can the government do during a recession to stimulate the economy?

    <p>Increase government spending to make up for the decrease in consumer spending</p> Signup and view all the answers

    What is the multiplier effect in fiscal policy?

    <p>Every dollar in fiscal policy creates a greater than one dollar change in economic activity</p> Signup and view all the answers

    What is an automatic stabilizer in fiscal policy?

    <p>A government tax or spending category that changes in response to changes in GDP or income</p> Signup and view all the answers

    What is the national debt?

    <p>The total amount of money the federal government owes</p> Signup and view all the answers

    According to the text, what is the crowding-out effect?

    <p>The decrease in business investment due to an increase in government spending</p> Signup and view all the answers

    Which of the following accurately describes fiscal policy?

    <p>Fiscal policy is the federal government's use of taxing and spending to keep the economy stable.</p> Signup and view all the answers

    Which of the following is an example of an expansionary fiscal policy?

    <p>The federal government increases spending on infrastructure projects.</p> Signup and view all the answers

    Which of the following is an example of a contractionary fiscal policy?

    <p>The federal government decreases spending on defense.</p> Signup and view all the answers

    What is the purpose of a federal budget?

    <p>To outline the government's expected revenue and expenditure for a specific fiscal year.</p> Signup and view all the answers

    Which of the following accurately describes the budget process?

    <p>Federal agencies send requests for money to the Office of Management and Budget, and Congress makes changes to the budget.</p> Signup and view all the answers

    Which of the following is a more comprehensive measure of trade because it includes not just goods and services but also money spent, travel, and investments?

    <p>Balance of Payments</p> Signup and view all the answers

    What determines how much you will spend on a coat in Canada if the price is $300 CAD and the exchange rate is 0.7437 USD/CAD?

    <p>$223.11</p> Signup and view all the answers

    Which publication publishes daily exchange rates?

    <p>Wall Street Journal</p> Signup and view all the answers

    What is the term used to describe a situation where a country's exports are higher than its imports?

    <p>Trade surplus</p> Signup and view all the answers

    What is the potential consequence of contracting the money supply too much?

    <p>Recession</p> Signup and view all the answers

    What is the term used to describe the total amount of money owed by a country's government?

    <p>National debt</p> Signup and view all the answers

    What action does the Federal Reserve commonly take to enact a tight-money policy?

    <p>Increase reserve requirements</p> Signup and view all the answers

    What is GATT?

    <p>General Agreement on Tariffs and Trade</p> Signup and view all the answers

    What is the theory or practice of shielding a country's domestic industries from foreign competition by taxing imports?

    <p>Protectionism</p> Signup and view all the answers

    Which budget covers day-to-day expenses?

    <p>Operating budget</p> Signup and view all the answers

    Study Notes

    Types of Inflation

    • Hyperinflation is defined as price increases of 50% or more per month.
    • Deflation refers to a general decline in prices for goods and services.

    Unemployment Concepts

    • Frictional unemployment occurs when individuals change jobs.
    • Structural unemployment arises when workers' skills do not match available jobs.
    • Underemployment describes workers who are not fully utilized in their current roles.

    Economic Indicators

    • The percentage of workers searching for work is referred to as the unemployment rate.
    • The material well-being of the average person in a population is called standard of living.
    • Inefficient distribution of goods and services in the free market is termed market inefficiency.

    Economic Costs and Benefits

    • Externalities are costs that spill over to a third party in an economic transaction.
    • Positive externalities result in benefits that spill over to a third party.

    Monetary and Fiscal Policy Tools

    • Tools used by the Federal Reserve include setting the discount rate and reserve ratios.
    • Fiscal policy tools are government spending and taxation.

    Economic Theories

    • Supply-side economics aims to stimulate production by lowering taxes and decreasing regulation.
    • Demand-side economics focuses on increasing consumers' demand as a means to boost economic activity.

    Banking and Financial Concepts

    • Fractional reserve banking allows banks to keep only a portion of deposits in reserve while lending out the rest.
    • When the Federal Reserve sells bonds, bond prices decrease, leading to higher interest rates.

    Trade and Globalization

    • Globalization refers to the process of increased interconnectedness among countries.
    • GATT (General Agreement on Tariffs and Trade) was an international treaty aimed at reducing trade barriers.

    Trade Dynamics

    • Imports are goods a country purchases from another nation.
    • A trade surplus occurs when a country's exports exceed its imports.
    • Protectionism is the practice of shielding domestic industries from foreign competition through tariffs.

    Economic Conditions

    • A prolonged economic contraction lasting two or more quarters is termed a recession.
    • Stagflation occurs when inflation rises simultaneously with a slowdown in economic activity.

    GDP Measurements

    • Gross Domestic Product (GDP) measures the total economic output of a country.
    • Net exports in the GDP equation are represented by the letter X.
    • Nominal GDP measures economic output without adjusting for inflation, while real GDP accounts for it.

    Employment and Economic Health

    • Full employment refers to an economy's optimal employment level, where only frictional and structural unemployment exist.
    • The normal unemployment rate in a well-functioning economy typically ranges around 4-5%.

    Causes and Measurements of Poverty

    • Major causes of poverty include lack of education, job opportunities, and economic inequality.
    • The poverty threshold for a household of four in 2019 was approximately $25,750.

    Fiscal Policy Mechanisms

    • Fiscal policy can be expansionary (increasing government spending) to stimulate the economy, or contractionary (decreasing spending) to cool it down.
    • Automatic stabilizers, like unemployment insurance, help counteract economic fluctuations without direct intervention.

    Banking and Economic Terms

    • The national debt is the total amount of money owed by a government.
    • Crowding-out occurs when government borrowing reduces private sector investment.

    Budget Types

    • The federal budget outlines government expenditures and revenue projections.
    • Operating budgets cover day-to-day expenses, while capital budgets fund long-term investments and infrastructure.

    Exchange Rate Considerations

    • The exchange rate determines the cost of foreign goods and services in domestic currency.
    • Daily exchange rates are published by financial publications and central banks.

    Economic Stability

    • Contraction of the money supply can lead to recession and reduced economic activity.
    • A balanced budget occurs when expenditures equal revenues, preventing deficits.

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    Description

    Test your knowledge of economic terms with this quiz! Learn about the different phases of the business cycle, the components of gross domestic product, and the various types of unemployment. Explore inflation and its impact on prices. Challenge yourself and become an expert in economic concepts!

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