Basic Economic Concepts

What role do households play in the economy?

• Regulators of markets

• Consumers and suppliers of labor

• Providers of public goods

• Sellers of government bonds

What is the main function of businesses in the economy?

• Enforcing laws

• Providing goods and services

• Regulating trade

• Printing money

What does GDP measure?

• Unemployment rates

• Total value of goods and services produced in a country

• Inflation over time

• Government spending

Why is GDP important?

• It sets tax rates for businesses.

• It informs government policy and measures economic performance.

• It determines inflation.

• It reflects the federal budget.

What is a primary cause of inflation?

• A decrease in government spending

• Increase in money supply

• Reduction in taxes

• Higher exports

What is one effect of inflation?

• Increased purchasing power

• Decline in the cost of living

• Decreases purchasing power

• Reduction in tax rates

Which phase of the business cycle is characterized by economic growth and rising employment?

• Trough

• Expansion

• Peak

• Contraction

What happens during a recession?

• Economic activity significantly declines.

• Inflation rates increase dramatically.

• Unemployment falls below average levels.

• Government spending halts.

What is the primary goal of fiscal policy?

• Increase inflation

• Control the money supply

• Influence a nation's economy through spending and taxation

• Regulate banks

What does the law of demand state?

• Lower prices lead to lower demand.

• Higher prices lead to lower demand.

• Supply decreases when demand rises.

• Prices are constant regardless of demand.