Economics, Money and Banking Flashcards
Chapter 2
Economy
The sum of all econmic activity within a given region, from city to a country tothe entire world
Economics
- The study of how a society uses its scarce resources to produce and distribute goods and services
- Divided into a small-scale and large-scale perspective
Microeconomics
how consumers, businesses and industries determine the
quantity of good and services at different prices
Macroeconomics
The study of the big picture issues in an economy involving government policies and firms behavior
Factors of production
Economic resources, including natural resouces, HR, capital, entrepreneurship and knowledge
Economic System
the basic set of rules for allocating resources to satisfy its citizens’ needs.
Types of Economic Systems
- Free-Market System
- Socialism
- Communism
Free-Market System
AKA Capitalism. When private parties operate the majority of the business and competition is what
determines the price of goods and services. Government policies support
entrepreneurship.
Socialism
when the state owns certain productive resources and tries to minimize the differences
between economic classes
Communism
When the state owns all major productive resources with few or no oppurtunities for entrepreneurship
Scaricity
given resource has a finite supply
Effects of Scarcity
It creates competition for resources, and it forces trade-offs on the part of every participant in the economy
Economic Indicators
are statistics such as interest rates, unemployment rates, housing data, and industrial productivity that let business and political leaders measure and monitor economic performance
Gross Domestic Product (GDP)
Measures a country’s outputs (products and services) in
a year. The products can be produced by a domestic or foreign company, as long as the production takes place within that country.
What does GDP measure?
Monitoring GDP helps a nation evaluate its economic policies and compare current performance with prior periods or with the performance of other nations.
Consumer Price Index (CPI)
measures the rate of inflation by comparing the changes in prices in certain product categories.
Unemployment Rate
indicates the percentage of the labor force currently without
employment.
Demand
is the amount of a good or service that customers will buy at a certain
price
Demand Curve
a graph that shows the amount of product that buyers will purchase at various prices, all other factors being equal. Demand curves typically slope downward, implying that as price drops, more people are willing to buy.
Supply
is the amount of a good or service that producers will provide at various
prices
Supply Curve
The relationship between prices and quantities that sellers will offer for sale, regardless of demand. Movement along the supply curve typically slopes upward: As prices rise, the quantity that sellers are willing to supply also rises.
The Equillibirium Price
when the amount of the product that suppliers are willing to sell at a certain price equals the amount that customers are willing to buy at that price.
Pure Competition
is when multiple buyers and sellers can coexist and sell at various prices.
Monopoly
when one company dominates the market and controls prices
Oligoploy
when a small number of suppliers (even two) control the market and prices. Barriers to entry tend to be high.
Business Cycles
Fluctuations in the rate of growth that an economy experiences over a period of several years
Recession
a period during which national income, employment and production all fall; often defined as at least six months of decline in the GDP
