Economics Flashcards
Human Capital
the skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country
money
any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context
elements of capitalism
private ownership, the motive for profit, the ability for businesses to compete in the free market, and minimal intervention in government
voluntary exchange
the act of buyers and sellers freely and willingly engaging in market transactions
equity
or economic equality, is the concept or idea of fairness in economics, particularly in regard to taxation or welfare economics
factors of production
land, labor, capital, entrepreneurship
market value
how much something is worth in a competitive marketplace
CPI
consumer price index; measures inflation and purchasing power; measures the average change in price over time of a market basket of consumer goods and services
components of GDP
consumption, investment, government expenditure, net exports
“Investment” in GDP
purchase of new capital goods
“consumption” in GDP
private consumption expenditures by households and non-profit organizations
capital stock
value of a company’s shares held by outside investors
GNP
gross national product; value of all products and services produced by the citizens of a country both domestically, and internationally
NDP
net domestic product; gross domestic product minus depreciation on a country’s capital goods
NI
national income; the money value of all the final services and goods produced in an economy during a given period of time. It includes the incomes of all factors of production, such as rent, wages, profits, and interest
PI
personal income; personal income refers to the total earnings of an individual from various sources such as wages, investment ventures, and other sources of income
NI vs. PI
Personal income refers to the money received by factors of production, whereas national income represents the income generated by these factors
DI
disposable income; income minus taxes
absolute advantage
The ability of an actor to produce more of a good or service than a competitor
comparative advantage
The ability of an actor to produce a good or service for a lower opportunity cost than a competitor
balance of trade
difference between a country’s imports and exports
Currency appreciation and depreciation
value of currency increases or decreases over time
monopolistic competition
a type of imperfect competition such that there are many producers competing against each other, but selling products that are differentiated from one another and hence are not perfect substitutes (Restaurants, hair salons, household items, and clothing)
oligopolisitc competition
a competitive situation in which there are only a few sellers (of products that can be differentiated but not to any great extent); each seller has a high percentage of the market and cannot afford to ignore the actions of the others (automobiles, airlines, pharmaceuticals)
imperfect competition
the situation prevailing in a market in which elements of monopoly allow individual producers or consumers to exercise some control over market prices (includes monopolies and oligopolies)
perfect competition
market in which buyers and sellers are so numerous and well informed that all elements of monopoly are absent and the market price of a commodity is beyond the control of individual buyers and sellers (agricultural markets, foreign currency exchange markets)
monopsony
market structure with only one buyer (U.S. government, miners in mining towns)
antitrust laws
prohibit conduct by a single firm that unreasonably restrains competition by creating or maintaining monopoly power
stock market
process and facilitation of investors buying and selling stocks with one another
stock exchange
the actual intermediary that connects buyers with sellers (NYSE)
stock index
numerical representation of a group of stocks that is used to track their collective performance (S&P 500, Dow Jones, Nasdaq)
Who controls interest rates?
The Federal Reserve
Income tax
levied by federal and most state governments; “progressive”
Sales tax
levied by state governments; “regressive”
Property tax
levied by local governments; “regressive”
Excise tax
Excise taxes are taxes imposed on certain goods, services, and activities. Taxpayers include importers, manufacturers, retailers, and consumers, and vary depending on the specific tax (can be levied by federal, state, and local governments)
Specific tax
refers to the excise tax imposed which is based on weight or volume capacity or any other physical unit of measurement
Ad Valorem or Value-added tax
refers to the excise tax which is based on selling price or other specified value of the goods/articles
Monetary policy
revising interest rates and changing bank reserve requirements (controlled by the Fed)
When the Fed lowers interest rates…
financial institutions can procure funds at low interest rates. This enables them to reduce their lending rates on loans to firms and households.
fiscal policy
the use of government taxing and spending to influence a country’s economy; influences aggregate supply and demand (controlled by the executive and legislative branch) (two main tools of fiscal policy are taxes and gov’t spending)
Expansionary fiscal policy
increases aggregate demand directly through an increase in government spending (“loose”)
reserve ratio/reserve requirement
sets the minimum amount that a commercial bank must hold in liquid assets
open market operations
the purchase and sale of securities in the open market by a central bank to manage the money supply
Discount rate/bank rate
rate of interest which a central bank charges on its loans and advances to a commercial bank
Corporation
a company or group of people authorized to act as a single entity (legally a person) and recognized as such in law, limited liability (Double tax: The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends)
sole proprietorship
(unlimited personal liability) (self-employment tax, income tax)
partnership
(Unlimited personal liability unless structured as a limited partnership)(Self-employment tax (except for limited partners, income tax) (no more than 50 members)
Limited liability company (LLC)
(One or more people) (Owners are not personally liable) (Self-employment tax, Personal tax or corporate tax)
Non-profit corporation
(Tax-exempt, but corporate profits can’t be distributed)
labor union
organization of workers intent on “maintaining or improving the conditions of their employment (“organized labor”)
circular flow model
model of the economy in which the major exchanges are represented as flows of money, goods and services, etc. between economic agents. The flows of money and goods exchanged in a closed circuit correspond in value, but run in the opposite direction.
4 factors of production
land, labor, capital, entrepreneurship
business cycle
expansion, peak, contraction, and trough
production possibility frontier
illustrates the possible quantities that can be produced of two products if both depend upon the same finite resource for their manufacture
brokerage firm
middleman who connects buyers and sellers to complete a transaction for stock shares, bonds, options, and other financial instruments
capital deepening
capital per worker is increasing
capital widening
situation where the stock of capital is increasing at the same rate as the labor force and the depreciation rate, thus the capital per worker ratio remains constant
money growth
an increase in the amount of money in an economy; money supply
lagging economic indicator
an economic statistical indicator that changes after macroeconomic conditions have already changed
elasticity
measures change in quantity relative to change in PRICE
Earned Income Tax Credit
a federal tax credit for working people with low and moderate incomes; It boosts the incomes of workers paid low wages while offsetting federal payroll and income taxes
What caused stagflation in the 70s?
monetary and fiscal policy; oil embargo
