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Crash Course in Economics > What is Economics? > Flashcards

What is Economics? Flashcards

1
Q

Define economics.

A

A social science concerned with the production, distribution and consumptions of goods / services.

i.e. the study of resource allocation

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2
Q

What is microeconomics?

A

The resource usage of individual consumers and businesses.

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3
Q

What is macroeconomics?

A

The resource usage of economies at the regional, national and international scale.

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4
Q

What is economics most concerned with?

A

Efficiency of production and exchange.

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5
Q

What is the aim of economic policies?

A

To maximise output.

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6
Q

What is the main principle / problem of economics?

A

That human beings have unlimited wants and needs but occupy a world of limited means.

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7
Q

Economists argue that a better use of resources will lead to…

A

A higher standard of living

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8
Q

Define economic growth.

A

An increase in the amount of goods and services produced per head of the population over unit time (usually a year)

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9
Q

Microeconomics looks at how individuals and businesses make decisions. It therefore analyses…

A

Aspects of human behaviour

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10
Q

Which aspect of human behaviour does microeconomics focus on?

A

Demand for a good at a particular price / how behaviour if affected by changes in price.

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11
Q

What 3 things does microeconomics try to explain?

A
  1. How and why goods are valued differently
  2. How individuals and businesses can make the best financial decisions
  3. How best individuals / businesses should cooperate to trade with eachother
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12
Q

Name 5 areas of study that fall under microeconomics.

A
  1. Supply-demand dynamics
  2. Efficiency / cost of production of goods / services
  3. Division / allocation of labour
  4. Risk
  5. Strategic game theory
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13
Q

Name 6 areas of study that fall under macroeconomics.

A
  1. Foreign trade
  2. Government fiscal or monetary policy
  3. Unemployment
  4. Inflation and interest
  5. The growth of total production output
  6. Business cycles
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14
Q

How is the growth of total production output studied?

A

By looking at changes in GDP.

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15
Q

Name 4 phases of business cycles.

A
  1. Expansions
  2. Booms
  3. Recessions
  4. Depressions
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16
Q

Different schools of economic theory analyse data differently. Name two ways in which economic data is analysed.

A
  1. Formal logic

2. Empiricism

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17
Q

Define formal logic.

A

The branch of logic concerned exclusively with deductive reasoning

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18
Q

Formal logic is concerned with the context of a proposition. True or false?

A

False - formal logic is concerned with the form of a proposition.

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19
Q

Define empiricism.

A

The belief that knowledge of this world comes from our sensory experiences.

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20
Q

How do empiricists believe we learn / discover?

A

Learning is based on observation and perception; we must experience things in order to learn / discover.

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21
Q

How would an empiricist try to discover something?

A

With procedural observations and falsifiable tests.

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22
Q

Name 2 kinds of economics that favour empiricism.

A
  1. Macroeconomics

2. Marshallian economics

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23
Q

Other than economics, name another field in which empiricism is commonly used.

A

The natural sciences

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24
Q

Why is the use of empiricism criticised in economics?

A

You cannot create ‘true’ experiments, so empirical economists rely on simplifying assumptions and retrospective analysis. This is thought to generate incorrect answers.

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25
Name the two building blocks of study in economics.
1. Labour | 2. Trade
26
What is the key economic principle around labour?
It is more efficient for individuals / companies to specialise in specific types of labour and trade for their wants / needs, instead of trying to produce everything on their own
27
What is the key economic principle around trade?
That it is most efficient when coordinated through a medium of exchange (money)
28
What assumption are most economic models based on? Is this assumption true?
The assumption that humans act with rational behaviour. This is not true; humans are unpredictable and inconsistent.
29
What would rational behaviour lead to?
The optimal level of benefit or utility.
30
Economic principles are not suited to empirical testing because humans act with rational behaviour. True or false?
False - economic principles are not suited to empirical testing because humans are unpredictable and inconsistent.
31
What is human behaviour based on?
Subjective personal values.
32
Are economic models obtainable in real life? Why, why not?
No, because they assume that humans behave rationally and this is rarely ever true.
33
Are economic models useful?
Yes - even though they are not obtainable in real life, they provide key insight into human behaviour.
34
Why are many economic policies centred around incentives?
Because people act in their own self interest, so incentivising is a good way to mobilise people.
35
What is the point of economic indicators?
To demonstrate a country's performance in a particular area.
36
Name 4 things that economic indicators can have an effect on when published. Why is this?
1. Forex markets 2. Stocks 3. Fixed income 4. Investment decisions Because they show how well a country is doing / whether a country is a safe investment or not.
37
What does GDP stand for?
Gross Domestic Product
38
Define GDP.
The total market value of all finished goods / services produced in a country in a given year.
39
GDP is considered to be a lagging indicator. What does this mean?
An indicator that confirms but cannot predict a trend. Basically, by the time it is published it is already out of date.
40
What are retail sales?
The total value of all merchandise sold in shops.
41
Why are retail sales important?
They are a proxy for consumer spending.
42
Consumer spending accounts for approximately 66% of a country's GDP. Why are we interested in retail sales figures?
Because they indicate the general direction of the economy.
43
Retail sales figures are considered a timely indicator. Why?
Because they are based on the previous month's sales.
44
What is capacity utilisation ratio?
The proportion of productive capacity being used in the economy (rather than standing idle)
45
It is preferred for a country to see increasing values of productivity and capacity utilisation at all levels. True or false?
True
46
Is capacity utilisation falls below 80%, it is considered 'slack'. What does this indicate?
An increased likelihood of recession.
47
If capacity utilisation is between 82-85%, it is considered 'tight'. What does this indicate?
Increased likelihood of supply shortage and therefore inflation.
48
What does employment data look at?
The proportion of employed vs. unemployed people in the economy.
49
Generally, what do sharp increases in employment indicate?
Prosperous economic growth.
50
Generally, what does increasing unemployment indicate?
Economic contraction.
51
When looking at employment data, context is important. In a society that has suffered a recession, would rising employment be a good thing? Why, why not? What would happen to the currency?
Rising employment would be good as it would be a sign of economic recovery. This could cause currency appreciation.
52
When looking at employment data, context is important. In an overheated economy, would rising employment be a good thing? Why, why not? What would happen to the currency?
Rising employment could be a bad thing, as increased disposable income of workers could lead to increased demand and therefore inflation. This could cause currency depreciation.
53
Define currency appreciation.
An increase in the value of a currency compared to other countries.
54
Define currency depreciation.
A decrease in the value of a currency compared to other countries.
55
What does CPI stand for?
Consumer Price Index
56
Define CPI.
A measure of the costs that consumers pay for things.
57
What is CPI used as?
A benchmark for inflation.
58
Define a basket of goods.
A fixed set of consumers goods / services whose price is evaluated on a regular basis which is used to track inflation.
59
CPI is one of the most important economic indicators. Name 3 things its release can affect.
1. Forex markets 2. Fixed income 3. Equity volatility
60
Greater than expected increases in CPI are a sign of inflation. What effect might this have on the currency?
It will decrease in value compared to other countries.

Crash Course in Economics (5 decks)

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