Economics Review Notes

Unit 1 Quiz Fundamentals of Economics Review

Key Concepts

  • Economics:

    • The study of how individuals and societies make choices about how to allocate scarce resources.
    • Fundamental economic questions:
    • How is it going to be produced?
    • What are we going to produce?
    • Who receives how much?

  • Types of Economic Analysis:

    • Analytical or Positive Economics:
    • Focuses on what is, describing and explaining economic phenomena.
    • Normative or Policy Economics:
    • Concerned with what ought to be, involving value judgments and policy prescriptions.

  • Scarcity:

    • The fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.

  • Opportunity Cost:

    • The cost of forgoing the next best alternative when making a decision.

Economic Models

  • Business Cycle Model:
    • Describes the fluctuations in economic activity over time, typically consisting of four phases: expansion, peak, contraction (recession), and trough.

Financial Instruments and Accounts

  • Bond:
    • A fixed income instrument that represents a loan made by an investor to a borrower.
  • Common Stock:
    • Represents ownership in a company and entitles shareholders to vote on corporate matters and receive dividends.
  • Mutual Fund:
    • An investment vehicle made up of a pool of money collected from many investors to invest in securities like stocks and bonds.
  • GIC (Guaranteed Investment Certificate):
    • A savings product sold by banks that guarantees the investor a fixed rate of return.
  • RRSP (Registered Retirement Savings Plan):
    • A retirement savings plan that allows individuals to save money tax-deferred until withdrawal.
  • TFSA (Tax-Free Savings Account):
    • A type of savings account in which contributions are not tax-deductible, but any income earned is tax-free even upon withdrawal.

Economic Measurements

  • GDP (Gross Domestic Product):

    • The total monetary value of all final goods and services produced in a country within a specific time period.
    • Components of the GDP Equation:
      • Consumption (C): Total spending by households.
      • Investment (I): Total spending on capital goods that will be used for future production.
      • Government spending (G): Total government expenditures on goods and services.
      • Net Exports (NX): Exports minus imports.

  • Rate of Return or Yield:

    • The income earned from an investment over a specific period, expressed as a percentage of the investment's initial cost.

Personal Finance Concepts

  • Savings Account:
    • A bank account that earns interest on the deposited balance.
  • Chequing Account:
    • A deposit account held at a financial institution that allows for numerous withdrawals and deposits.
  • Collectibles:
    • Items that are collected for their value or rarity, often used as an investment.
  • Risk:
    • The potential of losing something of value; in finance, usually refers to the possibility of losing an investment.

Types of Economy

  • Types of Economy:
    • Command Economy: Economic system where the government makes all decisions.
    • Pure Market Economy: Economic system where decisions are made by supply and demand forces.
    • Mixed Economy: A combination of command and market economies, where both government and private sector play a role in economic decisions.

Utility

  • Utility:
    • A measure of satisfaction or pleasure derived from consuming goods and services.

Cost-Benefit Analysis

  • Cost-Benefit Analysis:
    • A systematic approach to estimating the strengths and weaknesses of alternatives (for example, in transactions, activities, or functional business requirements). It helps to determine options that provide the best approach to achieve benefits while preserving savings.