Ch4 Flashcards
Economics
Study of how a society uses scarce resources to produce and distribute services and goods. It is the study of choices, what the people, firms, or nation among the limited resources that are available to them.
Major differentiator among economic systems
How to allocate limited resources, what goods and services to produce and in what quantities, how and by whom these goods and services are produced, how to distribute goods and services to consumers.
Capitalism
Based on competition in the market and private ownership of the -resources -factors of production.
Communism
Opposite of capitalism
Socialism
Economic system in which basic industries are owned by the government or by the private sector under strong government control.
mixed economic systems
pure capitalism and communism. the real world falls somewhere in-between the two. canada, Sweden, and UK.
macroeconomics
vs
microeconomics
macro is the study of the overall economy.
micro focuses on the individual parts of the economy such as households and firms.
three main macroeconomics goals
economic growth, full employment, and price stability.
gross domestic product (GDP)
total market value of all final value of all final goods and services produced within a nations borders each year.
business cycle
showing how economic activity is constantly changing. upward and downward changes.
expansion period
when the economy grows over a period of time
peak
very top of the expansion cycle
recession
when the economy will begin to contract and declines for two consecutive quarters
depression
if the decline becomes severe
what do u do when unemployment is low
compete for employers and pay higher wages or accept low skilled workers
inflation
average of all prices of goods and services is rising
Two functions of purchasing power
inflation and income
how is inflation measured
looking at changes in the consumer price index
consumer price index (CPI)
an index of prices “market basket” of goods and services purchased by typical urban consumers
impact of inflation
negative effects on people’s business. inflation penalizes people who live on fixed incomes. inflation hurts savers. as price rises the real value of a product goes down.
monetary policy
government programs for controlling the amount of money circulating in the economy and interest rates.