Economics Micro & Macro (CliffsAP)

Mini-Review

1. Which of the following is a fact regarding the circular flow model?
   A. Both firms and suppliers are a part of a product market.
   B. Firms are consumers and households are suppliers in a product market.
   C. The government is a consumer in only the factor market.
   D. Firms and households never interact.
   E. None of the above.


2. Which one of the following is an example of a leakage?
   A. Consumption
   B. Investment
   C. Demand
   D. Imports
   E. Exports


3. Which one of the following is not part of the business cycle?
   A. Peak
   B. Consumption
   C. Expansion
   D. Trough
   E. Contraction

Mini-Review Answers

1. A.In a product market, firms supply and households consume; therefore, both firms and households are a part of
   a product market.


2. D. Imports are an example of a leakage because the money being spent on them is not injected into our economy;
   instead, it is leaked out of our economy and into another country’s economy.


3. B.Consumption is the only option given that is not a part of the business cycle.

Unemployment and Inflation

Unemployment and inflation are the two main problems that arise from economic instability. They are two macroeco-
nomic problems that garner the attention of the Federal Reserve and the government. As daunting as these problems
may seem, weapons are available to control these macroeconomic hazards. Let’s look at unemployment first.

The government defines an unemployed person as anyone who is willing and able to work but does not have a job. To
measure the unemployment rate, we must determine who is eligible for employment and who is not. Two categories not
included in the measurement of unemployment are people under the age of 16 and/or institutionalized and discouraged
people (those who are not actively seeking employment). A person who works part-time employment is considered
employed by the U.S. Bureau of Labor Statistics.

Types of Unemployment

There are three types of unemployment:

■ Frictional unemployment:Some workers are between jobs, voluntarily moving from one job to another, or are

fired from employment. Others have just graduated from college and are looking for employment or have just

National Income Accounting