Chapter 18 Study Guide
9. Why don't economists use the GDP as a measure of a country's standard of living?
GDP isn't a perfect measure because it doesn't include the value of unpaid support work such as volunteer work, housework, and care for children and the elderly.
3. Why are intermediate goods not included in the measurement of the GDP?
They're not included in the expenditure approach to GDP because spending on intermediate goods and services are included in the market value of spending made on final goods and services.
6. How can we ensure that we will have the natural resources needed for future economic growth?
We can ensure this by producing, buying, and selling goods in productive ways.
h. Free enterprise
economic system in which individuals and businesses are allowed to compete for profit with a minimum of government interference
c. Entrepreneur
a risk-taking individual who starts a new business, introduces a new product, or improves a management technique
g. Capitalism
a system in which private citizens own most, if not all, of the means of production and decide how to use them within legislated limits
a. Product
anything that is produced; goods and services
7. How does the limited government interference of capitalism contribute to a healthy economy?
Limited government interference prevents the government from employing extensive control over people's lives, freedom of speech, and other actions.
1. The USA currently comprises approximately what percentage of the world economy?
About twenty-four percent.
4. Who was the author of The Wealth of Nations?
Adam Smith.
What are the six unique features of the American free enterprise system?
Economic freedom, markets, voluntary exchanges, profit motive, competition, and private property rights.
10. Labor provides income for workers. How does each of the remaining factors of production produce income?
Entrepreneurs run or create businesses, natural resources are used to create goods which can be sold or used, and capital forms the natural resources into products.
6. How are you affected by private property rights?
I have the freedom to own and use my property as I wish, I can choose to dispose of my property, and I can work, save, and invest because of the private property rights.
2. What does the Gross Domestic Product (GDP) of a country represent?
Income.
Why is this book considered important?
It is important because Smith says that the best way for a society to advance is for people to work for their own self-interest, or their own well-being.
3. What is the purpose of the Small Business Administration?
It is to help people set up small businesses. It offers people advice on how to start, finance, and manage a business.
5. Which four sectors represent the buyers in the economy?
Product markets, factor markets, business sectors, and consumer sectors.
8. What book by Adam Smith had a great influence on the economic views of our Founders?
The Wealth of Nations.
7. Under capitalism, who decides what gets produced and who uses the goods and services?
The citizens.
5. What are the key features of capitalism and free enterprise in the US economy?
The key feature of capitalism is that the citizens make most of the economic decisions. The key features of free enterprise are economic freedom, markets, voluntary exchange, profit motive, competition, and private property rights.
4. How is GDP per capita calculated?
You divide the GDP by the population.
e. Product market
a market where producers offer goods and services for sale
d. Factor market
a market where productive resources are bought and sold
f. Economic growth
the increase in a country's total output of goods and services over time
b. Standard of living
the material well-being of an individual, a group, or a nation as measured by how well their needs and wants are satisfied