D089 Principles of Economics - Set 2 - Part 3

Correct Answer: Transfer payments and progressive tax systems

Automatic stabilizers, like transfer payments (e.g., unemployment benefits) and progressive taxes, automatically adjust to counteract economic fluctuations without direct government intervention.

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

A quota restricts the amount of a certain good that can be imported into a country, often to protect domestic industries.

Correct Answer: The economy is at full employment

A vertical LRAS curve indicates that the economy is operating at full employment and that any increase in aggregate demand will only lead to inflation, not an increase in output.

Correct Answer: It shifts to the right

New technology increases production efficiency, enabling firms to produce more at each price level, thus shifting the supply curve to the right.

Correct Answer: The responsiveness of quantity demanded to a change in price

Price elasticity of demand measures how sensitive the quantity demanded is to changes in price. High elasticity means consumers are very responsive to price changes.

Correct Answer: A tax imposed on imports or exports

A tariff is a tax placed on imported or exported goods, often used to protect domestic industries or generate government revenue.

Correct Answer: When government expenditures exceed revenues

A budget deficit occurs when a government spends more than it collects in revenue, leading to borrowing or debt.

Correct Answer: A good that is non-excludable and non-rivalrous, meaning anyone can use it without reducing its availability to others

Public goods, such as national defense or public parks, are accessible to all members of society without diminishing the quantity available for others.

Correct Answer: A depression is a severe and prolonged recession

A depression is a more extreme form of economic downturn than a recession, characterized by a significant and prolonged decline in economic activity.

Correct Answer: To regulate the money supply and maintain economic stability

The Federal Reserve is the central bank of the United States and is responsible for controlling inflation, managing the money supply, and maintaining overall economic stability.