MACRO: Concepts and Models Flashcards

In the circular flow model, which of the following represents a leakage from the spending stream?

Answer: Household saving

Saving is a leakage because it withdraws income from the circular flow rather than returning it as spending.

Which model best illustrates the trade-off a society faces when deciding how much of each of two goods to produce?

Answer: Production possibilities frontier

The production possibilities frontier (PPF) shows all combinations of two goods an economy can produce given its resources, illustrating opportunity cost trade-offs.

A point inside the production possibilities frontier indicates that an economy is:

Answer: Operating with some unemployed or underutilized resources

A point inside the PPF means the economy is not using all available resources efficiently, indicating unemployment or underutilization.

In macroeconomic models, the term 'ceteris paribus' means:

Answer: All other variables are held constant

Ceteris paribus is a Latin phrase meaning 'all other things being equal,' used to isolate the effect of one variable.

Which of the following is the BEST example of a macroeconomic variable?

Answer: The national unemployment rate

The national unemployment rate is an aggregate measure of the entire economy, making it a macroeconomic variable.

The concept of opportunity cost in macroeconomics suggests that:

Answer: The real cost of a choice is the next best alternative forgone

Opportunity cost is the value of the best alternative sacrificed when making any economic decision.

If an economy is producing at a point on its PPF, any increase in production of one good necessarily requires:

Answer: A decrease in production of the other good

On the PPF, resources are fully employed, so producing more of one good requires reallocating resources and producing less of the other.