Chapter 2: Economic Activity and Government

Vocabulary flashcards covering economic indicators, business cycle stages, market structures, and government economic policy based on Chapter 2.

Gross domestic product (GDP)

Market value of all final products produced in a country during a specific time period.

Inflation

General rise in prices throughout an economy.

Inflation rate

Rate of change in prices calculated on a monthly or yearly basis.

Consumer price index (CPI)

Measure of the average change in the prices paid by consumers for typical consumer goods and services over time.

Deflation

General decline in prices throughout an economy.

Interest

Amount a borrower pays to a lender for a loan.

Interest rate

The cost of a loan and is expressed as a percent of the amount borrowed.

Labor force

All of the people in a nation who are capable of working and want to work.

Unemployment rate

Percentage of the civilian labor force that is unemployed.

Productivity

Measure of a worker's production in a specific amount of time.

Specialization

Focusing on the production of specific goods so that more products can be produced with the same amount of labor.

Stock market

System and marketplace for buying and selling stocks.

Bond

Certificate of debt issued by an organization or government.

Business cycle

Alternating periods of expansion and contraction in the economy.

Expansion

Period when the economy is growing and the GDP is rising.

Peak

Marks the end of expansion and is the highest point in the business cycle.

Recession

Period of significant decline in total output, income, employment, and trade in an economy.

Depression

Period of economic contraction that is severe and lasts a long time.

Trough

Lowest stage of a business cycle and marks the end of a recession.

Market structure

How a market is organized based on the number of businesses competing for sales in an industry.

Monopoly

Market structure with one business that has complete control of a market's entire supply of goods or services.

Oligopoly

Market structure with a small number of businesses selling the same or similar products.

Monopolistic competition

Large number of businesses selling similar, but not the same, products and at different prices; also known as imperfect competition.

Perfect competition

Characterized by a large number of businesses selling the same product at the same prices.

Price competition

When a lower price is the main reason for customers to buy from one business over another.

Nonprice competition

Competitive advantage based on factors other than price.

Commerce

Activities involved in buying and selling goods on a large scale.

Fiscal policy

Tax and spending decisions made by the president and Congress.

Monetary policy

Policy that regulates the supply of money and interest rates by a central bank in an economy.

Federal Reserve System

Central bank of the United States that is responsible for the country's monetary system.

Money supply

Total money circulating at any one time in a country.

Antitrust laws

US laws that promote fair trade and competition among businesses.

Price fixing

Occurs when two or more businesses in an industry agree to sell the same good or service at a set price, which eliminates price competition.

Collusion

When two or more businesses work together to remove their competition, set prices, and control distribution.

Sherman Antitrust Act

The first antitrust law in the United States, which removed limits on competitive trade and kept companies from monopolizing markets.

Clayton Antitrust Act

An antitrust law that gave the federal government more power to detect companies in the early stages of creating monopolies and to prevent them.

Federal Trade Commission Act

An act that created the US Federal Trade Commission (FTC), whose mission is to protect consumers and promote fair competition in the marketplace.