Economics Lecture Notes

Flashcards from Economics Lecture Notes

Economics

The study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals.

Macroeconomics

The part of economics study that looks at the operation of a nation’s economy as a whole.

Microeconomics

The part of economics study that looks at the behavior of people and organizations in particular markets.

Resource development

The study of how to increase resources and to create conditions that will make better use of those resources.

Adam Smith Belief

Freedom was vital to any economy’s survival.

Adam Smith Belief

Freedom to own land or property and the right to keep the profits of a business is essential.

Adam Smith Belief

People will work hard if they believe they will be rewarded.

Invisible hand theory

As people improve their own situation in life, they help the economy prosper through the production of goods, services and ideas.

Invisible hand

A phrase coined by Adam Smith to describe the process that turns self-directed gain into social and economic benefits for all.

Capitalism

An economic system in which all or most of the factors of production and distribution are privately owned and operated for profit.

State capitalism

A combination of freer markets and some government control.

Capitalism’s Basic Right

The right to own private property.

Capitalism’s Basic Right

The right to own a business and keep all that business’s profits.

Capitalism’s Basic Right

The right to freedom of competition.

Capitalism’s Basic Right

The right to freedom of choice.

Free market

Decisions about what and how much to produce are made by the market.

Supply

The quantity of products that manufacturers or owners are willing to sell at different prices at a specific time.

Demand

The quantity of products that people are willing to buy at different prices at a specific time.

Market price (equilibrium point)

The price determined by supply and demand.

Benefits of Free Markets

Allows for open competition among companies.

Benefits of Free Markets

Provides opportunities for poor people to work their way out of poverty.

Limitations of Free Markets

People may start to let greed drive them.

Socialism

An economic system based on the premise that some, if not most, basic businesses should be owned by the government so that profits can be more evenly distributed among the people.

Brain drain

The loss of the best and brightest people to other countries.

Communism

An economic and political system in which the government makes almost all economic decisions and owns almost all the major factors of production.

Free-market economies

Economic systems in which the market largely determines what goods and services get produced, who gets them, and how the economy grows.

Command economies

Economic systems in which the government largely decides what goods and services will be produced, who will get them, and how the economy will grow.

Mixed economies

Economic systems in which some allocation of resources is made by the market and some by the government.

Gross domestic product (GDP)

The total value of final goods and services produced in a country in a given year.

Unemployment rate

The number of civilians at least 16 years old who are unemployed and tried to find a job within the prior four weeks.

Inflation

A general rise in the prices of goods and services over time.

Disinflation

A situation in which price increases are slowing (the inflation rate is declining).

Deflation

A situation in which prices are declining.

Stagflation

A situation when the economy is slowing but prices are going up anyhow.

Consumer price index (CPI)

Monthly statistics that measure the pace of inflation or deflation.

Producer Price Index (PPI)

An index that measures the change in prices at the wholesale level.

Business cycles

The periodic rises and falls that occur in economies over time.

Recession

Two or more consecutive quarters of decline in the GDP.

Depression

A severe recession, usually accompanied by deflation.

Recovery

When the economy stabilizes and starts to grow, eventually leading to an economic boom.

Fiscal policy

The federal government’s efforts to keep the economy stable by increasing or decreasing taxes or government spending.

National deficit

The amount of money the federal government spends beyond what it collects in taxes for a given fiscal year.

National debt

The sum of government deficits over time.

National surplus

When the government takes in more revenue than it spends.

Monetary policy

The management of the money supply and interest rates by the Federal Reserve Bank.

Motivation for Business Owners

Businesses are motivated to work hard because they know they will earn, and keep, the rewards.

The Farmer

Helps his employees and his community while helping himself.

Basic Businesses

Basic businesses should be owned by the government so that profits can be more evenly distributed among the people.

Socialist Governments

Cutting back on social programs, lowering taxes, and moving toward capitalism.

Company's GDP

Numbers go into the country’s GDP (even if they are foreign-owned).