Economic Objectives: Unemployment & Growth

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Questions and Answers

What is the primary economic concern of a society?

How to best achieve its economic goals

What are the four primary economic objectives of a society?

To keep a low level of unemployment, to hold price levels stable, to maintain a healthy rate of economic growth, and to ensure a fair distribution of income

How is unemployment defined? Name one reason that people are concerned by high levels of unemployment.

Unemployment occurs when someone who wants to work cannot find a job. People are concerned by a high level of unemployment because it wastes human labor as a resource and because it often coincides with increases in poverty, crime, and despair.

What does NOT immediately result from fluctuations between inflation and deflation?

Unemployment rates rising Signup and view all the answers

What is economic growth?

An increase in the quantity of goods and services a nation can produce Signup and view all the answers

Name the two primary types of economic growth and explain the difference between them.

Extensive and intensive growth; extensive growth occurs as a nation acquires new sources of the factors of production while intensive growth occurs when a nation increases production by being more efficient and/or innovative with the resources it already has. Signup and view all the answers

Can immigration assist in economic growth?

True (A) Signup and view all the answers

Is invention a mark of extensive growth?

False (B) Signup and view all the answers

Define intensive growth?

A nation's business firms increase their production of goods and services by using their existing factors of production with greater efficiency. EXAMPLE: the Industrial Revolution Signup and view all the answers

What are the three questions a nation's economic decision makers must answer? (Your answers should be phrased as questions.)

What will the nation produce? How will the nation produce its goods? Who will receive what the nation produces? Signup and view all the answers

Define a consumer good.

Good intended for final use by consumers rather than businesses. EXAMPLE: an automobile Signup and view all the answers

Define a capital good

Tool, equipment, or other manufactured good used to produce other goods and services; a factor of production. EXAMPLE: a plow Signup and view all the answers

Describe the command solution to the output question and list two criticisms of it.

To avoid the supposed whims of the market, a central committee or individual decides what the nation will produce. The two criticisms are as follows: First, if the government makes the wrong choice about consumer spending and saving, it would have the same negative consequences as a wrong choice by the market. Second, the government may demand too much consumer spending, leading to the collapse of the nation's economy as spending on real capital declines. Signup and view all the answers

What is the central function performed by the market interest rate?

It regulates the flow of money from households to businesses via financial markets. Signup and view all the answers

What is the market solution to the output question?

Each individual decides the consumer goods/capital goods tradeoff. Signup and view all the answers

Suppose an economy experiences a downturn resulting in slowed production and consumption. What will banks likely do to encourage economic growth? Why? How does this action illustrate the concept of market interest rates?

To encourage consumers to buy more and jump-start production, banks will begin lowering the interest rates they offer on savings and continue to lower them until consumer demand has once again met producers' supply. As illustrated here, the market interest rate is found where the needs of consumers and the needs of producers are balanced. Signup and view all the answers

From what source do firms get the funds to purchase more real capital?

Consumer savings Signup and view all the answers

What happens when interest rates rise above the market interest rate?

Spending on consumer goods is discouraged and saving is encouraged. Signup and view all the answers

What are the differences between a labor intensive and a capital intensive approach? Name two advantages and two disadvantages of each.

A labor intensive approach relies more on human labor than it does on real capital. A capital intensive approach relies more on real capital than on human labor. The advantages and disadvantages are as follows: First, human labor is more trainable and versatile, whereas equipment can have limited applications. Second, a human workforce can easily be expanded or reduced, but new real capital can be expensive and may go unused once demand decreases. Next, more human labor benefits society by raising employment rates. On the other hand, capital intensive businesses have smaller payrolls and pay fewer hidden costs from employing people. They do not have to maintain large public spaces for employees and face less threat of labor unrest. Finally, capital intensive businesses can expect a more consistent rate of productivity. Signup and view all the answers

What is the command solution to the input question?

Policymakers choose the labor/capital ratio. Signup and view all the answers

What is the primary goal that drives the market solution to the input question?

Lowering production costs. Signup and view all the answers

What is the most common command approach to the labor/capital ratio? What is its weakness?

Command economies usually pursue full employment. This often results in workers who are not productively employed. Signup and view all the answers

True or False: Low unemployment is always a sign of economic prosperity.

False (B) Signup and view all the answers

What viewpoint states that each person in a nation has a right to part of the nation's wealth simply by being part of the human race?

Egalitarian fairness Signup and view all the answers

Who is the Father of Communism?

Karl Marx Signup and view all the answers

List three attributes of communism as a philosophy.

<ul> <li>It can easily be exploited by ambitious men.</li> <li>It seeks to perfect society by human effort.</li> <li>It was initially widely rejected in Europe.</li> </ul> Signup and view all the answers

The notion of egalitarian fairness has produced two main solutions to the distribution question. Describe each and note which type of economy they tend toward—command or market.

Economic leveling seeks to distribute the nation's income equally to all individuals, regardless of their contributions to the whole. A less extreme version of egalitarian fairness seeks to create a safety net of publicly funded social services (such as social security, food stamps, Medicare, and unemployment compensation) that protects the poor from the effects of economic hardship. Both are often indicative of a command economy. Signup and view all the answers

Name and describe the approach to the distribution question that opposes egalitarian fairness. What nickname has it earned? Explain.

Libertarian fairness holds that the only economic right a nation gives to its citizens is the right to own and use property free of governmental interference. Accumulation of wealth is solely the responsibility of the individual. This stance is often called "economic Darwinism" because of its similarity to evolutionary theories about species survival. Signup and view all the answers

Define workfare.

The public provision of further training or education for the unemployed while they search for jobs Signup and view all the answers

What three scriptural principles should guide Christians' response to the problem of poverty? How might these principles legitimately lead Christians to respond differently to one instance of poverty than they do to another? Explain and illustrate why this is so.

The Scriptures give three overarching principles that can help guide our response to the poor: we are to love our neighbors as ourselves, to do good to all men, and to glorify the Father with our good works. These principles may lead us to respond differently to various cases of poverty, depending on the cause behind the poverty. For example, if someone is poor because of circumstances beyond his control (such as war, natural disaster, or physical ailments), the only loving response would be to assist him as we are able, whether through donated time, supplies, or money. Certainly such compassion would illustrate to him and others the love of our Father in heaven for all of us. On the other hand, poverty resulting from laziness receives a different response at the hands of Scripture. Beginning with Adam in the Garden, man has always been expected to work. The New Testament reiterates this expectation, noting that a man who refuses to work should not eat (2 Thess. 3:10). Rewarding such behavior with monetary handouts simply reinforces it. In contrast, the loving thing to do (the one that will most truly benefit a person) would be to help such a person overcome this flaw. Solutions may vary from providing further training to helping someone get a job interview. Even while making demands, however, we are still guided by the principle of loving others as ourselves and reflecting that love through word and deed. Signup and view all the answers

List three characteristics of communism as a philosophy:

It can easily be exploited by ambitious men, it seeks to perfect society by human effort, and it was initially widely rejected in Europe. Signup and view all the answers

Define consumer good and give an example.

Good intended for final use by consumers rather than businesses. Example: an automobile Signup and view all the answers

Define capital good and give an example.

Tool, equipment, or other manufactured good used to produce other goods and services; a factor of production. Example: a plow Signup and view all the answers

Which of the following statements describes communism as a philosophy?

All of the above (D) Signup and view all the answers

Flashcards

What is the main economic concern?

To determine how to best achieve its economic goals.

What are the four economic objectives?

Low unemployment, stable prices, economic growth, and fair income distribution.

What is unemployment?

When someone who wants to work cannot find a job. High unemployment wastes labor and increases poverty/crime.