Economics and Personal Finance Flashcards

Intro to Economics

• Economics: The study of how goods and services are produced and distributed in an economy.
• Macroeconomics: The study of large-scale economic factors, such as industries and economies.
• Microeconomics: The study of small-scale economic factors, such as businesses and households.
• Economy: A system in which goods and services are produced and distributed to people.

Key Economic Terms

• Resources: Anything used to make goods and services (e.g., oil for energy).
• Scarcity: The condition where wants are greater than the available resources.
• Needs: Things needed to keep you alive.
• Wants: Things that make life easier.
• Opportunity Cost: The most highly valued alternative given up when a choice is made.
• Trade-Off: When you choose one thing which causes you to have to give up another.

Economic Systems

Traditional Economy

• Definition & Characteristics: Usually found in tribal or small societies; each generation lives the way their predecessors did.
• Example: Remote, family-oriented societies.
• Advantages: Stable; no need for new ideas.
• Disadvantages: No reward for hard work; can't improve one's life.

Command Economy

• Definition & Characteristics: Often associated with communist countries; the government decides how goods and services are distributed.
• Examples: China and other communist countries.
• Advantages: Works well in wartime; sense of equality.
• Disadvantages: Little consumer choice; no reward for hard work; can't improve one's life.

Market Economy (Capitalist)

• Definition & Characteristics: Individuals and privately owned businesses decide how goods and services are distributed through supply and demand.
• Advantages: Allows for growth and freedom of choice.
• Disadvantages: Can be unstable (periods of inflation and unemployment); resources are not distributed equally.

Mixed Economy

• The United States has a mixed economy, which is a market economy with government interference.

Economic Indicators

• Economic Indicators: Statistics that provide insight into the overall health or performance of a country's economy.

Unemployment Rate

• The percentage of the labor force that does not have a job but is seeking employment.

Consumer Price Index (CPI)

• A measure of how much prices of common goods and services have changed over time; tracks a "basket" of items people regularly buy.

Gross Domestic Product (GDP)

• Total market value of all goods and services produced within a country during a certain period.

Business

• Business Firm: An organization that brings together the factors of production to produce and distribute goods and services.
• Efficiency: The ability to achieve a goal with limited waste of effort/resources.
• Growth: Increasing size/value.
• Business Cycle: Period of prosperity.
  • Peak: The highest point of economic activity in a business cycle.
  • Recession: Decrease in business activity for at least 6 months.
  • Trough: The lowest point of economic activity in a business cycle.
• Business Cycle Diagram: Growth -> Peak -> Recession -> Trough

Federal Reserve

• Fiscal Policy: Government's use of spending and taxation to influence the economy.
• Monetary Policy: The Federal Reserve's actions to control the supply of money and credit to influence the economy.

Goals of the Federal Reserve

• Maximize employment.
• Stabilize prices (reduce change of inflation where the value of $ decreases).
• The Chairman of the Federal Reserve is Jerome Powell.

How the Federal Reserve Controls Spending:

To Stimulate the Economy (reduce unemployment)…

• Decrease Interest Rates -> Increase Spending
• Increase Money Supply

To Reduce Inflation…

• Decrease Money Supply
• Increase Interest Rates -> Decrease Spending

Vocabulary

• Economics: The study of the production, distribution, and consumption of goods and services.
• Trade Off: When you choose one thing which causes you to have to give up another.
• Market Economy: An economy where supply and demand for goods and services determines what is produced and consumed.
• Opportunity Cost: What is being given up when a choice is made between different options.
• Traditional Economy: An economy that relies on customs, history, and time-honored beliefs to provide for a community.
• Command Economy: An economy in which production, prices, and incomes are determined centrally by a government instead of by supply and demand.
• Resources: Things such as land, labor, capital, and technology that are needed to produce goods and services.
• Scarcity: The principle that only a finite (limited) number of resources are available, and decisions must be made on how to use them.
• Mixed Economy: An economy that blends a free market based on supply and demand with some level of government intervention.
• Want: Something that is desired, but not necessary for survival.
• Need: Something that is required for human survival.

Personal Finance

Vocabulary

• Gross Pay: Total amount of money earned before deductions are made.
• Net Pay: Amount of money one makes after all deductions are taken out.
• Deductions: Subtractions made from one's paycheck; some are mandatory (required) and some are voluntary (optional).
• Savings Account: A way to put money aside and gain a small amount of interest; transactions can be limited.
• Credit Card: Quick access to borrowed money provided by a bank or institution; the customer is given a certain time to pay the balance before interest is charged.
• Credit Score: Number between 300 to 850 indicates a person's worthiness to pay back a loan.
• 403B: A retirement account for government employees; contributions are pre-tax earnings.
• 401K: Retirement account; allows a person to contribute with pre-tax earnings.
• Checking Account: Gives someone secure and quick access to their money through a variety of channels; checks, ATMs, online transfers.
• Interest: Money paid at a particular rate for the use of money being borrowed; make interest if it is your money or pay interest if one is borrowing the bank's money.

Analyzing a Paycheck

• Gross Pay: Total amount of money earned before any deductions.
• Net Pay: Amount left after all deductions are taken out of gross pay.
• Deductions: Subtractions made to your paycheck.
  • Mandatory Deductions: Deductions which an employer has no control. Ex: FICA
  • Other Deductions: Deductions which your employer offers + you accept -i.e. voluntary deductions. Ex: Life insurance, medical/dental insurance, charity

Saving & Financial Accounts

Retirement Accounts

• 401K: Allows a person to contribute to a savings plan for retirement, from his/her pre-tax earnings, reducing the amount of tax that must be paid. Employer may match contributions up to a certain level
• 403B: Equivalent plan for people who work for the government
• IRA: Individual retirement account- allows a person to contribute up to 5000 of pre-tax earnings /year into a retirement account
• Roth IRA: Same as IRA, but contributions are not tax deductible, but earnings grow tax free
• Checking Accounts: Deposit account held @abank.or other financial institution, for the purpose of securely/quickly and Providing frequent access to on demand check to make payments by writing, transfers, or ATM. What is Overdraft? You spend $ you don't have in account
• Saving Accounts: account that allows people to put money aside + gam a small amount of interest statements available online. Transactions limited/month + additional fees added. What are ATM fees? The fee paid when you get cash at machine + by bank

Investment Types

• Pay Yourself First: Prioritize savings over spending. Save as early as possible.
  *Rule of 72: If you divide the number 72 by the interest rate it will tell you the number of years to double your investment
  *EX- money invested at rate of 7.2\% interest would double in 10 years.
• Certificates of Deposit: Commonly called a CD- These are bank products where the bank pays a fixed amount of interest for a fixed amount of money during a fixed amount of time. Benefits- No risk, simple, no fees, offers higher interest than savings account. Trade-Offs- Restricted access to money and possible withdraw penalty.
• Bonds: A bond is an "IOU," certifying that you loaned money to a government or corporation, outlining the terms of repayment. When it "matured" it is worth more than you paid
• Stocks: Stocks represent ownership of a corporation. Stockholders own a share of the company and are entitled to a share of the profits as well as a vote in how the company is run. Company profits may be divided among shareholders in the form of dividends. Advantages- If the market value goes up the gain can be considerable. Money is easily accessible. Disadvantages- If market goes down, the loss can be considerable.
• Mutual Funds: Mutual funds are professionally managed portfolios made up of stocks, bonds, and other investments. Advantages- Allows small investors to take advantage of professional account management and diversification.

Credit Card Basics

• allows ppl to buy items w/o using cash.
• The user then has a certain period of time to pay back what was spent, until interest is charged

Credit Card Vocab

• Annual Fee: yearly charge to own a credit card
• Annual Percentage Rate (APR): interest rate which is applied to the principal
• Grace Period: number of days you have before the credit card Company charges interest
• Transaction Fee: Charge for using credit over cash
• Minimum Payment: least amount due w/o having to pay penalties

Advantages to Credit Cards

• Good for emergencies
• Help build up a good credit card history, have good credit score
• Gain points/rewards
• Protect against theft

Disadvantages or DANGERS to Credit Cards

• Easy to spend money you don't have
• Difficult to get out of debt
• If not paid off, items are more expensive
• credit card companies can increase APR
• Minimum balance is dangerous

What is a CREDIT SCORE?

• number between 300-850 indicates a person's consumer's worthiness to pay back a loan

Calculating a Paycheck

• Gross Pay = Regular wages (Hours x rate)
• Required Deductions:
  • Federal Income Tax
  • State Income Tax
  • FICA: Social Security Tax (6.20% x gross pay)
  • FICA: Medicare Tax (1.45% x gross pay)
• Other Deductions
  • Medical Insurance
  • Retirement (401k)
• Total Deductions = Total of all deductions.
• Net Pay = Gross Pay - Total Deductions

American Government Basics

1. Explain why we are considered an indirect democracy and not a direct democracy?

   Indirect democracy is when the people elect someone to vote on issues instead of voting on issues themselves.
   In the US, we elect senators to vote on issues.

2. Name and briefly explain the role of the three branches?

   Legislative - makes laws
   Executive-enforces laws
   Judicial - interprets laws

3. Briefly list which people are in the legislative and executive branches? (for instance the Supreme Court is in the judicial branch)

   legislative Branch has Congress which consists of the Senate + House of
   Representatives.
   Executive Branch has the president, vice president, etc.

4. What is federalism?

   When power is split between a federal and state government.

Unit 8 Economics

5. What is the difference between microeconomics and macroeconomics?

   Microeconomics- small scale businesses (tree)
   Macroeconomics- large scale industries (forest)

6. Name and briefly describe the different types of economic systems.

   Traditional- each generation lives the way
   command - Gov't decides how goods + services are distributed w/
   little choice between products
   Market-individual + privately owned businesses decide how
   goods + services are distributed.

7. Why is the United States seen as a mixed economy?

   US is seen as a mixed economy because it's a market economy w/ gov't interference.

8. Define supply and demand, and what is the relationship between the two?

   supply is how much a business has of a product.
   Demand is how much customers want it.
   The relationship determines how much businesses will make.
   Supply ↑ Demand T = make money supply ↑ Demand↓ = not
   Supply Demand ↑ = make money
   Supply & Demand = not

9. What is it called when the supply curve and the demand curve intersect?

Market equilibrium

10. Provide an example of the following terms (know the definitions as well):

    Scarcity- when wants > resources available opportunity cost- The most highly valued at. limited supply of any
    Product ppl need it.
    Needs- things needed to stay alive
    Food, water, etc.

    given up when choice is
    made
    Wants- things that make life easier
    Tech, jewelery, etc.

11. Draw a label a Business Cycle with the following terms: growth, peak, recession, trough.

Peak
(Graph)
recession
trough

12. What is the Federal Reserve and how does it control economic activity (spending)?

The Federal Reserve is the central bank of the US. It controls economic spending through maximizing employment and stabilizing prices.

13. What is the difference between a budget deficit and budget surplus?

Budget deficit- when someone spends higher than their revenue
Budget surplus- when someone spends less than their revenue.

Unit 9 Financial Literacy

1. What is the difference between gross pay and net pay?

Gross Pay- total money earned before deductions
Net Pay - money earned after deductions

2. What are some examples of mandatory deductions?

FICA, income tax, social security

3. What are some examples of other (voluntary) deductions?

Life insurance, medical insurance, charity

4. Know what kind of information is included in a paycheck.

• pay period
• allowances
• Giross Pay
• Deduction (mandatory & voluntary)
• Total $ of deductions
• net Pay

4. Describe the concept of "Pay Yourself First"?

Priontice saving over spending and saving as early as possible.

6. What is the difference between a savings account and a checking account?

savings - allows people to set aside money + gain interest, limited transaction
Checking- account held @ bank to securely /quickly provide frequent access to funds

7. Name and describe the different types of investments.

• Bonds- an "100" saying you loaned money to gov
• Stocks- ownership of a corporation.
• certificate of Deposit- Bank pays a fixed amount of money for a certain amount of time.
• Mutual funds-Professionally managed portfolios made of stocks, bonds, other
  investments

7. What are the advantages and disadvantages of credit cards?

   ADVANTAGES -

   • Good for emergencies
   • help build up a good credit card history / credit score
   • Gain points + rewards
     DISADVANTAGES-
   • Easy to spend money you don't have
   • Difficult to get out of debt
   • If not paid off, items are more expensive
   • Credit Card companies can increase APR
   • Minimum balance is dangerous