Economics Chapter: Business Cycles and Growth
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Questions and Answers

A business-cycle trough is the point where a recession ends and an expansion begins.

True (A)

The ______ is the point at which a recession has ended and an expansion (recovery) begins.

business-cycle trough

Which of the following is NOT a characteristic of deflation?

  • Encourages people to hold cash rather than invest.
  • The annual percentage change in the aggregate price level is negative.
  • A decline in the economy's price level.
  • Results in a higher aggregate price level. (correct)

    • What is the main difference between a recession and a depression?

    <p>A depression is a much deeper and more severe recession, typically characterized by higher levels of unemployment and longer duration.</p> Signup and view all the answers

    Match the economic concepts with their corresponding definitions:

    <p>Comparative Advantage = A country specializes in goods it produces most efficiently. Economic Growth = Sustained increase in aggregate output, driven by resources and technology. Equilibrium = Agreement between consumers and suppliers on prices and quantities. Equilibrium Price = Price at which market demand and supply are equal. Equilibrium Quantity = Quantity exchanged when demand and supply are equal.</p> Signup and view all the answers

    Which of the following describes the relationship between the Law of Demand and the Law of Supply?

    <p>The Law of Demand has an inverse relationship, and the Law of Supply has a direct relationship. (A)</p> Signup and view all the answers

    Inflation is a decrease in the economy's price level.

    <p>False (B)</p> Signup and view all the answers

    What does the term "opportunity cost" refer to in the context of comparative advantage?

    <p>Opportunity cost refers to the value of the next best alternative that is forgone when making a choice.</p> Signup and view all the answers

    Which of the following is NOT a factor that shifts the supply curve?

    <p>A change in consumer tastes (A)</p> Signup and view all the answers

    A price ceiling is a minimum legal price for an output.

    <p>False (B)</p> Signup and view all the answers

    What is the name of the economic condition characterized by a significant decline in economic activity, including output and employment?

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

    The _____ is a graphical representation of the trade-offs an economy faces when producing two goods.

    <p>Production Possibilities Frontier</p> Signup and view all the answers

    Match the following economic concepts with their definitions:

    <p>Opportunity cost = The value of the next-best alternative forgone Scarcity = The limited availability of resources Specialization = Focusing on producing a single good or service Price stability = A state where prices are increasing at a controlled rate</p> Signup and view all the answers

    Which economic system is characterized by government ownership and control of the means of production?

    <p>Command economy (B)</p> Signup and view all the answers

    A shortage occurs when the market price for a good is below the equilibrium price.

    <p>True (A)</p> Signup and view all the answers

    What is the difference between movement along the demand curve and a shift in the demand curve?

    <p>Movement along the demand curve occurs when the price changes, while a shift in the demand curve occurs when a factor other than price changes, such as income, tastes, or expectations.</p> Signup and view all the answers

    The _____ is the point where the supply and demand curves intersect, representing market equilibrium.

    <p>market equilibrium point</p> Signup and view all the answers

    Which of the following is NOT a way to relieve a surplus?

    <p>Allow the price to rise (D)</p> Signup and view all the answers

    Microeconomics focuses on the economic choices made by individual consumers, businesses, and households.

    <p>True (A)</p> Signup and view all the answers

    Provide an example of a normative economic statement.

    <p>The government should increase the minimum wage to ensure a living wage for all workers.</p> Signup and view all the answers

    The unemployment rate is typically used as an indicator of the conditions in the _____ market.

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

    Which of the following is an example of an economic resource?

    <p>All of the above (D)</p> Signup and view all the answers

    A shift of the production possibilities curve to the right indicates economic growth.

    <p>True (A)</p> Signup and view all the answers

    What are the three basic economic questions that every society must address?

    <p>What to produce? How to produce it? For whom to produce it?</p> Signup and view all the answers

    The United States has a _____ economic system.

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

    Study Notes

    Business Cycle

    • Trough: The lowest point in a business cycle, marking the end of a recession and the start of an expansion.

    Choice

    • Choice: A decision made by individuals due to limited resources (scarcity).

    Comparative Advantage

    • Concept: Countries should specialize in goods and services where they have the lowest opportunity cost of production compared to other goods and services.

    Deflation

    • Definition: A decrease in the average price level of goods and services in the economy.
    • Impact: Encourages holding cash over investment in new production.
    • Measurement: A negative annual percentage change in the aggregate price level.

    Depression

    • Definition: A severe recession characterized by high unemployment and economic downturn.

    Economic Growth

    • Definition: Increase in a nation's total output and sustained increase in employment.
    • Sources: Rise in resources and advancements in technology.
    • Effect on PPC: Shifts the PPC to the right. (Production Possibilities Curve)

    Equilibrium

    • Definition: The state where the quantity demanded equals the quantity supplied at a particular price.
    • Importance: Marks agreement between consumers and producers concerning products or services.

    Equilibrium Price

    • Definition: The price at which the quantity demanded equals the quantity supplied.

    Equilibrium Quantity

    • Definition: The quantity demanded and supplied at the equilibrium price.

    Expansions

    • Definition: The phase in a business cycle where economic activity increases from a trough to a peak.
    • Characteristics: Rising total output and increasing employment.

    Inflation

    • Definition: An increase in the average price level of goods and services.
    • Measurement: A positive annual percentage change in the aggregate price level.

    Labor Force

    • Definition: All people who are actively seeking and available for employment.

    Law of Demand

    • Definition: As price decreases, quantity demanded increases (inverse relationship).

    Law of Supply

    • Definition: As price increases, quantity supplied increases (direct relationship).

    Macroeconomics

    • Focus: Large-scale economic choices and issues (national and international economies).

    Microeconomics

    • Focus: Choices made by individual economic units (households, businesses, individuals).

    Normative Economics

    • Nature: Involves opinions and value judgments about what "should" be.

    Opportunity Cost

    • Definition: The value of the next best alternative forgone when making a choice.

    Price Ceiling

    • Effect: Maximum legal price set below equilibrium price (creates shortages).

    Price Floor

    • Effect: Minimum legal price set above equilibrium price (creates surpluses).

    Price Stability

    • Definition: A desired state where the general price level does not fluctuate drastically.

    Production Possibilities Frontier (PPF)

    • Description: Shows the trade-offs an economy faces when producing two goods.
    • Representation: Illustrates maximum output for one good given the production of another.

    Recession

    • Definition: A period of reduced economic activity with falling output and employment.

    Resource

    • Definition: Inputs used in the production process, including labor, raw materials, and machinery.

    Scarcity

    • Definition: The fundamental economic problem of unlimited wants exceeding limited resources.

    Shifts of Curves vs. Movements Along Curves

    • Movement along a curve: Price changes; quantity demanded/supplied changes.
    • Shift of a curve: Non-price factors (supply/demand) change.

    Shortage

    • Definition: Occurs when the quantity demanded exceeds the quantity supplied at a given price.
    • Remedies: Decreasing demand, increasing supply, or allowing the price to rise to equilibrium.

    Specialization

    • Definition: Focusing on producing a specific good or service to increase efficiency.

    Supply and Demand Model

    • Representation: A graphical representation of supply and demand showing equilibrium.

    Surplus

    • Definition: Occurs when the quantity supplied exceeds the quantity demanded at a given price.
    • Remedies: Increasing demand, decreasing supply, or allowing the price to fall to equilibrium.

    Trade

    • Definition: Exchange of goods and services between parties.

    Micro or Macro Examples

    • Macro: Unemployment rate, tax policy, national income.
    • Micro: Individual company decisions, commodity prices. Example: the price of cars is rising but car manufacturers are still in business.

    Scarcity Definition

    • Definition: Limited resources to meet unlimited consumer needs/wants.

    Opportunity Cost (Mr. Duke)

    • Definition: What Mr. Duke would have done had he not attended the opera.

    Economic Measure of Labor Market

    • Definition: Unemployment rate.

    Real Wages

    • Definition: Nominal wages adjusted for inflation.

    Trade-off/Opportunity Cost (Rent/Concert)

    • Example: Rent is a trade-off as purchasing tickets to a concert is an opportunity cost.

    Technological Improvements (PPF)

    • Effect: Shifts the PPF outward, representing economic growth.

    Basic Economic Questions

    • Questions: What to produce, how to produce, and for whom to produce.

    Economic Systems

    • Synonyms: Free enterprise, capitalism, free market
    • Other economic systems: Command economies/socialism

    Economic System Types

    • Dominant worldwide: Mixed economic system

    Supply Curve Shifts

    • Causes: Input prices, related goods, technology, expectations, number of producers.

    Demand Curve Shifts

    • Causes: Related goods, income, tastes, expectations, number of consumers.

    Nationalization vs. Privatization

    • Nationalization: Government takes ownership of companies.
    • Privatization: Government sells nationalized businesses back to the private sector.

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    Description

    This quiz explores essential concepts in economics, focusing on the business cycle, including troughs, depressions, and economic growth. Understand the significance of comparative advantage and the effects of deflation within the economy. Test your knowledge on these critical economic principles.

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