Economics Semester Review

Flashcards for Economics Semester Review

What is a good?

manufactured products that we use

What is a service?

Useful labor performed by people

What are the four factors of production?

Land, Labor, Capital, and Entrepreneurship

What are the four economic questions?

1.  What to make?

2.  How to make it?

3.  How much to make?

4.  How to distribute it?

What is the study of how we deal with the problem of scarcity?

Economics

When we have unlimited wants but only a limited amount of resources, this is the problem of what?

Scarcity

The physical or mental skill that’s applied to production is called what?

Labor

What are created using the four factors of production?

Goods and Services

The loss of the next most desirable thing:

Opportunity Cost

What do we call things that make other things?

Capital

What 3 things do we strive for within an economy?

1. Economic Growth

2.  Full Employment

3. Stable Prices

A limited government should do what 4 things?

Provide a structure for a market, establish rules, enforce laws, settle disputes

What are the three positives of competition?

better quality, better variety, lower prices

What does specialization promote?

efficiency

What is a negative of economic incentives?

charging too much for g/s, asking for high wages in a low demand job

What is a positive of economic incentives?

Profit, high wages in a high demand job

What is an example of a Free Market Economy?

Black Market/drug trade

What is the market system driven by?

Supply and Demand

What must be present in order for there to be competition?

Voluntary exchange

Who answers the economic questions in a command economy?

The Government

Who answers the economic questions in a mixed economy?

Both the Market and Government

What two groups of people make up the market economy?

Producers and Consumers

When a consumer is willing and able to buy a good at a given price.

Demand

What is the Law of Demand?

Increase in price decreases demand. Decreases in price increases demand.

What is the law of supply?

Increase in price increase supply. Decrease in price decrease suply.

What does “willing” and “able” mean according to the definition of demand?

Willing- ready to buy a g/s

Able- having the means to buy a g/s

Elastic

% change in demand > % change in price

Unitary Elastic

% change in demand = % change in price

Inelastic

% change in demand < % change in price

Goods that are used in place of one another.

Substitutes

What are compliments?

Goods that are used together.

What are independent goods?

Goods that are not related to one another.

What 4 things influence demand?

Price, preference, substitutes, compliments

What is marginal cost?

Cost of Producing 1 more of a g/s

What are fixed costs?

Costs that do not change. (Rent, loans, salaries)

What are variable costs?

Costs that change depending on how much of a good is produced. (utilities, wages, etc.)

What are total costs?

Fixed Costs + Variable Costs

How is a change in quantity demanded (△QD) shown on the graph?

Movement along the demand curve.

How is a change in quantity supplied (△QS) shown on the graph?

Movement along the supply curve.

What causes a change in demand?

Based on any reason other than the price

What is inflation?

A general increase in price

What is deflation?

A general decrease in prices

What is another term for money?

Currency

What are the 6 characteristics of money?

Durability, Portability, Divisibility, Uniformity, Limited Supply, Acceptability

What is involved with M-1?

Money in Circulation + Demand Deposits

What is involved with M-2?

M-1 + tie deposits (more accurate)

What are the 4 effects of inflation?

Decreased Purchasing Power, incom may or may not keep up, Interest rates may not keep up, interest rates for loans may go up to lower inflation

What are the two definitions of deflation?

1. Opposite of inflation

2. A general decrease in price

What is an IPO?

Initial Public Offering

What is a common medium of exchange for trade?

Money

According to the tire model, what must be greater than what to cause deflation?

Investment, Government Spending and Exports

Greater than

Taxes, Savings, and imports

What 2 groups are banks connected by?

Savers and Investors

What are the 3 functions of money?

Medium of Exchange, Unit of value, Store of Value

What is a depository institution?

Institution that loans out deposits with interest but pay savers for loaning their money out

What is a nondepository institution?

A financial institution that does not loan out deposits, but where people buy something

What are the components of a common stock?

Variable Dividends and Voting Rights

What is the purpose of selling stock?

To Raise Capital for the Company

What is a sole proprietorship?

A business owned and operated by one person.

What is a corporation?

A business entity that is legally separated from its owners

A sole proprietorship represents % of the businesses and only % of all sales.

70%, 5%

What is double taxation?

The tax on income earned

What is the difference between a bearer bond and a registered bond?

Interest Coupons issued, while the owner of a registered bond is registered with the gov. and interest/principle is sent to ONLY the owner

The function of money which means that money is used for trade.

Medium of Exchange

What is the biggest advantage of sole proprietorship?

Owner makes all of the decisions

What is the biggest disadvantage of sole proprietorships?

Unlimited Liability

According to the tire model, what three things must be greater than the other to cause inflation?

Investments, Gov. Spending, and exports

GREATER THAN

Imports, taxes, and savings

What are 2 advantages of partnerships? What is the biggest advantage?

More Capital, Shared decision making

What is the biggest disadvantage of a partnership?

Potential conflict (disagreement)

What is an example of a nondepository institution?

Insurance Companies

What are the three theories of the causes of inflation?

Demand-Pull, Cost-Push, Quantity Theory

What is the difference between privately and publicly held corporations?

Privately held corporations do not sell stock to the public, while publicly held corporations do.

What is the difference between demand and time deposits?

Demand deposits are checking accounts, while time deposits are savings accounts.

When you have stock in a company, you _ part of that company.

Own

What is a secondary function of banks?

Keeping deposits safe

What is the main advantage of corporations?

Limited Liability

What is the definition of a stock?

A share of ownership in a company.

What is a bond?

A loan to a company or government.

How can banks increase the money supply?

Bank transactions kept on record

What is the biggest disadvantage of corporations?

Double Taxation

What are some advantages of franchises?

National Ads, Centralized buying power, and management training

What are the 2 characteristics of preferred stocks in which we discussed in class?

No Voting Rights, Fixed Dividend Rate

What is the most common way to calculate inflation?

Consumer Price Index (CPI)

What are the 2 ways to make money from stock?

Dividends and capital gains

What are the 6 characteristics of money?

Durability, Portability, Divisibility, Uniformity, Limited Supply, Acceptability

What is the goal of the government during a contraction period?

Increase Consumer’s disposable income

What is the goal of the government in an expansionary period?

Decrease consumer’s disposable income

What personnel make up the FOMC?

Board of Governors + 5 Federal Reserve Bank Presidents

Inflation is a sign of which period of the business cycle?

Expansion

A regressive income tax is when income_ and the tax rate_.

Increases, Decreases

What is the main role of the FED?

Control the Money Supply

How many branch banks of the FED are there?

25

How does a bank become a member of the FED?

Government charter

What are reserve requirements?

The percentage of deposits that banks are required to keep in reserve.

What is the discount rate?

The interest rate that the FED charges banks to borrow money.

What are the four characteristics of a tax?

Equity, Simplicity, Efficiency, Certainty

What are transfer payments?

Payments from the government to individuals.

Who carries out the FED’s policy?

Federal and Branch Banks

Monopolies destroy ____.

Competition

What are the two types of taxes?

Direct and Indirect

Action through taxes and government spending in the economy is called what?

Fiscal Policy/Keynesian Economics