Economic Final Vocabulary Review

Demand

is the amount of a good or service consumers are willing to buy. 

Law of Demand

Economists follow a rule stating that the quantity demanded and price move in opposite direction.

Substitution effect

is a rule that states that if two items satisfy the same need and the price of one rise people will buy more of the other.

__**Elasticity**__

refers to a situation in which a given rise or fall in a product’s price greatly affects the amount that people are willing to buy

__**Inelastic Demand**__

is a situation in which a product’s price has little impact on the quantity demanded by consumers.

Law of Supply

The economic rule that states that price and quantity supplied move in the same direction is called the

Equilibrium Price

The price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy is called the

Surplus

 Producers will usually come as close to the equilibrium price to avoid a situation in which the quantity supplied is greater than quantity demanded known as a

Shortage

Consumers will usually go along with the equilibrium price to avoid a…… a situation in which the quantity demanded is greater than the quantity supplied.

Price ceiling

Sometimes the government will step in and create a ….. a legal maximum price that may be charged for a particular good or service to protect consumers from price gouging.

Price floor

 In contrast a government can also create protection from workers being paid too little by setting a …… or legal minimum price below which a good or service may not be sold.

Gross domestic products

The broadest measure of the economy’s size is ……. which is the total dollar value of all final goods and services produced in a nation in a single year.

Inflation

 is a prolonged rise in the general price level of final goods and services.

Purchasing Power

  As inflation rises it decreases an individual’s …… that refers to the real goods and services that money can actually buy.

Market Basket

 The Consumer Price Index (CPI) measures a specific group of goods and services that the average household uses is called a

Business Cycle

The ups and downs of the economy are associated with the …..  irregular changes in the level of total output measured by real GDP.

Peak

 a period of economic prosperity.

Contraction

When real GDP levels off a decline or ….. of the economy.

Recession

If a contraction lasts long enough, the economy falls into a ….. where the real GDP does not grow for at least six months.

Through

The downward movement of the economy hits a …..  or the lowest point in a business cycle.

Recovery

 Increased economic activity that follows is called a …..

Inflation

A prolonged rise in the general price level is known as of final goods and services are called

Demand Pull and inflation

 which theorizes that prices rise as a result of demand increasing faster than supply, which results in shortages that lead to higher prices.

Cost Push Inflation

 higher wages push up prices, the is called ….. also known  as the wage price spiral.  

Medium of Exchange

Money is a …. because a seller will accept it in exchange for a good or service.

Barter

If money did not exist, people would have to ….  that is, exchange goods and services for other goods and services.

Legal Tender

money that by law must be accepted for payment of public and private debts.

__**Federal Reserve Bank**__

The nation’s central banking organization is called the ….. they are responsible for creating the nation’s monetary (money) policy or plans whether to change the amount of available money for lending.

__**loose money policy**__

is when the Fed takes action to indirectly lower interest rates and increase the funds a bank can loan.

__**tight money**__ 

 is when the Fed takes action that indirectly increase interest rates or reduce the amount a bank can loan.

__**fractional reserve banking**__

is a system in which banks are only required to keep a fraction of their deposits in reserve.  

__**proportional tax**__

also known as a flat tax is the easiest type of tax to understand. 

__**progressive tax**__

 when an individual earns a higher income, his or her taxes increase more than in proportion to the increase in money income.