ECON 2040
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20 Terms
What is Macroeconomics?
The part of Economics dealing with large-scale economic issues or the economy as a whole.
What are the three things modern economies need to be successful?
The Rule of Law, sound/well thought out money, and a banking system.
What are the three types of Money?
Commodity Money, Representative Money, and Fiat Money.
What is Commodity Money?
Money that has value in and of itself, like gold and silver.
What is Representative Money?
Money that represents something of value, such as a dollar representing a certain amount of silver.
What is Fiat Money?
Money that has value because the government says it does.
What does M1 represent?
The total supply of fiat money in an economy on hand and in checking accounts.
How do banks make money?
By taking money that has been deposited and loaning it out with interest.
What is Fractional Reserve Banking?
A system where banks loan out most of the deposited money.
What is inflation?
A rise in prices which results in money having less purchasing power.
How is inflation measured?
Using the Consumer Price Index (CPI), which measures inflation through a basket of goods.
What is the inflation rate?
The increase in the price level of goods and services.
What is the deflation rate?
The decrease in the price level of goods and services.
What causes inflation?
An increase in the supply of money, often related to the government printing more money.
Why is inflation bad?
It erodes savings and reduces purchasing power, making people poorer.
What is the Business Cycle?
The economic cycle of expansion and contraction in the U.S./World economy.
What are the peaks and troughs of the Business Cycle?
Peaks are known as booms and troughs are known as busts.
Historically, when did economic booms and busts occur?
Boons occurred in the 20s and 80s, busts occurred in the 30s and 70s.
What can the government traditionally do regarding the economy?
Traditionally, the government does nothing, following a laissez-faire approach.
Who is known as the 'Father' of economics?
Adam Smith.