Last econ test

1. What is GDP?

The total dollar value of all goods and services produced within a country’s borders in a given year.GDP (Gross Domestic Product)

1. What is GNP?

The total dollar value of everything produced by a country's citizens, no matter where they are in the world.Gross National Product

The Business Cycle Peak:

The top of economic growth; employment is high.

The Business Cycle Contraction/Recession:

The economy is shrinking; unemployment is rising.

The Business Cycle Expansion:

the economy is growing, businesses hire more workers, and people spend more money

The Business Cycle Through:

 Lowest point of the cycle, Economy is weak, Growth begins again afterward

whats a recession

a period when the economy shrinks for a significant amount of time.

• Less spending

• More unemployment

• Lower business activity

What is the Consumer Price Index (CPI)

measures changes in the prices people pay for common goods and services.

purpose of Consumer Price Index (CPI)

• Its primary purpose is to measure inflation and track changes in the overall cost of living

What is inflation

prices rise over time and money buys less than before.

What is monetary policy?

how the government controls the money supply and interest rates.

How does inflation happen?

when the general price of goods and services rises, meaning your money loses purchasing power over time

whats the monetary policy’s goal

to keep the economy healthy by managing the money supply and interest rates.

Who controls the monetary policy?

The Federal Reserve (the Fed)

Tight (Contractionary) Monetary Policy

a strategy used by a central bank to slow down an overheated economy and fight rising inflation

Easy (Expansionary) Monetary Policy

Used to stimulate the economy during slow times. Lowers interest rates Makes borrowing easier Increases money supply

Three tools of monetary policy

Reserve Requirement, Discount Rate, and Open Market Operations

What are the Fed’s goals?

Keep prices stable Reduce unemployment Promote economic growth

How the Fed uses its tools in business during recession:

Lowers interest rates, buys bonds, and encourages borrowing and spending. also known as the expansionary policy

How the Fed use contractionary policy during the business cycle with inflation/rapid growth:

• raising interest rates, which makes borrowing more expensive.

What is fiscal policy

the government’s use of taxes and spending to influence the economy.

what is the fiscal policy goal

• to use government spending and taxation to guide the economy, keeping it on a steady, healthy path of growth

who controls the fiscal policy

• Congress and the President

Expansionary Fiscal Policy

a government strategy used to boost a slow economy

what is a Contractionary Fiscal Policy

Used during inflation.a tool governments use to slow down an overheating economy

Progressive Tax

Higher-income people pay a larger percentage.

Regressive Tax

Lower-income people pay a larger percentage of their income.

Proportional Tax

Everyone pays the same percentage.

Where do state and local governments get money?

• Property taxes

• Sales taxes

• State income taxes

• Fees and licenses

Mandatory Spending

Spending Required by law: Social Security, Medicare, Medicaid

Discretionary Spending

money spent on "wants" rather than needs Chosen each year by Congress. Like military, education, Education, and National parks

Transfer payments

government payments made without receiving goods or services in return.

Who owns most of the U.S. debt?

American investors, Foreign countries, The Federal Reserve

How could the government balance the budget?

• Raise taxes

• Reduce spending

• Do both at the same time

Purposes of taxes

to pay for government services, Build roads and schools, Support defense, Help the economy.

Perfect Competition

• Many businesses

• Same products

• Easy to enter market

Monopolistic Competition

a market where many businesses sell similar, but not identical, products. Many businesses, Similar but slightly different products, Heavy advertising

Oligopoly

a market dominated by a small number of large companies- Few large companies control market and Companies depend on each other

Monopoly

when one single company or person is the only supplier of a product or service. Because they have no competition, they can set whatever prices they want and consumers have nowhere else to go.

How monopolies exist

because of barriers to entry—essentially obstacles that make it nearly impossible for other businesses to compete. [1, 2, 3]