fiscal year
a one year period that companies and governments use for financial reporting and budgeting.
budget deficit
If the government spends more than it takes in with taxes for the year
budget surplus
If the government spends less than it takes in with taxes for the year. VERY rare for our federal government.
fiscal policy
when the government changes taxes and spending to achieve an economic or social goal.
Ex. economic goal - helping out during recession, social goal - reducing green house gas emissions
excise
tax on a few specific goods. Car rentals, hotel rooms,Tobacco, alcohol, gasoline.
REGRESSIVE
sin tax
tax placed on a specific good that is genuinely deemed as bad for the person, but not illegal. (cigarettes, alcohol, sugary drinks, fast food). REGRESSIVE
social security tax
tax that all people pay from their paycheck to the gov’t to pay for older/retired Americans. PROPORTIONAL
sales tax
tax placed on many/broad range of goods. REGRESSIVE
property tax
tax on value of property (home, business…)
Individual Income Tax
tax that people pay from their paycheck to the gov’t. The largest part of all the taxes paid to our government
PROGRESSIVE
crowding out
the more the government gets involved in the economy the less the private sector(households) get involved. (the more the government does for people, the less likely they are to do it themselves)
crowding in
the less the government gets involved, the more the private sector does for itself.
aggregate supply
the total supply of goods and services produced within an economy at a given overall price in a given period
expansionary fiscal policy (taxes)
Goverment cuts taxes on people/businesses to allow them to have more money to spend (increases agg. demand and helps businesses hire more workers)
Downside: usually means deficit and adds to national debt
contractionary fiscal policy (taxes)
government raises taxes and causes people to have less money to spend (decreases agg.demand)
expansionary fiscal policy (spending)
government may spend more money to try to stimulate growth (increasing spending on project like building roads, bridges, and other big items)
Downside: means deficit and adds to national debt
contractionary fiscal policy (spending)
The government may spend less money, or may cut federal budgets to lower the amount of money it is pumping into the economy
regressive tax
a tax that has a higher level of impact on people who earn lower incomes
proportional taxes
everyone pays the same percentage of their income in taxes no matter if you make a lot or a little in income.
progressive taxes
as you make more money, you will pay a higher percentage of your income in taxes
barter economy/system
the exchange of goods and services between two or more parties without the use of money
monetary unit
the standard unit of value of a country’s form of money
Federal Reserve System (FED)
our nation’s central banking system that is meant to have several goals:
make banking safer
helps reach full employment
helps keep stable prices
controls money supply and interest rates
FDIC
Federal Deposit Insurance Corporation:
protects bank depositors from losing their insured deposits
Board of Governors
top leaders of the FED (5). They control and coordinate major banking polices and provide information/report it to congress
Federal Reserve District banks
The 12 Federal Reserve Banks and their 24 Branches are the operating arms of the Federal Reserve System. Each Reserve Bank operates within its own particular geographic area, or District, of the United States. (provide services to commercial banks similar to what commercial banks provide for their customers)
Federal Open Market Committee (FOMC)
BOG and 7 others . Responsible for determining whether to raise or lower the money supply and interest rates
Fractional reserve system/banking
banks only hold a small portion of each deposit - then make loans on the other part (lend out the rest)
keeps money safe
expands supply of money by allowing banks to make loans with someone else’s money
business cycles
ups and downs of economy and GDP
inflation (What’s the normal rate?)
the rate of increase of prices over a given period of time (normal rate: 2-4%)
lowers value of money
hurts those who save
hurts banks lending money
helps those who borrow money
deflation
the overall decrease in the cost of an economy's goods and services. (sign of recession)
monetary policy
a set of actions to control a nation's overall money supply and achieve economic growth
reserve requirement
the amount of money that a bank holds to ensure that it is able to meet liabilities in case of sudden withdrawals.
member bank reserves
the cash minimum that banks must have on hand in order to meet central bank requirements
excess reserves
funds held at the bank that exceed the Federal Reserve's minimum requirement.
interest rate
how much banks charge on loans to people/businesses
money supply
how much money is in circulation. (high interest rates lead to lower supply - low interest to higher supply)
aggregate demand
total amount of money being spent in the economy.
society’s demand
higher agg demand means economy is going up
Business Cycle: Peak
Business Cycle: high point of economy and GDP. (between the end of an economic expansion and the start of a recession in a business cycle.
Business Cycle: Recession/Contraction
Business Cycle: economic indicators start to fall (GDP, housing, business earning, and unemployment rises)
Business Cycle: Trough
Business Cycle: economy bottoms out and starts to improve (before a rise/recovery)
Business Cycle: Recovery
GDP starts to rise again (improving business activity)
Business Cycle: expansion/growth
an increase in the production of goods and services in an economy - GDP passes old peak and economy is growing bigger than previous
sole proprietorship
someone who individually owns a business. (they make all the decisions and take all the losses…but make all the profits)
Partnership
a business that is owned by 2 or more co-owners who share profits and debts of a business
Corporation
a legal company or group of people that acts as one. (owned by stockholders)
Franchise
a company that allows people to run and buy a firm
Unlimited liability
business owner(s) or partners are liable for their comany’’s debts and taxation (you may be forced to use your own personal assets)
limited liability
if your business fails, courts cannot force you to pay debts with your own personal assets (assets and debts of the business remain separate from personal assets)
stock
certificate of ownership of a small piece of a corporation (a claim in the ownership of a company)
stockholders
an individual that owns at least one share of an organisation’s capital stock
dividend
money paid to the owner of a corporation’s stock - Usually portion of corporation profits (the distribution of a company's earnings to its shareholders)
Double taxation
when stockholders have to pay both income tax, and corporate taxes (corporations pay income tax, then shareholders pay tax of dividends)
Cooperative
members pool resources to benefit all who are involved. (business owned by member-owners)
Market structure
# of sellers, the product, ease/difficulty of market entry (barrier to entry), control over prices, product differentiation
Product differentiation
a process used by businesses to distinguish a product or service from other similar ones on the market
Nonprice competition
the use of advertising, commercials, promotional giveaways, or other ways of trying to set a product apart from a competitor (other than price)
Patent
allow people to have monopolies on inventions (right granted for invention)
Copyright
allow someone to have monopoly on written works (right granted for written works)
Trusts
holds assets so that they are safe from creditors or others that might have a claim on them after the grantor's death.
Price discrimination
when businesses charge different prices for different people (Ex. age, gener, race) - usually illegal
Externalities
unintended side effects that can be positive or negative (Ex. safety regulations - makes products more expensive)
Wage rate
the wage level (dollar amount) that is paid to a worker for their service
Market theory of wage determination
supply and demand for a worker’s skills/services will determine the wage/salary they receive
Equilibrium wage
the wage level where there is no surplus or shortage of labor. - generally it will be below the minimum wage
Minimum wage
the lowest wage per hour that a worker may be paid. - mandated by federal law
Unemployment rate
the number of unemployed people in the labor force. - as a percentage
Labor union
organization seeking to increase the wages and improve the working conditions of it’s members
Collective bargaining
negotiations between the union and the business about pay, benefits, and other work matters
Strike
labor unions can stop working in order to try to force businesses about pay, benefits, and other work matters
a, b
Many sellers:
a. pure competition
b. monopolistic competition
c. Oligopoly
d. monopoly
(may be more than 1 answer)
a
identical products:
a. pure competition
b. monopolistic competition
c. Oligopoly
d. monopoly
(may be more than 1 answer)
c
few large companies:
a. pure competition
b. monopolistic competition
c. Oligopoly
d. monopoly
(may be more than 1 answer)
d
one seller:
a. pure competition
b. monopolistic competition
c. Oligopoly
d. monopoly
(may be more than 1 answer)
b, c
products are slightly different:
a. pure competition
b. monopolistic competition
c. Oligopoly
d. monopoly
(may be more than 1 answer)
d
products are unique:
a. pure competition
b. monopolistic competition
c. Oligopoly
d. monopoly
(may be more than 1 answer)
a
no barriers to entry:
a. pure competition
b. monopolistic competition
c. Oligopoly
d. monopoly
(may be more than 1 answer)
b
low barriers to entry:
a. pure competition
b. monopolistic competition
c. Oligopoly
d. monopoly
(may be more than 1 answer)
c, d
significant/extremely high barriers to entry:
a. pure competition
b. monopolistic competition
c. Oligopoly
d. monopoly
(may be more than 1 answer)
a
price taker:
a. pure competition
b. monopolistic competition
c. Oligopoly
d. monopoly
(may be more than 1 answer)
b, c, d
price searcher:
a. pure competition
b. monopolistic competition
c. Oligopoly
d. monopoly
(may be more than 1 answer)
b, c
use of advertising and non-price differentiation:
a. pure competition
b. monopolistic competition
c. Oligopoly
d. monopoly
(may be more than 1 answer)
a, d
no advertising:
a. pure competition
b. monopolistic competition
c. Oligopoly
d. monopoly
(may be more than 1 answer)
a
Ex. Agriculture commodities(milk, potatoes):
a. pure competition
b. monopolistic competition
c. Oligopoly
d. monopoly
(may be more than 1 answer)
b
Ex. restaurants, hair salons, household items, clothing:
a. pure competition
b. monopolistic competition
c. Oligopoly
d. monopoly
(may be more than 1 answer)
c
Ex. car industries and airlines:
a. pure competition
b. monopolistic competition
c. Oligopoly
d. monopoly
(may be more than 1 answer)
d
Ex. water, electricity, first class mail:
a. pure competition
b. monopolistic competition
c. Oligopoly
d. monopoly
(may be more than 1 answer)
demand
The willingness and ability to purchase an item
demand schedule
a table that shows the quantity demanded of a good or service at different price levels
demand curve
a graph that shows the relationship between the price of a good/service and the quantity demanded within a specified time frame (Any time the price changes…the quantity demanded will change)
(supply to the sky, demand to the sand)
law of demand
as the price goes up - quantity demanded goes down
law of diminishing marginal utility
the more you consume, the less satisfaction you receive from consumption. (lower prices are needed to entice more buying)
change in quantity demanded
a change in the quantity demanded due to price change
a shift in demand
a change in the quantity demanded due to an outside factor (other than price)
substitutes
used in place of another product (competitors)
complements
Commonly purchased items together
supply
How much of a product or a service will be produced and sold.
law of supply
as price goes up - quantity supplied goes up
Supply has a direct relationship as opposed to demand (indirect)
supply schedule
a table that shows the quantity supplied at each price