Name: KEY
Date: __________
Class Period: ________
Chapter 3
Review Packet
Instructions: Below you will find key information you should understand and be able to apply in a testing situation. Any activity,
textbook reading, class discussion, and class notes are all fair game for the test. You will work all class period, independently on
this review packet. It is your responsibility to go online to our class website and check your answers. There is an electronic version
of this review available online if you prefer responding to the questions in that manner.
Objectives:
 Identify the four types of economic shifts that the United States has experienced.
 Describe what is shown by GDP, the unemployment rate, rate of inflation, and national debt.
 Describe the four stages of the business cycle.
 Explain how individuals and government influence the economy.
VOCABULARY – You should be able to define (more than just the definition) and use the following
vocabulary terms….
 Gross Domestic Product (GDP)
o The total value of the goods and services produced in a country in a given year.
o Economic indicator
o The United States has a high GDP.
 Standard of Living
o Important measure of a countries economic health.
o Measured by goods and services available.
 Inflation
o General increase in prices over a given period of time.
o Buying power will decrease.
 Deflation
o General decrease in prices of a given period of time.
o Supply is greater than demand.
o Could lead to the collapse of an economy.
 Budget Deficit
o Spending more than receiving.
 National Debt
o The total amount of money a government owes.
 Budget Surplus
o Revenue exceeds spending.
 Business Cycle
o Rise and fall of economic activity over time.
o Four stages
o Repeated stages
 Prosperity
o Peak
o Everything increases: wages, economic activity, etc.
 Recession
o Economic activity slows, unemployment increases, etc.
 Depression
o Deep recession, ripple effect, high unemployment etc.
 Recovery
o Rise in business activity, unemployment rate decreases, etc.
REINFORCEMENT QUESTIONS – Respond to each of the questions below, in order to demonstrate your
understanding of the concept.
A.) Explain the four types of economic shifts the United States has experienced over the years. Note:
this is not the business cycle – it is from your reading of the chapter.
1600s- bartering, service based economy
1700s – farming, agriculture based
1800s-Industrial revolution
1990s – technological revolution, prosperity
B.) What is the purpose of the GDP?
To determine how well an economy is performing in a given country.
C.) Describe what the unemployment rate represents.
It represents the number of people who are able and willing to work but are not.
D.) Define rate of inflation and national debt. Then explain how the two concepts are related.
Gradual steady increase in prices, buying power decreases, represented as a percentage.
Total amount government owes.
Potentially the government could print more money to pay down the national debt – a very
tempting but inflationary solution. , this is one possible answer.
E.) Estimate the current level of national debt for the United States. Explain why this number is
continuing to increase.
17 trillion dollars – the budget deficit is continuing to grow.
F.) What is the main source of income for the government?
Taxes
a. List three areas of the economy where this income is used.
Education, defense, social security
G.) Draw a sample of the business cycle. Be sure to label each section.
Refer to page 44 in your textbook.
H.) Yes or No – Is it possible to jump from stage to stage on the business cycle?
I.) Critical Thinking Would cars made in this country by a foreign-owned company be included in
GDP? Why or why not?
Cars made in this country by a foreign-owned company are included in the GDP. However,
items made in a foreign country by an American company would not be included in the GDP.
J.) Critical Thinking Which would be included in the GDP: babysitting at home or working at a daycare center?
Babysitting is probably not included in the GDP. Day-care centers would probably be reported
and included.
K.) Critical Thinking Why is inflation especially difficult for individuals who are retired?
Retired individual’s income stays the same and the cost of goods and services increases under
inflation.
L.) Explain why the standard of living is higher in the United States than in many other countries.
The standard of living is high because of productivity. We produce an abundance of goods and
services because of technology, access to raw materials, an educated workforce, and the
entrepreneurial positive attitude and support.
M.) Critical Thinking Suppose you go to a store to buy a soda but notice the price is 20 cents higher
than it was last week. Other prices are unchanged. Is this an example of inflation, deflation, or
neither? Why or why not? No, inflation is a general price increase over an array of items over
time.
N.) Explain the ripple effect.
When one industry fails, there is a downward spiral that impacts every industry in every
economy.