Economics

Question 1

Four degrees of competition

Answer 1

Pure competition, monopolistic competition, oligopoly and monopoly

Question 2

Pure competition

Answer 2

multiple buyers choose from highly similar products or services and multiple sellers freely enter and exit the market. Many sellers offer identical products. Since customers can’t (or won’t) distinguish one product from another, no single producer has any control over the price. E.g. Agriculture (corn, wheat).

Question 3

Monopolistic competition

Answer 3

Many sellers offer similar but differentiated products. None of whom dominates the market, offer differentiated products (e.g Clothing brands like H&M, Simons, Old Navy and Zara or restaurants)

Question 4

Oligopoly

Answer 4

a few large companies control the market (e.g. Bell that has Virgin, Rogers that has Fido and Chatr, Telus that has Koodo – they own 95% of the market. The car industry)

Question 5

Monopoly

Answer 5

a single seller controls the supply of goods or services and the price
-Hydro Quebec (regulated monopoly: it can’t raise prices whenever it wants and it has to go to the government for approval)

Question 6

The economic systems

Answer 6

Planned economies, mixed economies and free market

Question 7

Free market (name the ..ism)

Answer 7

• capitalism
• private ownership
• Free-market system, marketplace determines what goods and services get produced
• competition

Question 8

Capitalism

Answer 8

An economic system where businesses are privately owned, and the market determines prices, what gets produced, and how resources are allocated

People and businesses are free to make their own decisions about what to produce, how much to charge, and how to run their businesses

The government plays a limited role, mainly ensuring that the market is fair and that businesses compete fairly.

Freedom of choice

Question 9

Definition of planned economies and name the two __ism

Answer 9

the government plays a big role in controlling how resources are used, what goods are produced, and how they are distributed

Socialism and communism

Question 10

Socialism

Answer 10

the government owns and operates key industries (like healthcare, utilities, and transportation) for the benefit of the public. It aims to provide services that help the whole society. It decides where to spend the money.

Question 11

Communism

Answer 11

Communism (extreme form of socialism): the government controls nearly all aspects of the economy, including how resources are distributed and what people can produce

Question 12

Mixed economies

Answer 12

Most countries have a mixed economy. A mixed economy combines elements of both capitalism and socialism

There is an interplay between Public (the state) and Private (the market). They both work together:
The government is funding the internet, gps, etc. The private owes money to the government as the government funds them and waits for the return.

There is private ownership of businesses (capitalism), There is government intervention for the good: the state still owns and supports services
–> example:
the Canadian government still owns/ supports the postal service, universities, parks, libraries, health care, education, defense, public works.
Hyroquebec: cheap electricity

Question 13

Fiscal policies

Answer 13

the government

Fiscal policy refers to government efforts to influence the economy through taxation and spending decisions that are designed to encourage growth, boost employment, and curb inflation.

Question 14

How does the government control taxes?

Answer 14

1- in tough economic times, the government can cut taxes to give people more money to spend, which stimulates economic growth because more customers are buying goods and services. When people spend more, businesses start hiring, which reduces unemployment and gets the economy moving again.

The government can also increase spending on things like roads, schools, and healthcare. This creates jobs because companies will be hired to do the work and that will need more employees

2- When the economy is growing too quickly, it can lead to inflation. If prices rise too quickly, people can’t afford to buy as much, and the value of money goes down. To slow down the economy and keep inflation under control, the government does the opposite: the government can raise taxes to take more money out of people’s pockets. When people have less money to spend, they will buy fewer goods and services. This helps reduce demand, which can slow down inflation (prices stop rising so quickly). The government can cut back on spending.

Question 15

Business cycle

Answer 15

Expansion: the economy is growing, unemployment is low, and people are spending money (the fiscal policy helps the government manage by raising taxes to prevent inflation from getting out of control)

Peak: the economy is at its highest point, but inflation might start rising.

Contraction: the economy starts slowing down, unemployment rises, and spending decreases (the government might cut taxes and increase spending to stimulate growth).
Economists declare an official recession when GDP decreases for two consecutive quarters. A depression is an especially deep and long-lasting recession.

Trough: the economy hits a low point

Recovery: After the trough, the economy begins to grow again. Businesses hire more workers, consumers spend more, and confidence return.

Question 16

Debt ceiling

Answer 16

the limit on how much the U.S. government can borrow. If the government spends more than it earns, it must borrow money to cover the difference, leading to national debt.

Question 17

Fiscal cliff

Answer 17

the fiscal cliff refers to a situation where taxes go up and government spending goes down at the same time, potentially causing serious harm to the economy. It usually happens when the government is trying to deal with high debt by allowing tax cuts to expire and by making automatic spending cuts. If not managed properly, the fiscal cliff can lead to a recession, with less spending by consumers, business slowdowns, and job losses.

Question 18

Explain tax cut expire

Answer 18

Taxes would go up for everyone in the country

Question 19

Explain automatic spending cuts

Answer 19

No more spending on infrastructures, school, health, etc

Question 20

Revenue

Answer 20

The total amount of money that a business, government or organization receives from its activities

Question 21

How does the government collect money?

Answer 21

through taxes and tariffs

Individual income taxes (people’s earnings), Corporate income taxes (businesses’ profits)

Question 22

Budget surplus

Answer 22

Overage that occurs when revenue is higher than expenses over a given period of time

Question 23

Budget deficit

Answer 23

Shortfall that occurs when expenses are higher than revenue over a given period of time

Question 24

Federal debt

Answer 24

The sum of all the money that the federal government has borrowed over the years and not yet repaid

Question 25

Monetary policies

Answer 25

Central banks

Every country has a central bank and it’s independent from the government. Monetary policy refers to how the Federal Reserve (Fed) manages the economy by controlling interest rates and the money supply

Question 26

What do the FED/central banks do when the economy is weak vs when the economy is doing well?

Answer 26

1- When the economy is weak, the Fed lowers interest rates. This makes borrowing cheaper, so people and businesses borrow more, spend more, and this helps stimulate the economy.

The Fed can also increase the money supply by putting more money into circulation. More money in the economy usually encourages people and businesses to spend more, which can boost economic activity

2- When the economy is growing too fast, and inflation is starting to rise, the Fed may raise interest rates

Question 27

What is Reserve requirements changes

Answer 27

a rule set by the central bank, which specifies the
minimum amount of reserves or funds a bank must hold, expressed as a percentage of the bank’s deposits. They could only loan a certain amount of money.

Question 28

Open market operations

Answer 28

buying and selling government securities, a bond or stock

Question 29

What’s a bond

Answer 29

a bond is like a loan you give to the government or a company. You give them money now, and they promise to pay you back later with interest

Question 30

What do central banks do with bonds when the economy is slow vs when it’s growing too fast?

Answer 30

1- When the economy is slow (recession), the central bank wants to stimulate growth. So the central bank buys bonds (buying a bond means you’re lending money and getting paid back with interest) from banks which gives cash to the banks, so they have more money to lend to businesses and people. With more money available, borrowing gets cheaper, and people spend more. This helps the economy grow.

2- When the economy is growing too fast (inflation), the central bank wants to slow it down. So the central bank sells bonds to banks. Banks give money to the central bank, so they have less money to lend. With less money available, borrowing becomes more expensive, so people spend less. This helps reduce inflation.

Question 31

Discount rate

Answer 31

this is the interest rate that the Fed charges banks when they borrow money from the Fed. If the Fed lowers the discount rate, banks can borrow money more cheaply, and in turn, they can offer lower interest rates to businesses and consumers, encouraging borrowing and spending. If the Fed raises the rate, borrowing becomes more expensive, slowing down spending.

Question 32

What is Federal Deposit Insurance Corporation (FDIC)

Answer 32

the FDIC insures the money that people deposit in banks, up to a certain amount (currently $250,000 per depositor). This was created to protect people’s money in case a bank fails. It helps build trust in the banking system because people know their money is safe even if a bank goes out of business.

Question 33

What are the economic performance indicator

Answer 33

GDP (gross domestic products), price levels, business cycle, productivity, employment level

Question 34

GDP and how does it indicates the performance of the economy

Answer 34

GDP measures the total value of all final goods and services a country produces over a specific time.

It shows how much the economy is producing and is a key indicator of its wealth.

Question 35

Name the different price levels

Answer 35

Inflation, hyperinflation, disinflation, deflation and stagflation

Question 36

Inflation

Answer 36

prices, on average, are rising. A low level of inflation is not so bad. It reflects a healthy economy— people have money, and they are willing to spend it.

Question 37

Hyperinflation

Answer 37

When the Federal Reserve (the nation’s central bank) manages the economy poorly, inflation can spiral out of control, which can lead to hyperinflation.

average prices increase by more than 50% per month

Question 38

Disinflation

Answer 38

when the rate of price increases slows down, the economy is experiencing disinflation

Question 39

Stagflation

Answer 39

Low growth in the economy and high unemployment

Question 40

Deflation

Answer 40

The sustained fall in the general price level for goods and services (it sounds good and all but in reality it shows that the country is in a recession since there’s not enough demand so the prices are dropping. We always need a bit of inflation). A sign of economic trouble that goes hand-in-hand with very high unemployment. Peo- ple don’t have money and simply won’t spend unless prices drop.

Question 41

Consumer price index

Answer 41

it measures the rate of inflation by comparing the change in prices of a representative basket of goods and services such as: clothing, food, housing, and utilities over time

Question 42

Productivity

Answer 42

productivity measures how efficiently goods and services are being produced. It’s calculated as output divided by input.

Higher productivity typically leads to higher GDP and economic growth

Question 43

Labor productivity

Answer 43

the amount of output per worker, so how much we put in vs how much we get from it. (e.g. the productivity of a factory worker making footballs, could be measured by how many footballs they make in one hour)