1.0-4.0 Flashcards
The production of goods and services under______ is based on supply and demand in the general market—known as a MARKET ECONOMY—rather than through central planning—known as a planned economy or COMMAND ECONOMY.
Capitalism
It is central planning—known as a planned economy or _____
Command Economy
The Forefather of capitalist thinking
Adam Smith
The production of goods and services under capitalism is based on supply and demand in the general market—known as a
Market economy
Prices allocate Capital and Labor between competing uses
Capitalist Economy
Government intervention can stabilize the economy.
Assumption of Keynesian Economics
His assumption was that humans were self-serving by nature but that as long as every individual were to seek the fulfillment of her/his own self-interest, the material needs of the whole society would be met.
Adam Smith
In a capitalist economy. the market operates under the ______.
Laws of supply and Demand
Example of Capitalist countries
- Hong Kong
- Singapore
- New Zealand
- Switzerland
- Australia
Ownership lies in the hands of individuals.
Capitalist Economy
What is the purest form of capitalism?
Free market or laissez faire
Is an economic system in which private individuals or businesses own capital goods.
Capitalism
It was marked by steeped declines in industrial production and in prices (deflation), mass unemployment and sharp rates of poverty and homelessness. It was the longest and most severe economic downturn in modern history.
The Great Depression
Competition between individuals who own the factors of production keep prices reasonable, production cost-effective, and quality high.
Capitalist economy
He wrote “The General Theory of Employment, Interest and Money (1935-1936)”
John Maynard Keynes
Father of modern Capitalism
Adam Smith
It was the longest and most severe economic downturn in modern history.
The Great Depression
He wrote “A Tract on Monetary Reform (1923)”
John Maynard Keynes
The more people spend, the larger the multiplier effect.
Assumption of Keynesian Economics
Profit is made by producing goods and services at the lowest possible cost while selling them at the highest possible price.
Capitalist Economy
Is a simplified version of reality that allows us to observe, understand, and make predictions about economic behavior
Economic Model
It is the amount a producer is willing to supply in the market while
Supply
Is the social science that studies the implications of incentives and decisions, specifically about how those affect the utilization and distribution of resources.
Microeconomics
They provide qualitative answers to specific questions—such as the implications of asymmetric information or how best to handle market failures.
Theoretical Models
Stock market crash resulting in reductions of spending and investing
The Great Depression
Deals with prices and production in single markets and the interaction between different markets but leaves the study of economy-wide aggregates to macroeconomics.
Microeconomics
Concept of Microeconomics
- Incentives & Behavior
- Utility Theory
- Production Theory
- Price Theory
It is the desire of consumers to purchase a product.
Demand
It studies the decisions of individuals and firms to allocate resources of production, exchange, and consumption.
Microeconomics
Limits of Macroeconomics
*Fallacy composition
*To regard the aggregates as homogenous
*Aggregate variables may not be important necessarily
*Indiscriminate use of macroeconomics
*Statistical and Conceptual Difficulties
Macroeconomics School of Thought
- Classical
- Keynesian
- Monetarist
- New Classical
- New Keynesian
- Austrian
a branch of economics that studies how an overall economy—the markets, businesses, consumers, and governments—behave
Macroeconomics
It generally consists of a set of mathematical that describe the theory of economic behavior.
Economic Model
Government Spending leads to more spending.
Assumption of Keynesian Economics
Is a diagram indicating that the economy consists of households and firms interacting in a goods-and-services market and a labor market
Circular flow diagram
*Seek to derive verifiable implications about economic behavior under the assumption that agents maximize specific objectives subject to constraints that are well defined in the model.
*For example, an agent’s budget.
Theoretical Models
Aim to verify the qualitative predictions of theoretical models and convert these predictions to precise, numerical outcomes.
Empirical Models
The_______ marketplace operates without checks or controls.
Laissez-faire
Focuses on the supply that determines the price level of the economy.
Microeconomics
It examines economy-wide phenomena such as inflation, price levels, rate of economic growth, national income, gross domestic product (GDP), and changes in unemployment.
Macroeconomics
