ECON 2301 Final Exam Flashcards (ACC,

Economics

The study of how people make choices under scarcity.

Microeconomics

The study of individual households, firms, and markets.

Macroeconomics

The study of the economy as a whole, including GDP, inflation, unemployment, and growth.

Scarcity

The condition of having limited resources but unlimited wants.

Division of labor

Breaking production into specialized tasks performed by different workers.

Comparative advantage

The ability to produce something at a lower opportunity cost than someone else.

Specialization

Focusing work or production on a narrower task to improve efficiency.

Extent of the market

The size of the market that determines how much specialization is possible.

Pre-industrial world

The economy before modern industry, usually marked by low productivity and slow growth.

Production

The process of creating goods or services.

Inputs

Resources used to produce goods and services.

Outputs

The goods or services produced by using inputs.

Consumption

The use of goods and services to satisfy wants or needs.

Households

Economic units made up of people who consume goods and provide labor.

Firms

Businesses that produce goods or services.

Exchange

Trading one good, service, or asset for another.

Trade

Voluntary exchange between people, firms, or countries.

Markets

Places or systems where buyers and sellers exchange goods and services.

Cost

What must be given up to obtain something.

Price

The amount of money exchanged for a good or service.

Wealth

The total value of assets owned minus debts owed.

Income

Money or resources received over a period of time.

Stock

A quantity measured at one specific point in time.

Flow

A quantity measured over a period of time.

Rule of 72

A shortcut for estimating how long it takes something to double; divide 72 by the growth rate.

Dollar bills

Physical currency issued by the government.

Deposits

Money held in bank accounts.

Reserves

Funds banks hold to meet withdrawals and payment obligations.

Loans

Money lent to borrowers that must be repaid with interest.

Bonds

Debt instruments where borrowers promise to repay lenders with interest.

Assets

Things owned that have economic value.

Liabilities

Debts or obligations owed to others.

Interest rate

The price of borrowing money, usually expressed as a percentage.

Bank profit

Profit banks earn mainly by charging more interest on loans than they pay on deposits.

Bank confidence

Trust that banks can meet withdrawals and obligations.

Bank balance sheet

A financial statement listing a bank’s assets, liabilities, and net worth.

Federal Reserve

The central bank of the United States.

Monetary base

The most basic form of money, including currency and bank reserves.

Gold standard

A monetary system where money is backed by gold.

Financial crisis

A major disruption in financial markets that reduces credit, trust, and economic activity.

2007–2009 financial crisis

A severe financial crisis linked to housing, banking, credit risk, and recession.

Economic measurement

The process of quantifying economic activity and conditions.

Present value

The current value of a future payment or stream of payments.

Net worth

Assets minus debts.

National income

The total income earned by people and firms in a country.

National production

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

National spending

The total spending on goods and services in a country.

Gross Domestic Product

The market value of final goods and services produced within a country during a period of time.

GDP

An economy’s total production, income, or spending during a specific period.

Final goods

Goods sold to final users rather than used to produce other goods.

Market exchange rate

The rate at which one currency trades for another in foreign exchange markets.

Purchasing power parity

A method of comparing economies by adjusting for differences in price levels across countries.

Real GDP

GDP adjusted for changes in prices.

Nominal GDP

GDP measured using current prices without adjusting for inflation.

Economic growth rate

The percentage change in real GDP over time.

Price level

The average level of prices in an economy.

Inflation rate

The percentage increase in the price level over time.

Inflation

A general rise in prices that reduces the purchasing power of money.

Economic growth

An increase in real output or real income over time.

Population growth

An increase in the number of people in a population.

World economic growth

The long-run increase in global production and income.

Extreme poverty

Living below a very low income threshold needed for basic survival.

Developed-country poverty

Poverty measured by the standards of richer modern countries.

Great Divergence

The historical process where some countries became much richer than others.

Industrial Revolution

The period when production shifted toward machines, factories, and rapid economic growth.

Mercantilism

An economic system focused on state control, trade surpluses, and accumulating wealth.

Capitalism

An economic system based on private property, markets, and profit-seeking firms.

Central planning

An economic system where government authorities direct production and allocation.

Demographic transition

The shift from high birth and death rates to low birth and death rates as societies develop.

Malthusian pessimism

The view that population growth tends to outpace food supply and limit living standards.

Reasonable optimism

The view that economic progress can continue, but with limits and uncertainty.

Tech utopianism

The belief that technology can solve most major economic and social problems.

Business cycle

The recurring rise and fall of economic activity over time.

Recession

A significant decline in economic activity lasting more than a few months.

Characteristics of recessions

Falling output, rising unemployment, reduced spending, and weaker business activity.

Aggregate demand

Total planned spending on final goods and services in an economy.

National income identity

The equation showing that total output equals total spending and total income.

Keynesian theory

The theory that recessions can result from insufficient total spending.

Keynes’s view of recessions

The idea that falling spending can reduce income, output, and employment.

Aggregate demand shortfall

A situation where total spending is too low to maintain full employment.

Self-reinforcing recession

A recession that continues because lower income reduces spending, which further reduces income.

Monetary policy

Central bank actions that influence money, credit, interest rates, and the economy.

Fiscal policy

Government decisions about taxes and spending.

Taxes

Mandatory payments collected by government.

Government spending

Purchases, transfers, and programs funded by government.

Investment

Spending on capital goods, equipment, structures, or business expansion.

Exports

Goods and services sold to buyers in other countries.

Real business-cycle theory

The theory that business cycles are mainly caused by real shocks, such as technology or productivity changes.

Economic model

A simplified representation of reality used to explain or predict economic behavior.

Supply and demand model

A model explaining how buyers and sellers determine price and quantity.

Demand

The quantity of a good buyers are willing and able to buy at different prices.

Law of demand

When price rises, quantity demanded usually falls; when price falls, quantity demanded usually rises.

Demand curve

A graph showing the relationship between price and quantity demanded.

Shift in demand

A change in demand at every price caused by non-price factors.

Substitute good

A good that can be used in place of another good.

Price elasticity of demand

How strongly quantity demanded responds to a change in price.

Luxury good

A good people view as desirable but not necessary.

Necessity good

A good people view as essential.

Production function

The relationship between inputs and the amount of output produced.

Profit

Revenue minus costs.