American Civ 10: Economics Flashcards

Law of Supply

the principle that states that as the price of an item increases, so will the amount of the item supplied producers are willing to supply and vice versa

Law of Demand

the principle that as the price of an item increases, a smaller quantity of the item will be purchased and vice versa

Money

any object used as a medium of exchange. A store of wealth, and a measure of value

Deficit budget

when the government spends more money than it collects in income for one year.

Demand schedule

a table that shows how much of a product consumers will demand at various possible prices.

Supply schedule

a table that shows how much of a product consumers will demand at various possible prices.

Depression

a major decline in business activity that lasts for more than 6 months characterized by high rate of unemployment.

Recession

-a minor decline in business activity that lasts for less than 6 months
-gdp > ad
-(not much $ in economy)

Capitalism

an economic system characterized by private ownership of resources, profit motive, competition, and market systems.

Market

any place buyer and seller meet.

Economics

the social science that studies how human societies use scarce resources to satisfy unlimited wants.

Microeconomics

the branch of economics that studies the behavior of individuals and individual firms.

Macroeconomics

the branch of economics that studies the large economic issues and the economy as a whole.

Gross domestic product

(GDP) the dollar value of all finished goods and services produced within the nations’ boundaries within one year.

Gross national product

(GNP) the dollar value of all finished goods and services produced within the nation’s boundaries and the foreign sector within one year.

Inflation

-a period of rising prices
-gdp < ad
-money value decreases

Monetary policy

the government’s adjusting the money supply and interest rates to influence changes in the economy.

Fiscal policy

the government’s adjusting taxation and government spending to influence changes in the economy (Demand-Side/Keynesian Economics).

Aggregate demand

the total quantity of goods and services demanded

Business cycle

the pattern of growth and decline of real GNP; including four phases

Capital

items used to produce goods and services such as machinery, money, and tools.

Real gdp

Gross Domestic Product adjusted for inflation

Command economy/market

an economic system where a central authority makes the major decisions and can intervene

Stagflation

a period of rising prices (inflation) combined with increases in unemployment.

Prime interest rate

the interest rate banks offer their most preferred customers.

Disposable income

income available to consumers after taxes are deductible.

Opportunity cost

the value in time, money, resources given up in making a choice.

Supply side economics

(trickle-down economics) the theory that government can encourage economic growth by helping businesses.

Equilibrium price

-the price where the quantity supplied equals the quantity demanded
-how capitalism determines price
-aka market price

Invisible hand theory

a theory by Adam Smith stating each person acting for their own well-being will serve the interests of society as a whole.

Socialism

an economic system where the resources needed to produce goods and services are owned by the government.

Government subsidy

a government payment to encourage or protect a certain economic activity.

Interest vs. interest income

interest is the price for borrowed money; interest income is what is earned by one who loans money.

National debt

the total amount of money the federal government borrows; the annual deficits combined.

Aggregate supply

the total value of goods and services that all firms produce in a specified period of time.

Asset

an item of value such as money, stock, land, etc.

Elasticity of demand/supply

how sensitive changes in the quantity demanded are to change in price.

Business investment

business decisions to spend on capital goods to promote economic growth.

Bond

a loan of money; an IOU

Tariff

a tax placed on imported products.

Protectionist trade policy

a foreign trade policy that protects domestic producers with tariffs or quotas.

Trade deficit

trade where spending on imports exceeds money made from selling exports.

law of scarcity

the condition that relates from society not having enough resources to produce the things people would like to have; "no free lunch"

elements of trading

-increased wealth
-increased ability to trade
($ makes it faster)

economics questions

1. what to produce?
2. how to produce?
3. for whom?
4. how much/many to make?

characteristics of capitalism

1. private ownership
2. profit motive: if I do this, I make $
3. competition (sometimes)
4. free trade: buy and sell w/out much control
5. think rationally

timeline of creation of markets

factors that affect demand

1. tastes and desires
2. needs and wants
3. ability to buy: do you have the $ for it?

factors that affect supply

1. costs: land, labor, capital
2. changes in tech
3. ability to make profit: "how much can you make?"

capital

start up costs, hidden costs

factors of production

1. land (materials)
2. labor
3. capital
4. entrepreneur

shift: Demand Line

shift: Supply Line

invisible hand: increased demand

ex: iphone

invisible hand: decreased demand

ex typewriter

invisible hand: decreased supply

ex plane tickets this summer

invisible hand: increased supply

ex Ford's cars

WWI economic situation

great depression economic situation

WWII economic situation

inelastic product

demand stays the same, not influenced by price
ex: college, oil, addictive products, health care, water...

post WWII economic situation

business cycle

GDP VS GNP

Gdp: dollar value of all production and services inside a country
gnp: dollar value of production and services produced by US business/residents regardless of location

$ evil?: root of $

1. mark of achievement
2. value
3. ownership of body, mind, effort

$ evil? : money is a tool

1. takes you where you want to go
2. heirs are the worst

is $ evil?

twin evils of economy

inflation and unemployment: when one goes up the other goes down

GDP equation

GDP=consumer spending + government spending + business investments + exports - imports

ideal gdp

gdp= aggregate demand/ total spending

results of recession

causes of inflation

1. gov prints too much $
2. when supply < demand

types of inflation

1. demand pull: ex-only make X number of products, pandemic, more people want, I will offer more for it

2. cost push: cost of making products increase, must sell for more

FED system of banks

keynesian vs Hayek's Austrian school

FDR and Gold

-Gold Reserve Act
-gov will buy your gold, illegal to keep
-gives you note based on how much gold
-not enough gold to back, turns to trust
-Why? gold is more stable

Galbraith

subprime mortgage

mortgages for people who traditionally can't afford (3-5% or even 0%)

traditional mortgage

put down 20%

ARM

adjustable rate mortgage, low at first but changes quickly

glass steagall act

says that banks can't invest in stock market, by FDR

collateralized debt obligations

-subprime + tradition = CDO
- bundle of americans' det to sell as stock

AIG

american insurance group, said would guarantee return

mr. economy

Consumer price index

a statistic used to measure changes in the level of prices