Economics Terminology

Economics

The study of how a country produces, consumes, and distributes its goods and services.

Scarcity

The fundamental problem that all societies face, necessitating decisions on how to use limited resources.

Traditional Economy

Command Economy

An economy controlled by a central authority, such as the government, which determines production and prices.

Market/Free Enterprise

A system where privately owned businesses compete for profit with limited government regulation.

Gross Domestic Product (GDP)

The value of all goods and services produced by a nation, usually within one year; considered the best measure of growth

Consumer Price Index (CPI)

Often called the “Cost of Living,” this measures the average change in prices over time

Inflation

An overall increase in the price of goods and services, which results in a decrease in the value of the dollar.

Unemployment

The percentage of the civilian population that is without a job but is actively seeking employment.

Recession

A phase in the business cycle marked by a noticeable drop in economic activity, decreasing demand, and rising unemployment.

Equilibrium

The point of maximum efficiency in a market where the quantity supplied equals the quantity demanded.

Human Resources

Resources consisting of the skills, labor, and knowledge of the workforce.

Natural Resources

Physical resources such as water, oil, and minerals used in production.

Fiscal Policy

Economic policy determined by the President and Congress, focusing on federal income taxes and consumer spending.

Monetary Policy

Economic policy determined by the Federal Reserve (The Fed) involving interest rates and bond sales.

Kenya, Haiti, and Greenland are examples of what type of economy?

Traditional Economy

New Zealand and Ireland are examples of what type of economy?

Market/Free Enterprise

Cuba and North Korea are examples of what kind of economy?

Command Economy

Highest level of economic activity

Prosperity (Peak)

Supply

the amount of a product or service producers are willing to provide

Demand

the quantity of a product or service consumers are willing to buy

Law of Supply

Producers choose to sell more of something at a higher price than a lower price for more profit.

Law of Demand

The higher demand for a product, the higher the price goes.

Maximum Efficency

The approximate point at which the quantity supplied equals the quantity demanded

If federal income taxes are increased, consumer spending decreases

Fiscal Policy

Reserve Requirements

Banks must keep a certain % of the total deposits on-hand in cash

Interest Rate

The Fed charges banks to borrow money for lending to customers

Open-Market Operations

The Fed buys and sells government and corporate bonds

National Debt

The total amount of money that the federal government owes