Lernset Flashcards
What is the basic economic problem of scarcity and choices?
Scarcity: resources (land, labor, capital and entrepreneur) are limited, while human wants and needs or unlimited. This imbalance creates the fundamental problem of scarcity.
Choices : because of scarcity, individuals, businesses and government must decide how to allocate resources effectively. Choices lead to opportunity costs (the next best alternative forgone)
Example: a government choosing between investing in healthcare or infrastructure must forgo one to prioritize the other.
GDP
GDP (gross domestic product ) measures the total value of goods and services produced within a country in a specific period or in one year.
GDP growth indicates economic expansion while a decrease my signal recession
Types : nominal GDP ( not adjusted for inflation)
Real GDP (adjusted for inflation)
How to calculate the GDP = consumer spending + investments + government spending + (export-import)
Inflation
The rate at which the general level of prices for goods and services rises, reducing purchasing confidence.
Inflation can happen when the demand for goods and services exceeds the economy’s ability to produce them creating upward pressure on prices.
Key facts about the current economic situation in Germany
Current challenges include energy supply issue, inflation, pressure, and supply chain disruptions due to geopolitical tensions.
The government is focused on transitioning to renewable energy and tackling high inflation rates , which stood at around 3 to 4% in recent months
The business cycle and its phases
The business cycle refers to the fluctuations in economic activity overtime.
It has four 4 main phases:
1. Expansion: economic growth, rising GDP, increasing employment, and consumer confidence
2. Peak: the highest point of economic growth before a downturn.
3. Recession: economic decline, falling GDP, rising unemployment and reduced consumer spending
4. Trough: the lowest point, making the end of a recession and the start of recovery
Factors of production land
Includes all natural resources like soils, minerals, forest, water, and oil
Example : a farmer uses land to grow crops
Reward : rent ( payment for using the land)
Labor
This is the work done by people to create goods and services
Example : a teacher, a factory worker or a doctor
Reward : wages ( payment for the work)
Capital
Refers to man, toes, machines, building, or equipment used to produce goods and services
Example : a tractor used on a farm or a factory building
Reward : interest ( profit earned by investing in capital)
Entrepreneurship
The person who brings the other factor of production together, takers, and start businesses
Example: a person starting a bakery
Reward : profit (the money left after paying all cost)
PPC
PPC ( production possibility curve)
- A graph showing the maximum output combinations of two goods/services an economy can achieve using its resources efficiency
- points inside the curve: resources not fully used
Points on the curve : efficient use of resources
Points outside the curve : unattainable with current resources
Opportunity cost
The cost of for going the next best al alternative, when making a decision
Example : if resources are used to produce cars instead of computers, the computers represent the opportunity cost
Household spending
Household spend income on goods and services to satisfy needs and wants. Higher income lead to increased spending, boosting economic activity
Borrowing
Household borrow to afford large expenses, for example, cars. Borrowing boost demand but excessive debt to financial instability.
Disposable income
Amount of money, a person has left after paying income related taxes, and all the deductions like social insurance
Primary sector
Extracting and harvesting natural resources directly directly from the Earth
Example : agriculture, fishing, mining
Key features : - deals with raw materials, like crops, fish, and minerals
- Foundation of economy activity, as it provides resources for other sectors
