Business terms Flashcards
Households Role in the Economy
Purchasing goods and services. Their spending habits and preferences drive demand.
Businesses Role in the Economy
Producers create goods and services to meet consumer demand. They employ workers, invest in technology, and innovate to stay competitive.
Government’s Role in the Economy
Regulates economic activities, provides essential services like education and healthcare, and manages fiscal policies such as taxation and spending.
Gross Domestic Product Def.
GDP measures the total value of all goods and services produced within a country’s borders in a specific time period, usually a year.
GDP Importance
Reflects the overall economic health of a nation, indicating the level of economic activity, standard of living, and economic growth over time. It helps policymakers assess the effectiveness of economic policies.
Inflation Def
The general increase in the prices of goods and services over time, leading to a decrease in purchasing power.
Inflation Impact
Affects consumers’ purchasing power, making goods and services more expensive. It can erode savings’ value and impact interest rates, influencing borrowing and lending decisions.
Expansion (An Economic Phase)
Rising GDP, increasing employment opportunities, and overall economic growth. Businesses expand production, and consumers have more disposable income.
Recession (An Economic Phase)
A period of economic decline, marked by reduced GDP, rising unemployment, and lower consumer spending. Businesses may cut back on production, leading to job losses and financial hardships for individuals.
Depression (An Economic Phase)
A severe and prolonged recession with a significant decline in economic activity, high unemployment rates, and widespread hardship. It can lead to decreased consumer confidence and investment. ex. Great Depression
Fiscal Policy
Government decisions on taxation and spending to influence the economy. For example, reducing taxes can stimulate consumer spending during a recession.
Monetary Policy
Managed by the Federal Reserve, involves controlling the money supply, interest rates, and credit conditions to achieve economic goals like price stability and full employment.
Law of Supply and Demand
- As the price of a good or service rises, suppliers are willing to produce more of it, and vice versa.
- As the price of a good or service increases, the quantity demanded by consumers decreases, and vice versa.
- Equilibrium occurs when supply and demand are balanced, determining the market price and quantity of goods exchanged.
Economic Development
- The sustained improvement in living standards, technological advancements, and overall economic well-being of a society.
- Includes individual economic choices, such as saving, investing, and entrepreneurship, contribute to economic growth and development.
Scarcity
- The limited availability of resources relative to unlimited wants and needs. It forces individuals and societies to make choices about how to allocate resources efficiently.
- Understanding scarcity helps individuals prioritize their financial decisions and consider trade-offs between competing options.
Factors of Production
- Land
- Labor
- Capital
- Entrepreneurship
- Macroeconomics
- Microeconomics
Opportunity Cost (An Economic Reasoning Skill)
The value of the next best alternative forgone when making a decision. Understanding opportunity cost helps individuals assess the benefits and drawbacks of different choices.
Decision-Making (An Economic Reasoning Skill)
Evaluating costs and benefits, predicting consequences, and making informed choices to achieve personal financial goals.
Trade-offs (An Economic Reasoning Skill)
Sacrificing one option to gain another, considering the trade-offs helps individuals prioritize spending and allocate resources effectively.
Capitalism
- Private ownership of resources and the means of production
- Individuals and businesses make economic decisions based on profit motives and market competition
- leads to innovation, economic growth, and a wide range of consumer choices
- Ex: U.S., U.K., and Japan
Laissez-Faire
- Minimal government intervention in economic activities
- Promotes free markets, where prices are determined by supply and demand forces
- Businesses operate without heavy regulations
- Proponents argue that this leads to efficient resource allocation and economic prosperity
- Ex. 19th century Britain, older U.S.
Social Market
- Combines elements of capitalism and social welfare policies
- Aims to achieve both economic growth and social equity by allowing market forces to operate while also providing social safety nets such as healthcare, education, and unemployment benefits
- Ex. Germany, Sweden
Neo-Capitalism
- Modern variations of capitalism that incorporate global markets, technology, and innovation
- Emphasizes the importance of entrepreneurship, investment in research and development, and global trade
- Ex. Silicon Valley
Socialism
- Collective ownership of resources and a planned economy
- Reduce income inequality by redistributing wealth and providing essential services through government programs
- Ex. Soviet Union, Norway, Denmark
