2025-2026 Economics Resource Guide

These flashcards focus on key economic concepts, historical events, and principles from the 2025-2026 resource guide.

What is scarcity in economics?

Scarcity refers to the limited availability of resources to meet unlimited human wants.

What does the term opportunity cost mean?

The cost of what you choose is what you have to give up to get it; it is the value of the next best alternative.

What are the basic assumptions of economics?

Individuals make choices based on self-interest, goods and resources are scarce, and decisions involve trade-offs.

What is positive economics?

Positive economics describes and explains economic phenomena without value judgments.

Define normative economics.

Normative economics uses analysis to guide decisions about what should be, incorporating value judgments.

What is Pareto efficiency?

An allocation is Pareto efficient if no individual can be made better off without making someone else worse off.

What are microeconomics and macroeconomics?

Microeconomics focuses on individual behavior and markets; macroeconomics looks at the overall economy and large-scale economic factors.

Explain elasticity in economics.

Elasticity measures the responsiveness of quantity demanded or supplied to changes in price.

What is a perfectly competitive market?

A market with many buyers and sellers, where no single buyer or seller can influence the market price.

What factors can shift the demand curve?

Changes in income, prices of related goods, tastes, expectations, and number of buyers.

What does the supply curve represent?

The quantity of a good that producers are willing and able to produce at each price.

What are the characteristics of market equilibrium?

Market equilibrium occurs when quantity demanded equals quantity supplied, leading to a stable market price.

What is consumer surplus?

The difference between what consumers are willing to pay for a good and what they actually pay.

What is producer surplus?

The difference between the price producers receive for a good and the minimum they are willing to accept.

How does price elasticity of demand affect total revenue?

If demand is elastic, a price decrease increases total revenue; if inelastic, a price decrease decreases total revenue.

What is the definition of GDP?

Gross Domestic Product measures the market value of all final goods and services produced within a country during a specified period.

How does the GDP deflator differ from the CPI?

The GDP deflator measures price changes for all domestically produced goods, while CPI measures price changes for a fixed basket of consumer goods.

What factors can cause fluctuations in GDP?

Changes in consumer spending, investment, government spending, and net exports.

What is cyclical unemployment?

Unemployment caused by economic downturns and fluctuations in the business cycle.

What is structural unemployment?

Unemployment resulting from mismatches between workers' skills and job requirements.

What is frictional unemployment?

Unemployment that occurs when workers are in between jobs or entering the workforce.

What was significant about the U.S. economy in the 1920s?

It was characterized by rapid growth, innovation, and a shift towards consumer credit.

What is the relationship between economic growth and living standards?

Increased economic growth typically leads to higher living standards through better access to goods and services.

What happened during the 1929 stock market crash?

The stock market collapsed, leading to widespread economic hardship and the onset of the Great Depression.

What actions did the government take during the Great Depression?

Implemented various policies, including the New Deal to stimulate the economy and provide relief.

What was the impact of World War II on the U.S. economy?

It stimulated economic recovery and growth after the Great Depression, leading to increased production and employment.

What is creative destruction?

The process by which old technologies and industries are replaced by new ones, leading to economic growth.

What is the circular flow model in economics?

A model that illustrates the flow of money and goods between households, firms, and the government.

What are financial markets?

Institutions that facilitate the transfer of funds between savers and borrowers.

What are bonds?

Certificates of indebtedness that represent a loan made by an investor to a borrower.

What is a stock?

A share of ownership in a company that can yield returns in the form of dividends or capital gains.

What role do banks play in the economy?

They accept deposits, make loans, and facilitate transactions, helping to manage the money supply.

What is the Federal Reserve System?

The central bank of the United States responsible for regulating the money supply and overseeing the banking system.

What is monetary policy?

The process by which the central bank manages the money supply to achieve specific goals, such as controlling inflation.

What are the main tools of the Federal Reserve?

Open market operations, discount rate adjustments, and reserve requirements.

How does the money multiplier effect work?

The process by which banks create money by lending out a portion of deposits, increasing the money supply.

What is inflation?

A general increase in prices across the economy.

What is the relationship between money supply and prices?

In the long run, an increase in the money supply tends to lead to an increase in the price level.

What is the impact of government regulations on the economy?

Government regulations can correct market failures but may also create inefficiencies, such as rent-seeking behavior.

Define public goods.

Goods that are non-excludable and non-rivalrous, meaning they are available to everyone without diminishing availability.

What is a common resource?

A resource that is rivalrous but non-excludable, leading to potential overuse and depletion.

What is the tragedy of the commons?

The depletion of a shared resource when individuals act in their self-interest, leading to negative consequences for the group.

How do externalities affect market outcomes?

Externalities occur when an action by an individual or firm has effects on third parties that are not reflected in market prices.

What role does government have in addressing externalities?

Governments can use taxes, subsidies, or regulations to correct externalities and promote efficient market outcomes.

What is the importance of property rights in economics?

Well-defined property rights help allocate resources efficiently and reduce conflicts over resource use.

What led to the Great Recession of 2007-2009?

The housing market crash, excessive risk-taking by banks, and a lack of regulatory oversight contributed to the crisis.

How did the government respond to the Great Recession?

By implementing fiscal stimulus measures and reducing interest rates to encourage borrowing and spending.

What are the phases of the business cycle?

Expansion, recession, peak, and trough; cycles of economic growth and decline.

What is Okun's Law?

A relationship that states for every 1% increase in the unemployment rate, GDP is an estimated 2% lower than its potential.

What factors contribute to economic growth?

Investment in physical and human capital, technological advancement, and the political and legal environment.

What is the role of consumer credit in the economy?

Consumer credit allows households to make purchases by borrowing, which can stimulate economic growth and spending.

How do tariffs impact trade?

Tariffs increase the cost of imports, potentially reducing international trade and affecting consumer prices.

What characterizes monopolistic competition?

Markets where firms sell similar but differentiated products, allowing them some market power.

What is creative destruction in economics?

The process where new innovations replace older products or methods, leading to economic growth.

What economic indicators are important for macroeconomic assessment?

GDP, inflation rate, unemployment rate, and consumer confidence index are crucial indicators.

What did the Glass-Steagall Act do?

It separated commercial and investment banking to reduce risks in the banking sector.

What is the significance of the Federal Deposit Insurance Corporation (FDIC)?

The FDIC insures deposits in banks to maintain consumer confidence and stability in the banking system.

What happens during a bank run?

A rush by depositors to withdraw their funds from a bank due to fears that the bank will become insolvent.

What are the policies to support consumers in economic downturns?

Fiscal stimulus, unemployment benefits, and financial aid programs to maintain purchasing power.

Define government deficit and surplus.

A deficit occurs when government expenditures exceed revenues, while a surplus occurs when revenues exceed expenditures.

What are the ways governments can influence aggregate demand?

Through fiscal policy (government spending and taxes) and monetary policy (control of the money supply).

How did increased stock ownership affect the economy in the 1920s?

Rising incomes and investment in the stock market contributed to increased consumer spending and speculation.

What were the main causes of the Great Depression?

Stock market crash, banking failures, high unemployment, and contraction of international trade.

What lessons were learned from the Great Depression that improved responses in the Great Recession?

The importance of timely intervention, economic stimulus, and regulatory oversight.

What distinguishes between a recession and a depression?

A recession is a temporary economic decline, while a depression is a prolonged downturn with significant declines in economic activity.

How do firms determine their production levels?

By comparing marginal costs to marginal revenues to maximize profits.

What are the effects of government intervention in markets?

It can correct market failures but may also create inefficiencies and distortions.

What historical events shaped the economic landscape in the 1920s?

Post-World War I prosperity, introduction of new technologies, and consumer credit expansion.

What was the primary impact of the Fordney-McCumber Tariff?

It raised tariffs on imported goods to protect domestic industries but reduced international trade.

What challenges does economic measurement face?

Determining what constitutes final goods, measuring non-market activities, and accounting for quality changes.

Who are the main actors in the circular flow model?

Households, firms, and the government.

How do wages relate to living standards?

Higher wages typically lead to improved living standards through increased consumption.

What characterizes sustainable economic growth?

Long-term increases in GDP per capita without excessive inflation.

What is the significance of velocity in the money supply?

Velocity represents how quickly money circulates in the economy and affects the overall price level.

What are the components of GDP?

Consumption, investment, government spending, and net exports.

What is the consumption function?

A relationship showing how household consumption spending varies with income levels.

How does inflation impact fixed income earners?

Inflation erodes purchasing power, making it harder for fixed income earners to maintain their standard of living.

What does fiscal policy aim to achieve?

To influence economic activity and stabilize the economy through government spending and tax adjustments.

What was a major flaw of the U.S. response to the Great Depression?

Inconsistent policies leading to contradictory effects, such as simultaneous tax increases and stimulus spending.

What is the role of innovation in economic growth?

Innovation drives productivity increases and creates new markets, leading to enhanced economic performance.

What is the economic significance of consumer credit expansion in the 1920s?

It allowed more households to afford durable goods, enhancing overall consumption and economic activity.

How do subsidies assist in managing externalities?

Subsidies can encourage positive externalities by providing financial support to activities that generate social benefits.