B.11 Economic concepts Flashcards
Economic model describing how prices and quantities of goods and services are determined in a market system.
Supply and Demand
Price adjusts to equate quantity supplied with quantity demanded.
Total monetary value of all finished goods and services produced within a country’s borders in a specific time period.
Gross Domestic Product (GDP)
Economic health and growth.
Fluctuations in economic activity characterized by periods of expansion and contraction.
Business Cycles
Expansion, peak, recession, trough.
Percentage of the labor force that is jobless and actively seeking employment.
Types: Frictional, structural, cyclical.
Unemployment Rate
Frictional, structural, cyclical.
Rate at which the general level of prices for goods and services rises, eroding purchasing power.
Inflation
Consumer Price Index (CPI).
The cost of borrowing money, expressed as a percentage of the amount borrowed.
Interest Rates
Investment, consumption, and economic growth.
Graph showing the relationship between interest rates and the maturities of debt securities.
Yield Curve
Normal (upward-sloping), inverted (downward-sloping), flat.
Government adjustments to spending and taxation to influence the economy.
Fiscal Policy
Government spending, tax policies.
Central bank actions that manage the money supply and interest rates to influence economic activity.
Monetary Policy
Open market operations, discount rate, reserve requirements.
The value of one currency for the purpose of conversion to another.
Exchange Rates
Imports, exports, and international investments.
Economic theory that compares different countries’ currencies through a “basket of goods” approach.
Purchasing Power Parity (PPP)
Exchange rates should adjust to equalize the price of identical goods in different countries.
The loss of potential gain from other alternatives when one alternative is chosen.
Opportunity Cost
Highlights the cost of foregone options in decision-making.
The additional satisfaction or benefit received from consuming one more unit of a good or service.
Marginal Utility
Law of Diminishing Marginal Utility: As consumption increases, the marginal utility derived from each additional unit declines.
Measure of how much the quantity demanded or supplied of a product changes in response to a change in price.
Elasticity
Price elasticity of demand, price elasticity of supply.
The ability of an entity to produce a good or service at a lower opportunity cost than others.
Comparative Advantage
International trade and specialization.
The ability of an entity to produce more of a good or service with the same amount of resources as others.
Absolute Advantage
Comparative advantage.
Total demand for goods and services within an economy at a given overall price level and in a given time period.
Aggregate Demand
Consumption, investment, government spending, net exports.
Total supply of goods and services that firms in an economy plan to sell during a specific time period at a given price level.
Aggregate Supply
Short-run aggregate supply can be influenced by production costs; long-run is determined by factors like technology and resources.
Economic condition characterized by slow growth, high unemployment, and rising prices (inflation).
Stagflation
Difficult to address due to conflicting policy requirements.
Economic concept depicting an inverse relationship between the rate of unemployment and the rate of inflation.
Phillips Curve
Lower unemployment can lead to higher inflation, and vice versa.
Situation where increased government spending leads to reduced investment by the private sector.
Crowding Out Effect
Higher government borrowing raises interest rates, making private investment more expensive.
Illustrates the relationship between tax rates and tax revenue.
Laffer Curve
Increasing tax rates beyond a certain point can reduce total revenue due to decreased economic activity.
The concept that an initial change in spending leads to a larger overall increase in economic activity.
Multiplier Effect
Government spending creates jobs, which increases consumption, further boosting the economy.
A situation in which interest rates are low and savings rates are high, rendering monetary policy ineffective.
Liquidity Trap
Central banks may struggle to stimulate economic growth.
Statistics used to gauge the health of an economy.
Economic Indicators
Leading (e.g., stock market trends), lagging (e.g., unemployment rates), and coincident indicators (e.g., GDP).
The skills, knowledge, and experience possessed by individuals that contribute to economic productivity.
Human Capital
Education and training enhance human capital.
Unemployment caused by mismatches between the skills of workers and the demands of the job market.
Structural Unemployment
Workers displaced by automation.
Unemployment tied to the ups and downs of the business cycle.
Cyclical Unemployment
Economic downturns reduce demand for goods and services, leading to job losses.
Temporary unemployment that occurs when workers are between jobs or entering the workforce.
Frictional Unemployment
Indicates a dynamic and flexible labor market.
Occurs when a country imports more goods and services than it exports.
Trade Deficit
May lead to increased borrowing from foreign entities to finance the deficit.
Occurs when a country exports more goods and services than it imports.
Trade Surplus
Can indicate strong global demand for a country’s goods.
The increasing interconnectedness of economies, cultures, and trade across the globe.
Globalization
Increases market opportunities but also competition.
Economic policy of restricting imports to protect domestic industries.
Protectionism
Tariffs, quotas, subsidies.
A tax imposed on imported goods and services.
Tariff
Protect domestic industries and raise government revenue.
Limits on the quantity of goods that can be imported into a country.
Quotas
Reduces competition for domestic producers.
Financial support provided by governments to domestic industries.
Subsidies
Make domestic goods more competitive in global markets.
Costs or benefits that affect third parties who did not choose to incur those costs or benefits.
Externalities
Pollution (negative) or public education (positive)
Goods that are non-excludable and non-rivalrous, meaning they are available to everyone.
Public Goods
National defense, public parks.
Situations where the free market does not allocate resources efficiently.
Market Failure
Monopolies, externalities, public goods.
Comparative markets focus on efficiency through specialization; competitive markets focus on pricing and variety.
Comparative vs. Competitive Market Structures
Perfect competition vs. monopolistic competition.
