Economics Final Exam

Inflation is

An increase in the amount of money

Deflation is

A decrease in the amount of money

Inflation causes

The wage/price spiral

A law of economics is

A fact of life which no one can change

An example of the law of supply & demand is

The amount of money goes up and the value goes down

Gresham's Law says

Bad money drives good money out of circulation

During severe inflations, wage/price controls have

Never worked

A depression is

A correction period following an inflation

A recession is

An incomplete depression

Money is

The most easily traded thing people have

Why are some coins reeded?

Some coins are reeded because back then people wanted to be able to tell if the coins had been clipped. Workers would refuse to take clipped coins, but sometimes it was hard to tell if they were or not.

What is Gresham's Law? Explain

Gresham's Law is when people want to spend all their bad money and save their good money, which puts their good money out of use.

What does TANSTAAFL mean? Explain

TANSTAAFL means There Ain't No Such Thing As A Free Lunch. In other words, nothing is free if it's worth something. Someone will have to pay for it somehow.

What did the Roman farmers do when wage/price controls were started?

When wage/price controls were started, the Roman farmers stopped farming because the money they received from producing crops had lost a lot of its value.

Why have wage/price controls never stopped inflation?

Wage/price controls have never stopped inflation because they do not stop the amount of money from increasing.

What does legal tender mean?

Legal tender is paper money that must be accepted. The government would punish anyone who refused to take it as real money.

What is the difference between recession and depression?

Recession is the beginning of a depression that never went all the way because the government stopped inflating for a little while.

What is the business cycle?

The business cycle is when the government inflates off and on. so prosperity followed by recession followed by prosperity and so on

What is the difference between inflation and deflation?

Inflation is the increase in the amount of money and deflation is the decrease in the amount of money.

Give five examples of black market activities

1. gambling 2. tax evasion 3. marijuana 4. guns 5. selling cars for more than $4200 in 1976 in Iran

What does the demand for money mean?

peoples desire to hold money rather than spend it away

What is velocity?

Velocity is the speed at which money changes hands.

What are the three stages of inflation?

The three stages of inflation are 1) People save their money and wait for prices to fall. 2) Velocity increases and prices rise fast. 3) The demand for money falls and loses its value. This third stage is the runaway stage of inflation.