Bachelor of Social Science Economics Flashcards

To impress a business associate, John wants to compute the Gross Domestic Product (GDP). Which item would this calculation's relevance be?

Answer: Both wages and new purchases

Gross Domestic Product (GDP) measures the total monetary value of all finished goods and services produced within a country's borders in a specific time period. This calculation can be approached from either the income side (wages, profits, rent, interest) or the expenditure side (consumption, investment, government purchases, net exports). Therefore, both wages (income) and new purchases (expenditure) are relevant components.

Which one of the following IS an injection?

Answer: All answers could be considered an injection

In the circular flow model of an economy, injections are additions to the flow of income. These typically include investment (spending by businesses on capital goods), government purchases (spending by the government on goods and services), and exports (spending by foreign entities on domestic goods and services). All three options represent money flowing into the domestic economy.

The following would be taken into account while describing the vehicle assembly line equipment:

Answer: the physical capital.

Physical capital refers to the man-made resources used in the production of goods and services. This includes machinery, equipment, tools, buildings, and infrastructure. Vehicle assembly line equipment perfectly fits this description as it is a tangible asset used to produce other goods.

What constitutes a research and development example?

Answer: A new software application that increases workplace productivity

Research and development (R&D) involves activities undertaken by companies or governments to innovate and introduce new products, services, or processes. A new software application that increases workplace productivity is a prime example, as it represents the creation of a novel solution designed to improve efficiency and output, often resulting from significant investment in research and development.

The business cycle's peak and trough phases represent the ups and downs of the economy. What is the other set of often used descriptors for this cycle?

Answer: Expansion and recession

The business cycle describes the fluctuations in economic activity over time. The two main phases that represent the ups and downs are expansion, which is a period of economic growth, and recession, which is a period of economic contraction. These terms are standard descriptors for the cyclical nature of economies.

A report containing the total value of production, adjusted for inflation, is given to an economist. What value are they Probably looking at?

Answer: Real output

When the total value of production is adjusted for inflation, it is referred to as 'real output' or 'real GDP.' This adjustment removes the effect of price changes, providing a more accurate measure of the actual volume of goods and services produced. Economists use real output to compare economic performance across different time periods without distortion from inflation.

At his bank, John bought an investment tool that is a contractual promise that, after two years, he will be able to extract monetary value. This device is most likely categorized as:

Answer: financial asset.

A financial asset is a non-physical asset that represents a claim to future monetary value. Examples include stocks, bonds, and, in this case, a contractual promise from a bank to extract monetary value after two years. This describes an investment tool like a certificate of deposit or a bond, which are classic examples of financial assets.

Having accomplished her aim of being able to set aside money each month to buy investment tools like stocks and bonds, a young professional is pleased with herself. What type of financial demand does her circumstances BEST illustrate?

Answer: Speculative demand for money

Speculative demand for money refers to holding money in anticipation of future changes in asset prices, such as stocks and bonds. The young professional is setting aside money specifically to buy these investment tools, indicating an intention to capitalize on potential future gains. This aligns directly with the concept of speculative demand, where individuals hold liquid assets to take advantage of perceived opportunities.

What aspect of comparative advantage theory is crucial?

Answer: Specialization and producing products where you have a lower opportunity cost.

Comparative advantage theory states that countries should specialize in producing goods and services for which they have a lower opportunity cost compared to other countries. Opportunity cost is what must be given up to produce one more unit of a good. By specializing and trading based on comparative advantage, global production and overall welfare can be maximized.

Compared to country Y, country X has a lower opportunity cost for manufacturing computers, while country Y has a lower opportunity cost for manufacturing wine. What ought they to create in accordance with the comparative advantage theory?

Answer: Country X should produce computers while country Y should produce wine, and they should trade these products with each other.

According to the theory of comparative advantage, countries should specialize in producing the goods for which they have a lower opportunity cost. Since Country X has a lower opportunity cost for computers and Country Y for wine, Country X should produce computers and Country Y should produce wine. They can then trade these products to their mutual benefit, resulting in greater overall production and consumption.

The host of your preferred business network explains a scenario in which unemployment and inflation are high and economic growth is stalled. What word would be appropriate in this circumstance?

Answer: Stagflation

Stagflation is an economic phenomenon characterized by a combination of high inflation, high unemployment, and stagnant economic growth. This term was coined in the 1970s to describe a situation that defied traditional economic models, where inflation and unemployment were typically seen as having an inverse relationship.

What economic instrument shows how inflation and unemployment relate to one another, indicating that it is unlikely to have both low inflation and low unemployment at the same time?

Answer: Phillips Curve

The Phillips Curve is an economic model illustrating the inverse relationship between the rate of inflation and the rate of unemployment. It suggests that policymakers face a trade-off: lower unemployment might lead to higher inflation, and vice versa. While the short-run Phillips Curve shows this trade-off, the long-run curve is vertical at the natural rate of unemployment.

The lowest sustained unemployment rate for an extended period of time is thought to be .

Answer: The natural rate of unemployment

The natural rate of unemployment is the lowest sustainable unemployment rate that an economy can achieve over an extended period without accelerating inflation. It includes frictional unemployment (people temporarily between jobs) and structural unemployment (mismatch of skills or location), but excludes cyclical unemployment (due to economic downturns). It represents the baseline level of unemployment when the economy is at full employment.

A computer programmer who received his training during the early 2000s tech boom has not advanced in his skill set and is having trouble obtaining employment. He is most likely to encounter what kind of unemployment.

Answer: Structural

Structural unemployment occurs when there is a mismatch between the skills workers possess and the skills employers demand, often due to technological advancements or shifts in industry structure. The computer programmer's outdated skill set, in a rapidly evolving tech industry, is a classic example of structural unemployment, as his skills are no longer relevant to current job market needs.

Which of the following is true regarding the production possibilities model's fundamental premise?

Answer: All of the answers are correct.

The production possibilities model, or Production Possibilities Frontier (PPF), is built on several fundamental assumptions. These include that resources are scarce, all available resources are used to their maximum capacity (full employment), and technology remains constant during the period analyzed. All these premises are crucial for illustrating concepts like scarcity, trade-offs, and efficiency.

What does each transaction's financial gain entail?

Answer: Profit

Profit is the financial gain that results from a transaction or business activity, calculated as the difference between the revenue generated and the costs incurred. It is the reward for undertaking economic risk and efficiently allocating resources. Without the prospect of profit, there would be little incentive for individuals or businesses to engage in transactions.