D089 Principles of Economics - Set 5 - Part 2

Correct Answer: To influence the economy through government spending and taxation

Fiscal policy involves adjusting government spending and tax policies to influence economic activity, such as boosting demand or controlling inflation.

Correct Answer: The total value of goods and services produced within a country's borders

GDP measures the total market value of all finished goods and services produced within a country's borders during a specific period, typically used to gauge economic performance.

Correct Answer: The ability to produce a good at a lower opportunity cost than another producer

Comparative advantage refers to the ability of a country to produce a good at a lower opportunity cost than another country, allowing for more efficient production and trade.

Correct Answer: A sustained decline in economic activity, typically characterized by a decrease in GDP

A recession is defined as a significant decline in economic activity, lasting for an extended period, and is typically reflected by a fall in GDP and rising unemployment.

Correct Answer: A measure of the average price of goods and services consumed by households

The CPI measures the average price level of a basket of consumer goods and services, and is commonly used to track inflation and the cost of living.

Correct Answer: The rate of unemployment when the economy is operating at full capacity

The natural rate of unemployment represents the level of unemployment that exists when the economy is operating at full potential, accounting for frictional and structural unemployment but not cyclical unemployment.

Correct Answer: When a country imports more goods than it exports

A trade deficit occurs when the value of a country's imports exceeds the value of its exports, resulting in an imbalance in trade.

Correct Answer: A tax system in which higher income earners pay a larger percentage of their income in taxes

In a progressive tax system, the tax rate increases as an individual's income rises, meaning those with higher incomes pay a larger proportion of their earnings in taxes.

Correct Answer: Actions by the central bank to control the money supply and interest rates

Monetary policy refers to actions taken by a central bank, such as the Federal Reserve, to regulate the money supply and interest rates in an effort to control inflation and stabilize the economy.

Correct Answer: The part of the economy that involves government services and operations

The public sector refers to the part of the economy that is controlled and operated by the government, including services such as education, public safety, and infrastructure.

Correct Answer: Nominal value is based on current prices, while real value is adjusted for inflation

Nominal value refers to prices measured at current levels, while real value adjusts nominal prices to account for changes in inflation, providing a more accurate reflection of purchasing power over time.

Correct Answer: To increase economic activity through increased government spending or tax cuts

Fiscal stimulus refers to government policies aimed at boosting economic activity, often through increased public spending or tax cuts, particularly during times of economic downturn.

Correct Answer: When the quantity supplied equals the quantity demanded at a certain price

Market equilibrium occurs when the quantity of goods supplied by producers matches the quantity demanded by consumers, resulting in a stable market price.

Correct Answer: They decrease the cost of production and encourage more output

Subsidies reduce the cost of production for businesses, allowing them to produce more goods at a lower cost, often resulting in increased output and lower prices for consumers.

Correct Answer: When government spending exceeds revenue in a given year

A budget deficit occurs when a government spends more money than it receives in revenue during a fiscal year, leading to borrowing or increased debt.

Correct Answer: To determine the price at which one currency can be traded for another

An exchange rate represents the value of one country's currency in terms of another currency, facilitating international trade and investment.

Correct Answer: The physical and financial resources used to produce goods and services

Capital refers to the tools, machinery, buildings, and financial resources used by businesses to produce goods and services.

Correct Answer: It reduces purchasing power

Inflation erodes the purchasing power of money because as prices rise, each unit of currency buys fewer goods and services.

Correct Answer: A limit on the quantity of a good that can be imported

An import quota is a restriction imposed by a government on the quantity of a specific good that can be imported into a country during a set period.

Correct Answer: The additional satisfaction received from consuming one more unit of a good

Marginal utility refers to the additional satisfaction or benefit that a consumer gains from consuming one more unit of a good or service.