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ECONOMICS STUDY GUIDE, CHAPTER THIRTEEN: ECONOMIC CHALLENGES
GEORGIA PERFORMANCE STANDARDS (your objectives
for this chapter):
SSEMA1 Illustrate the means by which economic activity is measured.
a. Explain that overall levels of income, employment, and prices are determined by the spending and production decisions of
households, businesses, government, and net exports.
b. Define Gross Domestic Product (GDP), economic growth, unemployment, Consumer Price Index (CPI), inflation, stagflation, and
aggregate supply and aggregate demand.
c. Explain how economic growth, inflation, and unemployment are calculated.
d. Identify structural, cyclical, and frictional unemployment.
e. Define the stages of the business cycle, include peak, contraction, trough, recovery, expansion as well as recession and depression.
KEY TERMS
block grant federal funds given to states in lump sums (p. 350)
census an official count of the population (p. 334)
Consumer Price Index (CPI) a price index determined by
measuring the price of a standard group of goods meant to represent
the typical “market basket” of a typical urban consumer (p. 339)
core inflation rate the rate of inflation excluding the effects of
food and energy prices (p. 340)
cost-push theory theory that inflation occurs when producers raise
prices to meet increased costs (p. 341)
cyclical unemployment unemployment that rises during
economic downturns and falls when the economy improves (p. 333)
deflation a sustained drop in the price level (p. 343)
demand-pull theory theory that inflation occurs when demand for
goods and services exceeds existing supplies (p. 341)
discouraged worker a person who wants a job but has given up
looking (p. 336)
enterprise zone area where companies can locate free of certain
local, state, and federal taxes and restrictions (p. 350)
fixed income income that does not increase even when prices go up
(p. 343)
food stamps government-issued coupons that recipients exchange
for food (p. 348)
frictional unemployment unemployment that occurs when people
take time to find a job (p. 331)
full employment the level of employment reached when there is no
cyclical unemployment (p. 335)
hyperinflation inflation that is out of control; very high inflation
(pp. 341, 404)
income distribution how the nation’s total income is distributed
among its population (p. 348)
inflation a general increase in prices (p. 338)
inflation rate the percentage rate of change in price level over time
(p. 340)
Lorenz Curve the curve that illustrates income distribution (p. 349)
market basket a representative collection of goods and services (p.
339)
poverty threshold an income level below which income is
insufficient to support families or households (pp. 67, 345)
poverty rate the percentage of people who live in households with
income below the official poverty line (p. 346)
price index a measurement that shows how the average price of a
standard group of goods changes over time (p. 339)
purchasing power the ability to purchase goods and services (p.
339)
quantity theory theory that too much money in the economy
causes inflation (p. 341)
seasonal unemployment unemployment that occurs as a result of
harvest schedules or vacations, or when industries slow or shut down
for a season (p. 332)
structural unemployment unemployment that occurs when
workers’ skills do not match the jobs that are available (p. 332)
underemployed working at a job for which one is overqualified, or
working part-time when full-time work is desired (p. 335)
unemployment rate the percentage of the nation’s labor force that
is unemployed (p. 334)
wage-price spiral the process by which rising wages cause higher
prices and higher prices cause higher wages (p. 342)
workfare a program requiring work in exchange for temporary
assistance (p. 350)
KEY IDEAS AND CONCEPTS
Define the Four Types of Unemployment:
1. Frictional _______________________________________ 2. Seasonal _____________________________________________
3. Structural _______________________________________ 4. Cyclical ______________________________________________
List the five main causes of structural unemployment:
1. __________________ 2. __________________ 3. __________________ 4. __________________ 5. __________________
List five causes of poverty described in your textbook::
1. __________________ 2. __________________ 3. __________________ 4. __________________ 5. __________________
The United States has one of the world’s highest per capita GDPs, but still has millions of poor people. How does your textbook
account for this?
__________________________________________________________________________________________________________
Compare and Contrast
•
Cost-Push & Demand-Pull Inflation
•
AFDC and TANF
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•
Poverty Threshold & Poverty Rate
SAMPLE SHORT ANSWER QUESTIONS
1.
2.
3.
4.
5.
6.
Explain the Quantity Theory of inflation.
Explain in detail how the unemployment rate is calculated. (pp. 334-335)
What is the Consumer Price Index, and what are its components? (p. 339)
Explain in detail how the inflation rate is calculated. (p. 340)
What is a Lorenz Curve used to show, and what categories of information does it include? (pp. 348-349)
How has the distribution of income in the United States changed over the last 20 years? (p. 349)
SAMPLE ESSAY QUESTIONS
1.
2.
3.
4.
What was the state of the U.S. economy in the early 2000s? How was it unusual, and what factors contributed to this state?
Explain how a person can be employed and still be living under the poverty threshold.
What is the relationship between full employment and cyclical, frictional, structural, and seasonal unemployment?
Explain how the Bureau of Labor Statistics calculates the rise in prices each year.
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