Economics Flashcards
1
Q
What are the three main components of economics?
A
Economic Methods, Macroeconomics, Microeconomics
2
Q
Who is considered the founder of the field of economics?
A
Adam Smith (1773-1790)
3
Q
This book by Adam Smith can be read as an analysis of a market economy.
A
“Wealth of Nations”
4
Q
What did Adam Smith believe that economics was a superior form of?
A
Organization from the standpoint of both economic progress and human liberty.
5
Q
What did Adam Smith believe guided market participants?
A
An invisible hand that prompted them to act in ways that promote public interest.
6
Q
What are the four general viewpoints that have evolved regarding the workings of markets?
A
Classical, Keynesian, Monetary and Neoclassical
7
Q
A social science that examines how people choose to use limited or scare resources to obtain maximum satisfaction of unlimited wants is also known as what?
A
Economics
8
Q
The study of the economy as a whole is called what?
A
Macroeconomics
9
Q
What are the three main parts of macroeconomics?
A
Inflation, Unemployment, and Economic Growth
10
Q
The study of individual parts like households, business firms and government agencies that make up the economy, how those units make decisions and how those decisions impact the economy is called what?
A
Microeconomics
11
Q
If a resource is limited to the point that choices must be made in regard to purchasing or producing goods it is called what?
A
Scarcity
12
Q
What three crucial decisions must all societies make regarding economics?
A
- Which/How many goods or services to produce
- How to produce goods or services
- How goods and services should be distributed amongst people.
13
Q
What has to be true for scarcity to exist?
A
A good must be limited and people have to want it.
14
Q
What is economic growth?
A
When an economy grows to produce more so there is an abundant supply.
15
Q
What does economic growth require?
A
More resources, better resources, and better technology to get resources.
16
Q
How can an economy improve the use of goods and services?
A
Use their resources wisely so that there is less of a chance of scarcity.
17
Q
What are the four Universal Economic Goals (4 E’s)
A
Allocate Efficiency, Productive Efficiency, Employment, Equity.
18
Q
This is achieved by a society if it produces the types of goods and services that most satisfy its people.
A
Allocative Efficiency
19
Q
Using limited resources to produce the right mix of goods is known as which of the 4 E’s?
A
Allocative Efficiency
20
Q
This is achieved when producing the greatest quantity of goods and services possible at minimum cost.
A
Productive Efficiency
21
Q
What are the three methods to achieve productive efficiency?
A
Not using more resources than necessary
Using resources where they are best suited
Using technology to minimize cost
22
Q
This particular element of the 4 E’s is NOT synonymous with “equality”
A
Equity
23
Q
What are the three standards of equity?
A
Contributory Standard
Needs Standard
Equality Standard
24
Q
This standard of equity is defined as people are entitled to a share of goods and services based on what they contribute to society.
A
Contributory Standard
25
What is a continuing issue with the contributory standard?
People who contribute little or are unable to contribute (disabled).
26
This standard of equity is defined as goods and services being distributed based on the needs of households.
Needs Standard
27
This standard of equity is defined as everyone being entitled to an equal share of goods and services because they are human.
Equality Standard
28
What is a continuing issue with the needs standard?
Measuring the amount of need and inducing people to still contribute to society.
29
What is a continuing issue with the equality standard?
How to allow for needs and also maximize productivity.
30
What does full employment mean?
Using all available resources, not just labor.
31
What three things govern the behavior of the seller in the free market system?
The Production Possibility Frontier Curve, Law of Diminishing Marginal Returns and Law of Increasing Opportunity Cost.
32
This is a model of the economy that is used to illustrate problems associated with scarcity.
The Production Possibility Frontier Curve
33
This model shows the maximum feasible combinations of two goods or services society can produce assuming all resources are used in their most productive manner.
The Production Possibility Frontier Curve
34
What are three assumptions made with the Production Possibility Frontier Curve?
1. Society is capable of producing only two goods.
2. At a given point in time society has a fixed quantity of resources.
3. All resources are used in their most productive manner.
35
What is technical efficiency?
When more of one good cannot be produced without producing less of the other good.
36
What are all points on the PPF Curve considered?
Technical Efficiency.
37
What does any point inside the PPF Curve represent?
Technical Inefficiency.
38
Why are points outside of the PPF Curve technically infeasible?
Stock of resources and technical knowledge.
39
What is opportunity cost?
How much of one product is being lost to gain more of the other (ex: 1 gun for 4 butters, opportunity cost is 4 butters).
40
The more of a good or service produced, the more it's opportunity cost will rise is called what?
The Law of Increasing Costs
41
Why does the PPF Curve have a convex shape?
Because resources are diverted and if resources are not specialized in particular uses, opportunity costs will stay constant and curve would be a straight line.
42
What is represented by the point on the curve that best satisfies society's needs and wants?
Allocative Efficiency
43
What are two issues with Allocative Efficiency?
The point cannot be located without knowledge of society's likes and dislikes.
Allocative Efficiency is not independent of society's distribution of income and wealth.
44
What requires that society increase the amount of resources it has or make those resources more productive through technology?
Economic Growth
45
How is economic growth represented on the PPF?
An outward shift of the curve.
46
This basic type of economy is reliant on custom and trade to determine production and distribution questions.
Traditional Economy
47
This type of basic economy is resistant to change and ill-equipped to sustain growth.
Traditional Economy
48
What type of economic system is found in most third world countries?
Traditional Economy.
49
This type of basic economic system relies on central authority to make all economic decisions.
Command Economy
50
This type of economic system has no central authority and custom plays very little role in the competitive market.
Market Economy
51
Who decides on what goods and services to be produced in a market economy?
Buyers and Sellers
52
What do consumers base buying decisions on in a market economy?
Needs
53
What motivates producers in a market economy?
Desire for profit.
54
What is a mixed economy?
A combination of Traditional, Command, and Market economy.
55
This economic system has productive resources owned by private individuals.
Capitalism
56
This type of economic system is a mixed system that has productive resources owned collectively by society and allocation is under the control of the government where markets are used to determine the price of goods and wages.
Socialism
57
This type of economic system has the means of production publicly owned with little to no private ownership and a central planning authority makes decisions and decides on what will be produced and how.
Planned Economy
58
Describe the appearance of a supply and demand graph
A supply and demand graph is done sideways with the price on the y axis and the quantity on the x axis.
59
Which direction do demand graphs slope?
Down
60
Which direction do supply graphs slope?
Upward from left to right.
61
What is the intersection of supply and demand curves called?
Equilibrium
62
What makes prices shift toward the equilibrium?
Marked Competition
63
What is the term for a market's responsiveness of quantity produced to price?
Elasticity
64
If a quantity responds to change in price it is called what?
Elastic
65
If a quantity fails to respond to change in price it is called what?
Inelastic
66
If price is above the equilibrium it reveals a difference in quantity supplied vs. quantity demanded and is called what?
Excess Demand
67
The study of an economy as a whole is called what?
Macroeconomics
68
What measures the national output?
Gross Domestic Product (GDP)
69
This is the most comprehensive and important economic factor used to determine the well being of an economy.
Gross Domestic Product (GDP)
70
The total monetary value of final goods and services that a country produces over a given period of time (usually a year) is called what?
Gross Domestic Product (GDP)
71
What is the most common way of measuring the gross domestic product?
Expenditures Approach
72
What does the Expenditures Approach look at?
The amount of new goods and services purchased in a country in a given year.
73
What is the equation for the GDP?
C+I+G+NX (Consumption+Investment+Goods+Net Exports)
74
This is the difference between the goods bought by people outside the country and the goods people in the country bought from outside the country.
Net Exports
75
This is the total amount of investment items bought by businesses and individuals when calculating the GDP.
Investments
76
When calculating the GDP, this is the amount of goods and services purchased in the given time frame.
Consumption
77
When calculating the GDP this is the total of goods and services bought by the government.
Goods
78
The amount of national output produced is also called this.
Aggregate Supply
79
The amount of national output purchased is also called this
Aggregate Demand
80
An expansion of the economy that brings prosperity is also called a what?
Boom
81
A contraction of the economy with a decline in the GDP and a rise in unemployment is called what?
Recession
82
A turning point in an economic cycle, a period in which there is a slide from the mean to the lowest point in the recession is called what?
Trough
83
The rise from the trough back to the mean during which there is a lessening of unemployment and rising prices is called what?
Recovery
84
This results from too much spending.
Inflation
85
Characterized by when buyers want to buy more than sellers can produce and they bid up the price.
Inflation
86
This occurs when there is not enough spending in an economy
Unemployment
87
Too many goods with not enough buyers results in this.
Surplus
88
This often results in unemployment as sellers must lower production and lay off workers.
Surplus
89
The rate at which prices rise
Inflation
90
This determines if the economy is growing at a healthy rate
Inflation
91
An economy that grows too quickly and has too much spending suffers from this:
Inflation
92
This policy raises government spending and/or decreases taxes to increase spending.
Expansionary Fiscal Policy
93
This policy decreases government spending and increases taxes to decrease spending in the government.
Contractionary Fiscal Policy
94
This monetary policy changes the level of money in the banking system
Federal Reserve System (FED)
95
This is the most flexible and most often used tool of monetary policy
Open-Market Operations
96
This refers to the feds buying or selling of US government bonds in the open market
Open-Market Operations
97
The purpose of this policy is to influence the amount of reserves in the banking system and the banking system's ability to extend credit and create money.
Open-Market Operations
98
A financial instrument frequently used by the government and businesses as a way to borrow money.
Bonds
99
What are the characteristics of bonds?
1. Comes with a par value
2. Has a date to maturity (90 days to 30 years)
3. Acts as a coupon (promises to pay x amount to bond holder per year until maturity)
4. Promise to repay par value on maturity date.
100
What is the purpose of a reserve ratio?
To influence the level of excess reserves in the banking system and the ability to create money and extend credit.
101
To expand the economy, what should happen to the reserve ratio?
Reduce the reserve requirement
102
To contract the economy, what should happen to the reserve ratio?
Raise reserve requirements
103
What happens if the reserve requirement is lowered?
Banks lower interest rates and credit requirements in an attempt to make more loans. When loans are granted, the economy's money supply and total spending will rise.
104
What happens if the reserve requirement is raised?
Banks raise interest rates and credit requirements to reduce the amount borrowed. Loans are reduced and the economy's money supply and total spending will fall.
105
This is the interest rate the fed charges member banks for loans on reserves borrowed form the fed.
Discount Rate
106
To expand the economy, what should happen to the discount rate?
Lower the discount rate
107
To contract the economy, what should happen to the discount rate?
Raise the discount rate
108
What happens if the discount rate is lowered?
The fed is more willing to lend and hold low levels of excess reserves.
109
What happens if the discount rate is raised?
The fed is less willing to lend and more likely to hold high levels of reserves.
110
What are the five functions of government in a market economy?
1. Provide economy with legal structure and social framework.
2. Maintain Competition
3. Redistribution of income and social welfare
4. Provide public goods and services that markets do not.
5. Correct any market failures and promote growth and stability.
111
What are the functions of government in a command economy?
1. Regulate production
2. Final authority on what goods and services will be produced, how they are used and who buys which as well as allocation of revenues
3. Sets wages and prices
112
What are the characteristic features of a command economy?
1. Traditionally stable and relatively immune to financial downturn and inflation
2. The surplus production and unemployment rates are level
3. Encourages investments in long-standing project-related infrastructure with the promise of no recession threats.
4. Deliberate and planned approach to money making (improves country's economic conditions)
5. Emphasizes collective benefit through distribution of wages and bonuses based on collective contribution.
113
What is the role of the central bank in a market economy?
to oversee the stability of the banking system and conduct monetary policy in order to control inflation and unemployment and to stimulate economic growth.
114
What is a corporation?
A legal entity with a goal of the production of specific goods and services to make a profit that competes with other entities.
115
Pieces of ownership in a corporation are called what?
Stock
116
What are people who own stock called?
Stockholders or Shareholders
117
What are the payments of some of the profits of a company that are paid to shareholders called?
Dividends
118
What are the two types of stock?
Public & Private
119
What type of stock is traded freely on the open market/stock exchange?
Public
120
What type of stock is issued by corporations that are not traded in public stock exchanges?
Private
121
This is considered the epitome of a market economy
Stock Market
122
What is it called when stock is sold at a price higher than when they bought it?
Capital Gains
123
What says that trade should be based on the comparative opportunity costs between two countries?
Principle of Corporate Advantage
124
What are the two categories of exchange rates?
Fixed and Floating
125
What is it called when two countries exchange their currencies following a rate rooted in the International Currency Market?
Exchange Rate
126
This was created after World War II and established rules for commercial and financial relations
Bretton Woods System
127
This was created at the Bretton Woods Conference to supervise the exchange rate practices of member nations.
International Monetary Fund (IMF)
128
What was the intent of the International Monetary Fund?
To lend money to nations to meet payment obligations ("Bailout")
129
What is the World Bank funded through?
The sale of bonds
130
What is the function of the World Bank?
It loans money to developing nations for economic development.
131
This refers to the sum of a country's transactions with other countries and can be summarized in three main accounts.
Balance of Payment Account
132
This type of balance of payment account tracks import and export of good sand services and includes net international transfer payments and net international factor income.
Current Account
133
These are the interests and dividends paid by foreigners to Americans
Net Investments
134
These are funds sent to Americans or their families living oversees.
Net Transfers
135
What are the four obstacles of developing nations economies?
1. Traditional Attitudes or Beliefs
2. Continued rapid population growth
3. Misuse of resources
4. Trade Restrictions
136
What is the illegal export of currency or money capital from a nation by its leaders called?
Capital Flight
137
This is a part of an economy that is centered on the consumer rather than the relationship between businesses.
Consumer Economy
138
This is a promise to pay for goods and services already provided.
Credit
