Economics Economics Semester Review!Semester Review!

Economics Economics Semester Review!Semester Review!

Everything YOU ever wanted to Everything YOU ever wanted to remember… and COULD!!!remember… and COULD!!!

Introduction Unit What are the

three (3) economic questions?

What to ProduceHow to Produce itFor Whom to

Produce

Explain a traditional society.

Repetition based on the past and by a strict hierarchy.

Explain a command economy.

Strong government role in the economy.

Explain a market economy.

Prices and the products manufactured are based on supply and demand/

What is the definition of scarcity.

limited resources versus unlimited wants

What do you love?

Economics of course!

Individuals who make purchases are know as?

Consumers

The creators of a new business is known as an?

Entrepreneur

What is another word for utility?

Usefulness

Supply and DemandExplain

diminishing marginal utility.

the more you have of an item – the less satisfaction you get with each additional item.

List two (2) determinants of supply.

Price of resourcesTechnologyGovernment toolsPrice of other

goodsProducer

expectations

List two (2) determinants of demand.

Substitute and complementary goods

market sizeincomefuture expectationstastes and

preferences

Explain demand-pull inflation

Prices rise due to the increased demand for goods

Supply-side economics gives tax incentives to whom?

Business

What is the point where supply and demand intersect?

Market Clearing Price or Equilibrium Point

When there is a shift increase in demand. (Which way does the line move?)

Right

When there is a shift increase in supply. (Which way does the line move?)

Right

People love straw hats! A hurricane hits wiping out palm trees. What is the impact of the hurricane on the supply and demand for hats?

Decrease in Supply

What are the four (4) types of unemployment.

CyclicalFrictionalSeasonalStructural

List the four (4) phases of the business cycle.

ExpansionPeakContractionTrough

What is a problem that occurs with inflation?

Prices go up faster than wages – The same $ now buys less.

Give and example of frictional unemployment.

Just in between jobs

Give an example of cyclical unemployment

the steel industry collapses and put people out of their jobs

Give an example of structural unemployment

The new self-checkout lines at Jewel

Define Inflation An increase in the general price level of goods and services; alternatively, a decrease in purchasing power of the dollar.

Define Deflation A decline in the general price level of goods and services that results in increased purchasing power of money.

Fiscal / Monetary PolicyWhat is the

purpose of the Federal Reserve?

Bank for banks

What is included in M1?

CurrencyChecking

Accounts (Demand Deposits)

Traveler’s Checks

What is included in M2?

All of M1 plus:– Savings– Money Market– CD’s

List the tools of monetary policy.

Open Market Operations

Discount RateReserve Rate

Define Fiscal Policy

Practices of government spending and taxes

Define Monetary Policy

The Federal Reserve policy to regulate the nation’s money supply and credit

What are the three (3) types of taxes?

ProgressiveProportionalRegressive

Why does the government tax?

To redistribute money throughout society

Pay for services

List where U.S. tax revenues come from.

IndividualsCorporationsPropertySocial SecuritySales

What is an example of a regressive tax?

Sales

List the characteristics of money?

RecognizableDurablePortableDivisibleAcceptableLimited Supply

What is the U.S.’s money backed by?

Trust in our government and it’s ability to collect taxes

How many districts are in the Federal Reserve System?

12

Who carries out Monetary policy?

The Federal Reserve

Who carries out Fiscal Policy?

The President and Congress

GDP measures Gross Domestic Product - the production of goods and services by a nation in a year.

What are the components of GDP?

What is the largest component of GDP?

G+C+I+(x-m)Gov’t spendingConsumptionInvestmentExports – imports

Consumption

When is the economy most likely to experience an increase in unemployment?

Downside of the business cycle or when total spending decreases in the economy.

For those with structural unemployment to be successful they often need

Retraining or additional educational because their skills are no longer productive for the economy.

A representative market basket of goods and services that are used by the average consumer in call

CPI – consumer price index

What does a CPI of 200 mean?

The base yr = 100

The cost of the market basket has increased by 100%

The study of how people choose to use their resources to satisfy their needs and wants is

Economics

Factors of Production

LandLaborCapitalEntrepreneur

What direction does a demand curve shift?

Downward slope and to the right

Examples of the underground economy

Illegal drugsUnder the table

payoffs where the gov’t doesn’t get taxes

Illegal gambling

What causes a Production Possibility Curves to shift outward?

New resources or new technology

Opportunity cost The decision of choosing the best of all alternatives

What you have to sacrifice in order to be able to have an additional item

What is the largest Federal Budget expenditure?

Social Security

Who is the chairman of the Federal Reserve?

Ben Bernanke

If the fed sells securities (OMO) does this put money into the economy or take it out?

Takes money out of the economy

Why would the Fed lower the discount rate?

To increase or stimulate spending in the economy. It increases the incentive to take out a loan.

What does aggregate mean?

Total

Who does inflation help?

Who does inflation hurt?

Help – those who owe money

Those with savings

Those on fixed incomes

What services does the Federal Reserve provide for the government?

Financial advisor Checking account

for the U.S. treasury

pays social security checks, tax refunds, veteran payments, etc.

Issuing Currency

What services does the Federal Reserve provide for member banks?

Clearing checks Loans to banksTransfers

deposits from one account to another

Supervise lending practices

What is loose monetary policy?

A policy that wants to increase the economy and encourage spending.

Using a Tight Money Policy would you buy or sell government securities?

Sell

In inflationary times what Monetary Actions are available for the Fed to use?

Increase the discount rate

Increase the reserve requirement

Sell open market operation

Economic concepts associated with Adam Smith

Society benefits by each of us working in our own self interest

Invisible hand regulates the equilibrium price for supply and demand

Laissez Faire

What type of economic system is laissez faire associated with?

Hand off – gov’t should not interfere with business

Pure market economy

To whom is most of our national debt owed?

How large is our debt?

What is deficit spending?

US citizens

15 trillion

Spending more than the gov’t takes in revenues in a year

John Maynard Keynes is associated with what type of ______ side policy

Milton Freidman is associated Monetarists and with which type of _____ side policy

Demand

Supply

Using an Easy Money Policy what actions would the Federal Reserve take?

Lower the Discount Rate

Lower the Reserve Requirement

Buy Government Securities (Bonds)

Explain the Discount Rate.

The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank.

What are two (2) characteristics of developing nations?

Low GDP Per Capita

Few ResourcesGrowing

populationAgriculture based

economy

What was Marx’s view of capitalism?

It would destroy itself.

Eventually the people would want to create a classless society

What percentage of nations are “developing?”

80%

What did NAFTA accomplish?

A reduction and eventually elimination of tariffs between countries. An increase in trade between countries.

List two (2) countries that are communist today.

North KoreaChinaVietnamCuba

Name two (2) types of foreign aid.

GrantsAdviceUnited NationsWorld bankInternational

Monetary FundPrivate Investment

(Corporate)

Explain absolute advantage.

Cheaper & control of the resources

What are the benefits of globalization? lower tariffs

lower pricesspecialized laborincreased

competition