FBLA Economics Flashcards

Fiscal Policy

Action by Congress to stabilize the economy

Monetary Policy

Actions by the Federal Reserve Bank to stabilize the economy

Autonomous Consumption

When consumers spend a certain amount of money, no matter what, regardless of their income

Disposable Income

Income after taxes

Discretionary Fiscal Policy

Non-mandatory changes in taxation, spending, or other fiscal activities by a government in response to economic events or changes in economic conditions

Non-Discretionary Fiscal Policy

Automatic stabilizers

Contractionary Fiscal Policy (THE BREAK)

Laws that reduce inflation and decrease GDP (closes an inflationary gap)

a. Decreases Government spending

b. Increases taxes (decreasing disposable income)

c. Combinations of the two

Expansionary Fiscal Policy (THE GAS)

Laws that reduce unemployment and increases GDP (closes a recessionary gap)

a. Increases Government spending

b. Decrease taxes (increases disposable income

c. Combinations of the two

The Philips Curve

Shows the trade off between inflation and unemployment; they are inversely proportional

Bureaucracy

A system of government where most of the important decisions are made by state officials rather than by elected representatives

Market Models

Pure Competition, Monopolistic, Oligopoly, and Pure Monopoly

Imperfect Competition

Monopolistic, Oligopoly, and Pure Competition

Pure Competition

Large numbers of firms producing a product; market prices determined by consumer demand; suppliers had no influence on market prices; low entry barriers

Monopolistic Competition

Many suppliers; suppliers try to achieve some price advantages by differentiating their products from similar products; low entry bariers

Oligopoly

Market dominated by a few suppliers; firms have considerable influence over the market price of their product; high entry barriers

Pure Monopoly

Only one supplier who has significant market power and determines the price of its product; has pricing power within the market; high entry barriers

Inflation

Increase in the general level of prices for goods and services

Recession

A general slowdown in economic activity; decrease in real GDP that lasts at least two quarters

Federalism

A system of government in which power is divided between a national (federal) government and various regional governments

Socialism

A social system or theory in which the government owns and controls the means of production

Capitalism

A political system in which a country's trade and industry are controlled by private owners for profit

Communism

An economic ideology and movement whose ultimate goal is the establishment the common ownership of the means of production and the absence of social classes, money, and the state

Austrian

Focuses on the concept of opportunity cost; limited government interference

Keynesian

Theories about how in the short run, and especially during recessions, economic output is strongly influenced by aggregate demand (total spending in the economy).

Economics

study of how people and societies use limited resources to satisfy unlimited wants; the management of scarcity and choice

Income Tax

Tax levied by a government directly on income, especially an annual tax on personal income.

Excise Tax

Taxes paid when purchases are made on a specific good, such as gasoline

Law of Demand

States that other things remaining the same, if the price of a good rises, the quantity demanded decreases and vice versa

Quantity Demanded

The amount of a good that people are willing and able to buy at a certain time at a certain price

Demand Curve

A graph of the relationship between the price of a good and the quantity demanded.

Determinants of Demand

Prices of related goods, income, future expectations, number of buyers, and personal preferences

Substitute Goods

A good that can be consumed in place of another

Two or more goods that satisfy a similar need, so that one good can be used instead of the other. If two goods are substitutes, an increase in the price of one leads to an increase in the demand for the other.

Complement Goods

Goods used together; when one demand rises the other one rises, when one demand falls the other one falls (peanut butter and jelly)

Normal Good

A good for which, other things being equal, an increase in income leads to an increase in demand and vice versa

Inferior Good

A good that consumers demand less of when their incomes increase

Law of Supply

States that other things remaining the same, if the price of a good rises, the quantity supplied increases and vice versa

Quantity Supplied

The amount of a good that people are willing and able to sell at a certain time at a certain price

Supply Curve

A graph of the relationship between the price of a good and the quantity supplied.

Determinants of Supply

Costs of inputs, technology and productivity, taxes/subsidies, producer speculation, price of other goods that could be produced, and number of sellers all influence supply

Market Equilibrium

When the quantity demanded equals the quantity supplied (buyers and sellers are in agreement)

Equilibrium Quantity

The Quantity bought and sold at equilibrium price

Law of Market Forces

When there is a shortage, the price rises; when there is a surplus the price falls

Hyperinflation

when the government's expenditures exceed the sum of what they can collect in tax revenues

Aggregate Supply

The total quantity of goods and services produced in an economy over a particular time period, at different price levels.

Real GDP

A measure of economic growth that is accounted for inflation

Aggregate Demand

The total quantity of goods and services that all buyers in an economy (Consumers, Firms, the Government, and Foreigners) want to buy over a particular time period, at different possible price levels.

Inflationary Gap

amount by which aggregate expenditures at full employment GDP exceed required to achieve full employment GDP; brings a rising price level

Recessionary Gap

A situation where real GDP is less than potential GDP, and unemployment is greater than the natural rate of unemployment; brings a falling price level

Marginal

Additional

Utility

Satisfaction

Traditional Economy

An original economic system in which traditions, customs, and beliefs shape the goods and the services the economy produces, as well as the rules and manner of their distribution

Mixed Economy

Economic system combining private and public enterprise

Warrenty

A written guarantee, issued to the purchaser of an article by its manufacturer, promising to repair or replace it if necessary within a specified period of time.

Limited Warranty

Limited to just the specified parts, certain types of defects, or other conditions

Full Warranty

Provides complete coverage for repairs and replacement of any defect in a consumer product

Implied Warranty

Assurances that are presumed to be made in the sale of products or real property, due to the circumstances of the sale

Severance Pay

Pay and benefits an employee receives when he or she leaves employment at a company

Sign off Bonus

Sum of money paid to a new employee by a company as an incentive to join that company

Liquidity

The ease with which an asset can be accessed and used as a medium of exchange

Commodity Money

Something that preforms the function of money and has intrinsic value

Fiat Money

Something that preforms the function of money but has no intrinsic value

M1

Highest Liquidity

M2

Near money

Asset

Anything tangible or intangible that is owned

Liability

Anything that is owed

Loan

An agreement between lender and borrower

Present Value

The current worth of some future amount of money

Demand for Money

People demand a certain amount of liquid assets

Transaction Demand for Money

People hold money for every day transactions

Asset Demand for Money

People hold money since it is less risky than other assets

The Barter System

Goods and services are traded directly

Investment

Business spending on tools and machinery

Bonds

Loans or IOU's that represent the debt that the government, business, or individual must repay to the lender

Stocks

Represent ownership of the cooperation

Financial Sector

Network of institutions that link borrowers and lenders

What backs the money supply?

Nothing/Faith

What makes money effective?

Generally accepted, scarce, portable and dividable, and its purchasing power

Purchasing Power

The amount of goods and services a unit of money can buy

Functions of Money

Medium of exchange, unit of account, and store of value

Income

A flow of earnings over a unit of time