Economics Exam Teaching Concepts

What is the Broken Window Analogy? What are the main teachings the author wants us to understand?

A kid breaks the baker’s window and the village idiot says “hey its okay because the glazier will get paid” but really now the baker has lost money that he could have used to buy a suit or new shoes so even the tailor is hit by this situation. This reminds us that we must not only look at the immediately seen effects from an action but also the unseen ones as a whole

Explain the demand curve and the four conditions that can change the demand curve.

Line goes down at a curve, as price goes up you buy less

TIRE

Tastes and preferences (art, something trending)

Income (as income increases people buy more normal goods)

Price of Related goods (PB&J, complementary goods or substitute goods)

Expectations (future price assumptions)

Explain the supply curve and the three conditions that can change the supply curve.

Goes up, as you get paid more you produce more 1. technology 2. production costs 3. price of related goods ex: construction

Explain all the knowledge we can extract from putting the supply and demand curves together.

We can see the Market Equilibrium Point where the supply and demand curve meet and there is no surplus or shortage

Explain the four national economic goals.

SHELF

Stable prices: need predictability, dont want inflation or deflation

Healthy Economic growth: extensive growth where we use land, labor, and capital to make more of it, intensive growth is entrepreneurship and growth from using the resources better to improve efficiency

Low levels of unemployment: better labor, more competition, more entrepreneurship with a little unemployment

Fair distribution of wealth: egalitarian view of fairness and libertarian view

Explain the egalitarian view of fairness. What are the problems and benefits with this view? Explain the libertarian view of fairness. What are the problems and benefits with this view? How does God’s law bring forth both of these views of fairness (libertarian and egalitarian) in his OT statutes for Israel? How do Christians apply Biblical views of fairness in our modern context?

Egalitarian: Equal outcomes and unequal rules, believe in positive rights (the right to something like healthcare) the negative is there is no limit to what you can get which leads to debt

Libertarian: Equal rules and unequal outcomes, believes in negative rights (right from harm to mind, body, or property) the negative is there is no way to actually protect these things, no judges, police officers, you need to accept some sort of tax on property or something.

God’s laws with egalitarian and libertarian fairness: The laws on not being able to take absolutely everything out of your field, letting the poor, widows, and orphans have the things you drop (book of Ruth)

How do Christians apply this today: Christians needs to hold onto bits of both, caring for the vulnerable and respecting personal responsibility and property

What factors determine whether a nation is more capitalistic or socialistic? In other words, what kind of markers can I look at to determine what kind of economy a country is?

The line goes: communism, centralized socialism, social democracy, state capitalism (USA), classic liberal capitalism (book’s view), anarchy

What is the Federal Reserve? Explain its importance to our economy.

Fed sets interest rates (affects borrowing, spending, and saving in the economy), manages inflation (keeps prices from rising too fast), regulates banks (makes sure they dont collapse)

Explain the money multiplier effect.

When you deposit money in a bank they only have to keep a fraction of it in reserve and they loan out the rest (do the drawing)

Explain this Tool of Money Creation for the Federal Reserve: Discounting

When the Fed lends money directly to banks when they are short on cash and the discount rate is the interest rate the Fed charges them

Explain this Tool of Money Creation for the Federal Reserve: Changing the Reserve Requirement

When the Fed changes the reserve requirement it changes the percentage of deposits the banks must keep and not loan out. If you lower the reserve requirement that means there is more money to loan out and increases the money supply

Explain this Tool of Money Creation for the Federal Reserve: Open Market Operations

• When the Fed buys bonds → it pays banks → banks get more reserves → they can loan out more → money supply increases.

• When the Fed sells bonds → banks pay the Fed → banks lose reserves → they loan out less → money supply decreases.

Explain the competing ideas of Protectionism vs. Free Trade

Protectionism: when a country uses tariffs, quotas, or regulations to limit imports and protect domestic industries

Free Trade: when countries allow goods and services to move without tariffs, quotas, or barriers

What groups are generally hurt by inflation? Who receives some short-term benefit from inflation?

People Hurt: Elderly people and others on fixed incomes, savers (the money theyve saved loses purchasing power), lenders (the money they get repaid is worth less than the money they loaned)

People Who Benefit: Borrowers/ people in debt (they repay loans with “cheaper” dollars), businesses that can raise prices quickly, governments with debt

What are the potential unintended consequences for a city such as Boise raising the minimum wage to $20/hour?

Higher unemployment for low-skill or young workers (businesses may hire less and cut hours)

Higher prices for consumers (places may raise prices to cover labor costs)

Small businesses may struggle or close

Businesses may move out of Boise

What are the potential unintended consequences for a city such as Boise putting a price ceiling of $900 on all apartment rentals?

Housing shortages (everyone wants to get an apartment), Lower quality housing (landlords wont have the money or will to fix problems), reduced incentive to build more apartments, landlords may secretly charge on things

Explain fiscal policy. What tools does the govt. use to enact fiscal policy and what are they attempting to do?

When the govt. uses spending and taxes to influence the economy. Spending: building roads, schools, paying govt. workers, welfare programs

Taxation: lower taxes= people can spend more, higher taxes= cools inflation with less spending

Explain the three forms of taxes (Proportional, Regressive, Progressive). What are the advantages and disadvantages of each?

Proportional: All people pay the same percentage of their earnings

Regressive: Tax that lowers as income rises

Progressive: Tax that rises as income rises, matches income

Give a snapshot of the following economists and what they contributed to the field according to our textbook. (Adam Smith, Carl Menger, Henry Hazlitt, Milton Friedman, Karl Marx, John Maynard Keynes)

Adam Smith: “father of modern economics”, wrote the Wealth of Nations, introduced the “invisible hand” (markets guide themselves), supported free market

Carl Menger: introduced marginal utility, founder of austrian school of economics, prices were a result of individual choices not the govt.

Henry Hazlitt: journalist and economist who wrote Economics in One Lesson, look at long-term effects not just short-term benefits

Milton Friedman: leader of monetarism, controlling money supply was key to controlling inflation

Karl Marx: wrote the Communist Manifesto, believed capitalism created class conflict, wanted workers to own means of production

John Maynard: founder of keynesian economics, said govt should spend more during recessions, wanted active govt. intervention

What institutions are vital for an economy to thrive? Explain how they contribute to human flourishing.

Rule of law, property rights, stable money system, free and open markets

Create trust and security, protect ownership and encourage hard work, support innovation and new ideas, reduce corruption

Explain the three main goals of this class. 1) We can’t have it all, we must make choices 2) Incentives matter 3) The good economist looks at the long-term effects for the many instead of the short-term effects for the few. Use examples from the semester

1) you want to buy new shoes and go out to eat but you only have 60 bucks so you have to choose, in the govt. if they spend more money on education they can’t spend it on the military (scarcity forces choices)

2) when the cost or benefit of something changes, people change their behavior. higher wages make people work more, high tax on cigars makes people smoke less

3) Henry Hazlitt backed this, high minimum wages in the short-term means some workers earn more, long-term there are fewer jobs, higher prices and small businesses struggle

What is money? What constitutes good forms of money verse bad forms of money? Give me your personal opinion as to what form of money you prefer

Money is anything widely accepted as a form of payment in a society, a good form of money is durable, has limited supply, is stable, bad form of money lose value fast, not widely accepted and easy to counterfeit, I prefer fiat money (what we have now) because it is convenient but the con is it can lose value if inflation gets high

Are women underpaid? Explain the reasons for discrepancies in wages between different groups of people and what can be done about it

On average, theyre paid less than men but only because of job differences. Different fields of work, different hours, women have more career interruptions. More affordable childcare, more flexible work options, encourage women into higher paying fields

Explain who does and who does not benefit from minimum wage laws?

Benefit: workers with more experience, workers in high-demand industries

Do not benefit: low-skill workers, teens and first-time workers, small businesses

Explain who does and does not benefit from job automation?

Consumers get cheaper and faster products, businesses save money. Those who were employed older worker who cant retrain or learn a new job, small businesses

Thomas Malthus taught population growth was going to create famine, disease, and war. Explain why he was wrong. How does the Genesis creation mandate of “be fruitful and multiply” compete with the idea of overpopulation?

Thomas Malthus believed in a set pie, where we only have so many resources, he underestimate human innovation, didnt realize that food production grew faster than population. Overpopulation fears that humans only take and consume, which is false. People are a blessing

Explain the scope of our national debt and explain why it is a problem. What is a possible solution or two on the table?

Almost 40 trillion, it is growing faster than the economy is and interest payments are rising rapidly. Higher interest rates crowds out govt. spending, risk of higher taxes, reduced economic growth. Solutions: reduce govt. spending, reform programs that take a good deal of our money, set stricter budget rules

What are the benefits and costs of universal healthcare?

Benefits: fewer people go bankrupt from medical bills, earlier treatment

Costs: higher taxes, longer waits for procedures

What are the benefits and costs of legal immigration? What specific change do you think would benefit our immigration policy here in the US?

Benefits: more workers, higher economic growth, more innovation and entrepreneurship

Costs: pressure on public services, housing demands, short-term costs for education and integration

Helpful changes: increase work visas in high demand fields, improve border security and make legal entry easier