Introduction Economics Flashcards
Explain Boom Bust Boom
- Crash
- Regulations to protect/ensure causes of crash do not repeat(fiscal and monetary policies central banks may lower interest rates or public spending)
- Economic stability and well being
- Continued ongoing economic well being and growth
- Euphoria leads to overconfidence and to doing away with regulation to prevent bust
- Bust(market is overvalued, panic, selling of assets, less economic activity, falling GDP, rising unemployment, decreased consumer spending, and lower investment) and cycle repeats
What did Keynes believe?
- Government intervention to manage economic cycles
- Keynesian economics: fiscal and monetary policies to stabilize the economy
- Public works projects to reduce unemployment
- Demand management to stimulate the economy
- Business investors and governments are the primary forces behind business cycles
- Business cycles are determined by regulating the money supply
What did Freidman believe?
- Laissez-faire Economics: Minimal government intervention, belief in free markets
- Monetarism: Control money supply to manage economy(Interest rates)
- Raise money supply by fixed amount each year(3-5%)
- Free market economics: minimal government intervention
- Natural rate of unemployment concept
- Most effective way for governments to influence the economy is by regulating the money supply
- Government attempts to include cycles of economic growth and full employment by increasing spending and reducing taxes resulted in periods of high inflation and a steady increase in public debt.
What did Adam Smith believe?
- Father of Modern Economics: Founder of capitalism
- Laissez-faire: Belief in minimal government intervention, allowing free markets to operate naturally
- Invisible Hand: Concept that self-interested individuals unintentionally benefit society through their economic actions
- Self interest: Human beings are motivated primarily by self-interest, or the desire to better one’s condition in life
What did Karl Marx believe?
- Communist Theory: Advocated for the overthrow of capitalist systems to establish a classless, stateless society
- Economic Determinism: Belief that economic structures shape all aspects of society
- Class Struggle: History is driven by conflicts between the oppressed (proletariat) and the oppressors (bourgeoisie)
What did Hobbes believe?
State of Nature: Chaotic and dangerous, life is “solitary, poor, nasty, brutish, and short.”
Social Contract: Agreement to create a government for protection and order.
Sovereignty: Needs to be absolute to prevent return to the state of nature.
Freedom: Give up your freedom for security
Human Nature: Selfish and competitive, requiring strong control.
Laws of Nature: Rational rules to seek peace and ensure self-preservation.
Government: Life without governemnt of any kind is nasty brutish and short
Economic systems(Market, command tradtional)
What to produce? How? For whom?
Wants, scarcity, and opportunity cost
- Effective (achieve a desired goal) and
2.Efficient (require the least amount of resources)
Wants > Resources = Scarcity
Opportunity Cost
Definition: The next best alternative forgone when a decision is made.
Economic goals
Setting Goals, Public Debt, Total government borrowings, Economic Growth, Efficient use of resources, Income Distribution, Full Employment, Balance of Payments, Freedom of choice for all, Consumer sovereignty in production, Environmental Stewardship
Resources and Production(PPC)
Productive Resources, Labour Resources, Capital Resources, Entrepreneur, Intangible vs. Tangible Resources, Production Possibilities Curve (PPC)
What is opportunity cost, micro and macro economics?
Opportunity Cost
Definition: Value of the next best alternative foregone when making a decision.
Microeconomics
Focus: Individual consumers, firms, and industries.
Macroeconomics
Focus: Economy as a whole.
