Economics Flashcards
What is Economics?
The study of the allocation of resources (production, distribution, consumption of scarce goods and services)
-how business builds and distributes wealth
What is macroeconomics?
The study of the economy as a whole (nation’s economy)
What is microeconomics?
The study of the economic behavior of individual economic units, the operations of particular groups of people, businesses, organizations and markets.
Explain the concept of supply and demand.
Forces of supply and demand drive equilibrium prices, where they intersect.
Describe the free market economy?
Also called capitalism, the production and distribution of goods and services are controlled by private individuals rather than by the government.
- prices are set by supply and demand
- reduced governement role
What are the advantages of capitalism?
- Efficient allocation of resources
- Encourages innovation
- Most have more than enough wealth
What are the disadvantages of capitalism?
- income disparities
- income distribution
- labour can become a commodity
What are the basic rights under capitalism?
- Right to own property
- Right to own compete
- Right to free choice
- Right to make & keep profits
What are the restrictions under capitalism?
- Zoning, environmental and antifraud laws and regulations
- Competition can be limited by antitrust, fraud, licensing and consumer protection
- Sale of certain item restricted by government regulations (drugs)
- Revenues and profits subject to taxation
What are the main characteristic of communism?
- Economic system in which all property is owned by the state
- everyone works for the government
- classless society
What are the main major drawbacks of communism?
- Central planning is difficult
- Lack of incentive for innovation
- Tends toward totalitarianism
What are the main characteristics of socialism?
- economic system in which major industries are owned by the government, but smaller businesses are owned by individuals
- wealth or surplus of income is redistributed by the government through social programs
What are the main benefits of socialism?
- More benefits to citizens
- Less social inequality and poverty
What are the main drawbacks of socialism?
- Problems with central planning
- High taxes
- Possible brain drain
- Less job and wealth creation
Describe a mix economy.
An economic system in which some resources are allocated by the free market and some resources are allocated by the government, resulting in a somewhat better balance between freedom and economic equality
What are the 2 main episodes of the business cycle?
- Recession
2. Depression
Explain what a recession is.
2 quarters of GDP decline
Explain what a recession is.
severe, long lasting depression accompanied with deflation
What are the 4 phases of the business cycle?
- Expansion: pace of economic activity speeds up
- Peak: economic activity hits its high
- Contraction: Pace of economic activity slows down
- Trough: economic activity hits bottom
What are the 3 main economic indicators and what do they represent?
- Gross domestic product: growth indicator–> The monetary value of all the finished goods and services produced within a country’s borders in a specific time period.
- Consumer price index and the producer price index: costs indicators
- Unemployment rate: resource allocations and jobs
What is the GDP per capita?
A measure of the total output of a country that takes the gross domestic product (GDP) and divides it by the number of people in the country.
What is the inflation rate?
The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.
Name other smaller economic indicator?
- exchange rate
- business confidence
- interest rate
- consumer confidence
What is productivity?
- the amount of goods and services a person or organization produces given the resources needed to produce them
- more is better
- closely linked to growth and resource allocation
Further explain the consequences of inflation and deflation.
inflation: prices rise = too many dollars trying to buy too few goods
deflation: prices fall= there are too few dollars chasing too many goods.
Define fiscal policy.
Represents a government’s attempt to keep the economy stable by
- raising or lowering taxes
- through government borrowing
–> federal budget deficit = national debt
Define monetary policy.
Represents a government’s attempt to influence economic activity by
- raising or lowering interest rates
- expanding or limiting the money supply
