Economics Review Flashcards

Flashcards based on economics lecture notes for exam review.

Why should someone study economics?

To gain a better understanding of how to work with money and how different financial systems operate to improve one's financial position.

List the four Factors of Production.

Land, labor, capital, and entrepreneurship.

What is the difference between capital goods and consumer goods?

Capital goods are used to produce other goods, while consumer goods are the final product for consumers.

What distinguishes goods from services?

Goods are tangible items that satisfy wants or needs, while services are jobs done for others.

Explain the difference between wants and needs.

Wants are non-essential items, while needs are essential for survival.

What is a voluntary exchange?

A transaction where both parties willingly exchange and receive mutual benefits.

Define trade-offs and opportunity costs.

A trade-off is what you don't choose in a decision, while opportunity cost is the value of the best alternative forgone.

What are the three basic economic questions?

What to produce? How will we produce it? Who gets it?

What are the three main goals or economic indicators of an economy?

Economic growth (GDP), full employment (unemployment rate), and price stability (inflation rate).

What are the phases of the business cycle?

Expansion, peak, recession, trough, and recovery.

Define Gross Domestic Product (GDP).

The total value of goods produced by a country.

Describe the strengths and weaknesses of a market economy.

Strengths: consumer choice, efficient resource allocation, quick response to needs. Weaknesses: potential company failures.

Describe the strengths and weaknesses of a command economy.

Strengths: equal resource distribution, cheap public services, rapid economic redirection. Weaknesses: lack of innovation and difficulty meeting day-to-day needs.

What are the key features of a free enterprise system?

Private ownership of property and productive resources with economic decisions made by citizens.

According to Keynes, how can the government counter reduced consumer spending?

Government spending.

What is fiscal policy?

Government use of spending and taxation to influence the economy.

What is monetary policy?

Central bank actions to control the money supply and credit conditions.

What are Republican's views on taxes?

Everyone should pay little taxes.

What are Democratic's views on taxes?

The rich should pay more taxes and those in lower income brackets should pay less.

What is the difference between debt and deficit?

Debt is the total accumulated amount owed, while deficit is the annual shortfall between government spending and revenue.

What types of goods contribute to GDP?

Only final goods.

What is Real GDP?

GDP adjusted for inflation.

What is considered a 'normal' unemployment rate?

Around 4%.

Who is included in the labor force?

Employed individuals and those actively seeking work.

What is cyclical unemployment?

Unemployment caused by recessions or the business cycle.

What is structural unemployment?

Unemployment caused by a mismatch of skills and available jobs.

What is frictional unemployment?

Normal unemployment due to the time it takes for workers to change jobs.

What is a 'normal' inflation rate?

Around 2%.

Who controls fiscal policy?

The government (Congress and the President).

Who controls monetary policy?

The Federal Reserve (FED).

Who is the current Fed Chair?

Jerome Powell

What are the tools of fiscal policy?

Expansionary (increase gov spending, cut taxes,) contractionary (cut gov spending,raise taxes)

What are the tools of monetary policy?

Expansionary (increase money supply -> decrease interest rates -> more borrowing and spending), Contractionary (decrease money supply -> increase interest rates -> less borrowing)

Give an example of an expansionary fiscal policy that congress and the president can use in a recession.

Increasing goverment spending and/or decreasing taxes to boost demand, encourage investment, and create jobs

Give an example of an appropriate fiscal policy for severe inflation

A contractionary fiscal policy is appropriate. It involves reducing goverment spending,increasing taxes, and potentially eliminating subsidies.

If the goverment wanted to increase the Banks liquidity (money on reserve) they would bonds the banks

Buy, from

What are the ways the Fed can change the money supply?

Reserve requirements, discount rate, and bonds.

What are the goals of the government during an economic contraction?

Goal is to economic activity; goverment spending will increase in projects, taxes will decrease, and jobs will be pushed to be created

What are the goals of the government during an economic expansion?

Goal is to cool down the economy; goverment spending will decrease and taxes will increase

How can the central bank impact the money supply?

By open market operations, setting reserve requirements, and adjusting interest rates.

Define diminishing marginal utility.

The more you buy something the less you want it (ie. you'll get sick of it)

What is the difference between elastic and inelastic goods?

Elastic goods have substitutes, while inelastic goods do not.

What are the determinants of elasticity?

Luxury, necessity, income, substitute, time

How do progressive and regressive taxes differ?

Progressive taxes take a larger percentage of income from higher earners, while regressive taxes take a larger percentage from lower earners.

What is a progressive tax?

The more money you make, the higher percentage you pay in taxes.

Give an example of a progressive tax.

U.S. federal income tax - A person making $200,000 pays a higher rate than someone making $30,000.

What is a regressive tax?

Lower-income earners pay a higher percentage of their income in taxes compared to higher-income earners.

What is a proportional tax?

Everyone pays the same percentage, no matter how much they earn.

What is a sin tax??

Tax on products that are considered harmful or unhealthy.

What is capital gains tax?

Tax on the profit from selling investments like stocks, bonds, or property.

What is probate tax?

Tax on the transfer of property after someone dies.

What is elastic demand?

When the price of something goes up, people buy a lot less of it.

What is inelastic demand?

When the price goes up, people still buy about the same amount.

Why do governments often tax inelastic goods?

Because people will still buy them so the tax brings in more money.

What are the determinants/shifters of demand?

TRIBE (taste/preference, related goods/subsitutues/complements, Income, Expectations)

What are the determinants/shifters of supply?

ROTTEN (Resource, Other goods price, taxes/subsidies/government regulation,tech/productivity, expectations of the producer, number of firms in the industry)

What is the law of supply?

produce more at a lower price and produce less at a higher price

What is the law of demand?

buy more at a lower price and buy less at a lower price

Why is demand downward sloping and supply is upward sloping?

Scenarios where you have to say what happens to the graphs and what causes movement in the graphs (like the Edpuzzles)

Equilibrium

Where the price and the demand are the same

overage

a situation in which the quantity of goods received or shipped exceeds the expected or agreed-upon amount

surplus

When the supply is greater than the demand

Why do we recognize the current value of money?

To make smart choices based on what it's worth right now.

What is credit?

The ability to borrow money now and pay it back later, usually with interest.

What can hurt your credit?

Late or missed payments, Using too much of your credit limit, Applying for too many credit cards at once, Defaulting on a loan, Not having a mix of credit type

What are the three steps to a proper apology

I recognize what I did (insed wrong action) was wronglowning what you did) 2 recognize