Chapter 1- The Big Ideas

Question 1

Incentives Matter(2 bullet points)

Answer 1

incentives- rewards/punishments that affect our behavior

people act out of their own self interest

Question 2

Markets Align With Social Interest(3 bullet points)

Answer 2

self interest + social interest= good outcome
(does so through so the “invisible hand”)
self interest - social interest= bad outcome

Question 3

Trade Offs(2 bullet points)

Answer 3

something gained or lost in every choice made

opportunity cost- the value of what was lost

Question 4

Thinking on the Margin(3 bullet points)

Answer 4

weighs benefits and costs to do a little more or less
marginal benefits and costs
essentially restates trade offs

Question 5

Power of Trade(3 bullet points)

Answer 5

both partners benefit
real power(increase productivity through specialization)
division of knowledge- focus on 1 area of knowledge so you can specialize and learn more in that 1 area than you would’ve if you didn’t specialize

Question 6

Wealth & Economic Growth(3 bullet points)

Answer 6

wealth comes from economic growth
wealth matters
wealth brings higher standard of living

Question 7

Institutions Matter(3 bullet points)

Answer 7

support incentives that foster economic growth
poor nations lack these institutions
institutions(lack of corruption, legal system, political stability) are incentives for investors

Question 8

Economic Booms and Busts(2 bullet points)

Answer 8

part of natural response to changing economic conditions

can’t be avoided but can be moderated(through tools in monetary and fiscal policy)

Question 9

Inflation(2 bullet points)

Answer 9

rise in general level of prices

happens when there is sustained increase in supply of money

Question 10

Central Banking(Federal Reserve)

Answer 10

central bank of US
regulates supply of money
can hold off or minimize a recession OR can cause inflation by printing too much
lag between what Fed proposes and when effects are shown