Core Curriculum Chapter 2 Flashcards
Economic Fundamentals: What is the difference between microeconomics and macroeconomics?
Microeconomics studies individual factors like households and firms,
while macroeconomics examines the economy as a whole.
Economic Fundamentals: What is the equilibrium price?
The price at which the quantity supplied equals the quantity demanded.
The Economic Cycle: What are the phases of the economic cycle?
Recovery,
Expansion,
Peak,
Contraction,
Recession,
Trough.
The Economic Cycle: What are leading economic indicators? SIX JUMP
S - Stock Market Performance
I - Initial Jobless Claims
X - Extra Money (Money Supply M2)
J - Job Hours (Average Weekly Hours Worked)
U - Unfilled Orders (Manufacturers’ New Orders)
M - Manufacturing & Building Permits (Housing Starts)
P - Public Sentiment (Consumer Confidence Index)
Think of “SIX JUMP” as the economy jumping forward (growth)
or falling back (recession) based on these indicators.
The Economic Cycle: What are concurrent economic indicators?
Checking GEPIR’s Status
-GDP,
-Employment Status,
-Personal income,
-industrial production
-retail sales.
Note: Think of “Checking Gepir’s Status” to recall that these indicators show the economy’s current condition.
The Economic Cycle: What are lagging economic indicators? U I C I L O
Use the mnemonic “U I C I L O” (“You I See It Lagging Over”) to remember key lagging indicators:
U – Unemployment rate (Peaks after a recession)
I – Inflation (CPI changes) (Price movements lag behind economic shifts)
C – Corporate profits (Reflect past business performance)
I – Interest rates (Central banks adjust rates in response to past trends)
L – Labour costs per unit (Measures past wage growth vs. productivity)
O – Outstanding business loans (Companies reduce borrowing after downturns)
Monetary & Fiscal Policy: What is the primary goal of monetary policy?
To control the money supply and interest rates
-to stabilize economic growth and inflation.
Monetary & Fiscal Policy: What is the primary goal of fiscal policy?
To regulate taxation, government spending, and regulations
-to influence economic growth.
Monetary & Fiscal Policy: How do interest rate changes impact the economy?
Higher interest rates reduce borrowing and slow growth;
lower interest rates encourage borrowing and stimulate growth.
Currency & Global Economy: What is the role of the US dollar in the global economy?
It is the primary global reserve currency,
used in international trade and held by governments as a store of value.
Currency & Global Economy: What is the significance of digital currency in economics?
It provides an alternative to fiat money
- but is volatile and difficult for governments to regulate.
Determinants of Demand - What does the acronym TRIBE stand for?
TRIBE stands for:
-Tastes and preferences,
-Related goods prices,
-Income,
-Buyers (number of), and
-Expectations.
Determinants of Demand - How do tastes and preferences affect demand?
Changes in consumer preferences, trends, and advertising
-can increase or decrease demand for a product.
Determinants of Demand - How do related goods affect demand?
Substitutes (e.g., Pepsi vs. Coke) see an increase in demand when their alternative’s price rises.
Complements (e.g., cars and gas) see a decrease in demand when their paired good becomes more expensive.
Determinants of Demand - How does income affect demand?
For normal goods, demand increases with higher income.
For inferior goods, demand decreases as income rises.
Determinants of Demand - How does the number of buyers affect demand?
More buyers increase demand,
while fewer buyers decrease demand.
Determinants of Demand - How do expectations affect demand?
If consumers expect higher prices in the future…demand increases today.
If they expect lower prices… demand decreases.
Determinants of Supply - What does the acronym ROTTEN stand for?
ROTTEN stands for:
-Resource costs,
-Other goods,
-Technology,
-Taxes and subsidies,
-Expectations, and
-Number of sellers.
Determinants of Supply - How do resource costs affect supply?
-Higher input costs reduce supply
-lower input costs increase it.
Determinants of Supply - How do other goods affect supply?
If a producer can make a more profitable product, they may shift production away, reducing supply for the original good.
Determinants of Supply - How does technology affect supply?
Improved technology increases efficiency…leading to greater supply.
Determinants of Supply - How do taxes and subsidies affect supply?
Taxes increase production costs, reducing supply.
Subsidies lower costs and increase supply.
Determinants of Supply - How do expectations affect supply?
If producers expect higher prices in the future,
they may reduce current supply to sell later at a higher price.
Determinants of Supply - How does the number of sellers affect supply?
More sellers increase supply, while fewer sellers reduce it.
What is the key tool central banks use to influence the economy?
The policy interest rate, set by the Bank of Canada, affects borrowing costs, investment, and economic activity.
What happens when interest rates decrease?
Lower interest rates stimulate economic activity by making borrowing cheaper, increasing spending, investment, and asset prices.
How does lower interest impact borrowing?
Borrowing increases, as consumers and businesses take out cheaper loans for homes, cars, and investments.
How do lower interest rates affect investment?
Investment increases, as businesses expand operations, purchase equipment, and hire more workers.
How do lower interest rates affect the currency?
The Canadian dollar weakens, making exports cheaper but imports more expensive.
What is the inflation risk of lowering interest rates?
Inflation may rise, as increased demand for goods and services pushes prices higher.
What happens when interest rates increase?
Higher interest rates slow economic activity by increasing borrowing costs, reducing spending, and controlling inflation.
How does higher interest impact borrowing?
Borrowing decreases, as loans become more expensive, discouraging consumer and business debt.
How do higher interest rates affect investment?
Investment declines, as businesses cut back on expansion due to higher financing costs.
How do higher interest rates affect the currency?
The Canadian dollar strengthens, making exports more expensive but lowering the cost of imports.
How do higher interest rates affect inflation?
Inflation decreases, as reduced spending and demand help stabilize prices.
What is the mnemonic for interest rate effects?
“B.I.G. W.I.L.L.”
BIG (Lower rates → Borrowing ↑, Investment ↑, Growth ↑) WILL (Higher rates → Wealth ↓, Inflation ↓, Loans ↓, Loonie ↑)
