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Question: ◦ What is a negative externality?

Answer: ◦ Something that has a negative spillover

effect on a third party

Question◦ What are the two types of inflation?

Answer◦ Cost-Push and Demand-Pull

AND 1◦ Explain what causes Cost-Push Inflation

Question

◦ What is the difference between official and unofficial aid?

Answer◦ Official aid is from the government,

unofficial aid is from a NGO

Question◦ What are the 4 phases of the business cycle?

Answer◦ Recovery, Peak, Recession, Trough

Question

◦ What is a price floor?

Answer◦ A minimum price

AND 1◦ Does a price floor create a surplus or a shortage?

Question

◦ What causes a fiscal deficit?

Answer:◦ When a government spends more than it taxes

Question

◦ Give an example of a demand inelastic good.

Answer◦ Medicine, cigarettes, etc.

Question

◦ What is opportunity cost?

Answer◦ The cost of an economic decision in terms of what

was given up.

Question

◦ What are regressive taxes?

Answer◦ Taxes that tax the rich less than the poor.

AND 1◦ Give an example of a regressive tax.

Question

◦ Give an example of a MNC.

Answer◦ Wal-Mart, Subway, McDonald’s, etc.

Question

◦ What is a tariff?

Answer◦ Tax on imports.

Question

◦ What is the purpose of the WTO?

Answer◦ Lower tariffs

◦ Provide forum for trade negotiation

◦ Promote free-trade

◦ Help developing nations develop

Question

◦ What is the free-market?

Answer◦ When economic decisions are made by the invisible

hand of supply and demand.

Question

◦ How is growth measured?

Answer◦ Through GDP

Question

◦ What is monetary policy?

Answer:◦ Manipulation of an economy through the money

supply.

◦ A demand-side policy with the Central Bank using changes in the money supply or interest rates to affect AD

Question

◦ What are interest rates?

Answer◦ Return on deposits, price of loans. ◦ The price of capital or borrowed/loaned money, usually

expressed as a percentage.

AND 1◦ What will happen to the money supply if interest rates

increase?

Question

◦ Describe what will happen in a market economy if prices are too high.

Answer:◦ A surplus will be created. Eventually

prices will be lowered.

Question

◦ What is inflation?

Answer◦ A sustained general rise in the price level.

Question

◦ What is a subsidy?

Answer:◦ Payment by government to producers to encourage

production

Question

◦ What is an indirect tax?

Answer◦ A tax levied on the exchange of goods.

Question◦ List 3 types of unemployment

Answer:◦ Cyclical, Classical, Structural, Frictional, Seasonal

And 1:◦ Explain the cause of cyclical unemployment.

Question

◦ What are merit goods?

Answer◦ Goods that have a beneficial impact to society.

Question

◦ Give an example of a NGO.

Answer◦ Red Cross, Habitat for Humanity, Greenpeace,

Grameen Bank

Question

◦ What are the benefits of trade liberalization for developing countries?

Answer:◦ Encourages investment.

◦ Promotes efficiency.

Question◦ What is the informal market?

Answer:◦ Markets that exist outside of the legal

system

Question

◦ Give an example of something that would cause appreciation of a currency.

Answer:◦ Higher interest rates◦ Speculation ◦ Investment into a country◦ Current Account Surplus◦ Trade Barriers

Question◦ What is the gini coeffcient?

Answer◦ Measure of inequality in an economy

Question

◦ What are the factors of production? (list 3)

Answer:◦ Land, labor, capital, entrepeneurship

Question

◦ What is foreign direct investment

Answer:◦ Investment in stores, factories, and production

centers in another country by a MNC

◦ Establishment of production units by multinational companies in a foreign country

Question

◦ What is the difference between a specific and a percentage tax.

Answer◦ A specific tax is a flat amount. A

percentage tax is…a percentage?

Question

◦ What are the three types of exchange rate systems?

Answer:◦ Floating, Managed, Fixed

Question

◦ What is the difference between GDP and GNI?

Answer◦ GDP accounts for all production within the borders

of an economy◦ GNI accounts for all revenues collected within an

economy (including returns on foreign investment)

Question

◦ Give two examples of non-tariff barriers to trade.

Answer:◦ Quota, Administrative Obstacles,

Subsidies, Regulations

Question◦ What can cause demand to increase?

(provide 3 ways)

Answer◦ Decrease in income, population,

expectations. Increase in price of complement goods. Changes in tastes/preferences.

Question

◦ What can a central bank do to depreciate its currency?

Answer◦ Lower interest rates. Sell its currency on

the foreign exchange market.

Question

◦ Give an example of a demand-side policy.

Answer◦ Increase in government spending.

Lowering interest rates. Increasing welfare spending.

Question◦ Give an example of supply-side policies.

Answer:◦ Lowering wages, investing in technology,

reducing taxes, reducing regulation, providing job training

AND 1◦ Describe how you would show the success

of a supply-side policy with a diagram

Question

◦ How much government reduce an overproduced negative externality (like pollution)

Answer◦ Fines, taxes (incentives and

disincentives, bans, tradable permits

Question

◦ What is project aid?

Answer:◦ Aid given to a developing nation for the purposes of

a specific project.

Question

◦ What is dumping?

Answer◦ Selling goods below costs in order to

predatory price.

AND 1:◦ Explain why anti-dumping tariffs are

justified by the WTO.