Econ Final Flashcards
Insurance to help the poor
Medicaid
Legal way for a person to walk away from paying some or all of their bills
Bankruptcy
Option given up in order to get something else
Opportunity Cost
Person who creates a business from scratch
Entrepreneur
Insurance to help the elderly
Medicare
What does a Form W-4 tell the employer
How much to withhold from your pay each pay period; this form can change how much net pay one gets and change the amount of deductions in one’s pay
A Form W-2 tells
How much income you have made over the entire year
The purpose of a Form W-2 is used to
To file your income taxes
Who do you pay federal income tax to?
IRS
T/F Taxes are the lowest payroll deduction
True
T/F Gross income can be found by hours worked times wages per hour minus payroll deductions
False, hourly rate of pay times wages per hour (gross income is calculated without payroll deductions)
What is the difference in net and gross pay
Gross: amount of money you make before payroll deductions,
Net: amount of “take home” money after payroll deductions
2 ways a person makes their money “work” for them
Savings, Investing
What does a credit report show about a person’s finances?
What loans they currently have, previous loans, accepted/denied and paid/unpaid loans. How responsible they are with paying loans.
How a person can increase their auto insurance
How a person can decrease auto insurance
Increase: Gender-Men have more accidents, single people have higher rates bc they have more accidents
Decrease: Drive safely, drive a safer car, be a woman, be married
T/F A person who buys insurance is agreeing to no loss for protection in case of a problem
False; a person who buys insurance is agreeing to a small loss for protection in case of a problem
T/F The shorter a person’s loan term, the less the person pays at the end
True
T/F When buying insurance, an insurance company transfers risk and responsibility from the individual to the company
True
T/F A person can increase their premium by increasing their deductible
False, a person can decrease their premium by increasing their deductible
T/F One with higher coverage (insurance) will have a relatively more expensive premium
True
Earning interest on interest
Compounding
hen someone is willing to loan you money
Credit
Amount of money a person actually borrows and must pay back
Principle
Amount a person must pay to transfer risk to an insurance company
Premium
Amount a person pays out of pocket before insurance
Deductible
Savings vs. Investment
Savings: short term, low risk, low return, high liquidity, guaranteed
Investments: long term, high risk, high return, low liquidity, no guarantee
Both are ways to make money work for you
Why should a person use diversification when investing
So not all their money is in one place. (ex. stock market crashing)
15 vs. 30 year mortgages
Always choose the shorter mortgage if its affordable because they will pay less in the end because they’ll have less interest
Why is a line graph better than a tabular model
It is more detailed and shows data over a period of time
4 factors of production
Land, labor, capital, entrepreneurship
4 factor costs
wages, rent, interest, profit
What does a PPC (Production Possibilities Curve) help someone determine
How much of one good/service must be given up to obtain more of another, what amount of production is efficient
What does a Circular Flow Model show
How an entire nation’s economy flows, the relationship between the financial market, government household, and business firms
Be able to use a PPC
**
Circular Flow Model info
*Review test Ch.2
T/F Free market system works best when it is interfered with a lot
False, it works best when it has little to no interference
T/F A surplus can be solved or reduced by increasing demand, dercreasing supply, or allowing price to fall to market equilibrium
True
3 possible solutions to a shortage
Decreasing demand, increasing supply, allowing price to rise to market equilibrium
Principle Diminishing Marginal Utility
(ex. man on island with bag of beans) the more you get, the less useful it is
Things that can cause a change in demand
Change in price of related goods, consumer taste, consumer income
Things that cause change in supply
Change in technology, price of related goods, price of production materials
Change in quantity demanded of quantity supplied results from the change in _____ of a good/service
Price
Law of demand
The more expensive something is, the less quantity demanded there is for it. As the price lowers, quantity demanded goes up.
**use a demand schedule and create a curve that follows it
Quantity on x, Price on y
As quantity goes up, price goes down
**Use supply schedule
Q on x, P on y
As quantity goes up, price goes up
Law of supply
The higher the price buyers re willing to pay, the greater the quantity of the product a supplier will produce and vice versa
Demand and supply curves and market equilibrium
Supply goes from bottom left to top right, demand goes from top left to bottom right, the market equil. is the point where the two meet-where the market is happy
On a curve, what does an increase in supply look like
Entire supply curve moves to the right
On a curve, what does a decrease in demand look like
Entire demand curve moves left
If a substitute good increased in price does that change quantity demanded or demand of what it replaced?
Demand of what it replaced
T/F Market interest rates regulate the flow of money from business households through the financial market and can encourage or discourage saving/spending
T
T/F A command economy is likely to raise taxes to redistribute wealth
True
A business can produce more because they use what they already have in a more efficient manner
Intensive
When prices rise, value of money decreases
Inflation
Businesses can produce more because they gained factors of production
Extensive
**Look over attributes of command vs. market economy
*Ch. 5
3 major economic questions
Input-How
Output-What
Distribution-Who
Father of laissez faire economics
Adam Smith, wrote The Wealth of Nations, believed in the invisible hand guiding the market, money is a means to an end not an end itself and that a nation is truly wealthy if its people are wealthy
2 arguements for who should control factors of production
- Individuals own and make decisions
2. Government owns and make decisions
Governments selling nationalized businesses back to private owners
Privatization
Nation under extreme state capitalism in which high taxes are used to provide social programs
Welfare state
Governments acquiring of major industries
Nationalization
In Capitalism, who makes the decisions? Socialism?
C: people
S: government
Share of portions of ownership in a corporation
Stock
Distribution of a portion of a corporations profits
Dividends
Original sale of a company’s stock through investment bank
Initial Public Offering
Group of stocks hat analysts use to help ID stock trends in specific industries
Stock Index
Collection of stocks from different individual corporations
Stock portfolio
Privately managed stock portfolios
Mutual funds
Location where stock is traded
Stock exhanges
Why are stock markets important to the economy
1) they show if the economy is balanced
2) they show if the government should save more or spend more
Why was the SEC founded?
To ensure correct information about companies worth and business dealings and provide that information to the public. Could have prevented Great Depression bc speculative bubble wouldn’t have formed
How does one make money on the stock market
Buy low, sell high
Made of material worth less than the item is worth
Token Coin
Percentage of deposits that must be kept on hand by American banks
Reserve requirement
Money supply is increased to combat things like recession and unemployment
Loose monetary policy
Money supply decreased to lower inflation
Tight Monetary policy
Payment all creditors must accept
Legal tender
Money not backed by something like gold
Fiat money
Increase o decreasing of money supply to influence economy
Monetary Policy
Buys and sells governmental securities, 12 members
FOMC
“The Fed” oversees issuing of currency and regulates bank activity and provides bank services
Federal Reserve System
Expansion of money supply as result of commercial banks lending their deposits to others
Money multiplier effect
Regulatory agency that deals with state banks not part of the Federal Reserve System
FDIC (Fed. Deposit Ins. Corp.)
Tool the Fed uses to create money that deals with lending money to banks is changing the
Discount Rate
2 checks for the Federal Reserve to keep it from acting irresponsibly
- Congress can dismiss and elect people to Board of Governors
- Congress is the only reason the Federal Reserve exists
How does money multiplier work
Deposit x 1/reserve requirement = money produced
Deposit=1000, rr= 10%
1000 x 1/.10 = 10,000 the bank will keep 100 of her deposit and loan out 900, cycle continues
What depatment mints and prints coins and paper money
US Department of the Treasury
What federal bureau prints cash
Bureau of engraving and printing
What federal agency creates coins
US Mint
Nation’s wealth per persn
per-capita GDP
Importing more than exporting
Trade deficit
Exporting more than importing
Trade surplus
Real GDP is better than nominal when comparing nations wealth
*
What is included in the GDP
things produced in the past year, new items only, only things produced domestically
4 phases of business cycle
Trough, expansion, peak, recession
Trough
Can become depression, Depressed national income, highest unemployment rate
Expansion
Unemployment rate falls, national GDP rises, income expands
Peak
highest wages, lowest unemployment rate,
Recession
decrease in purchases, workers are laid off, decreasing production
Unemployment occurring at a time of the year
Seasonal
unemployment when a person is between jobs
Frictional
Unemployment when a workers skills dont match available jobs
Structural
Unemployment linked to downs of business cycle
Cyclical
Group of figures measuring changes in prices that household consumers pay for purchases
Consumer Price Index
Amends payments upward as inflation causes prices to rise
Cost of living Adjustment
2 fixes for inflation
Limiting Money Creation-strikes root cause of inflation(expansion of money supply)
Wage-Price Controls
Ch. 14 graphs
Cost-Push Inflation: supply increases which causes higher demand of items because demanded and higher wages
Demand-Pull: Demand increases and causes decrease in supply
Price on y, GDP on x
The less you make the higher you’re taxed
Regressive Tax
Legislation requiring deduction o social security taxes from worker’s paycheck
Fed. Insurance Contribution Act
The more you make, the higher you’re taxed
Proportional Tax
To cause expansion and peak to not be so extreme, the government _____ spending and increases taxes
decreases (opposite for a recession)
How does governmental borrowing destroy future productivity
If the government continues to borrow, it will lower and destroy future productivity. It causes the nation to go more into debt and have to pay back with interest which cancels future profit.
How does taxation cause confusion in the marketplace?
It gives the economy a false sense of ho much money it actually has
How does proportional taxation specifically affect national work ethic?
It makes those who earn more not want to make as much money because they will be taxed more for making more
