Economic Systems and Concepts Review

Flashcards covering key economic concepts and vocabulary for review.

Command Economy

An economic system where a central authority makes all economic decisions.

Market Economy

An economic system in which the what, how, and for whom questions are determined by buyers and sellers.

Opportunity Cost

The cost of the next best alternative foregone when making a decision.

Ceteris Paribus

A Latin phrase meaning 'all other things being equal' which helps in studying how a change in one variable affects another.

Demand Curve Shift

A change in demand that shifts the demand curve to the left or right due to factors other than the item's price.

Purchasing Power

The value of your money income in terms of buying goods and services.

Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services.

Aggregate Demand

The total demand for goods and services within an economy.

Expansionary Fiscal Policy

Government policy to stimulate the economy by increasing spending and/or decreasing taxes.

Inflationary Gap

A situation in which demand exceeds supply resulting in rising prices.

Marginal Propensity to Consume (MPC)

The fraction of additional income that is spent on consumption.

Short-run Aggregate Supply (SRAS)

The total production of goods and services available in the economy at various price levels in the short run.

Gross Domestic Product (GDP)

The total monetary value of all final goods and services produced within a country’s borders in a specific time period.

Price Ceiling

A government-imposed limit on how high a price is charged for a product.

Invisible Hand

A term introduced by Adam Smith to describe the self-regulating nature of the marketplace.

Fiscal Policy

The use of government spending and tax policies to influence economic conditions.

Reserve Ratio

The fraction of deposits that a bank must hold as reserves and not lend out.

Substitute Goods

Goods that can be used in place of one another.

Consumer Expenditure

The total amount of money spent by households on goods and services.

Natural Rate of Unemployment

The level of unemployment that exists when the economy is at full capacity.