Economics Semester Review! Everything YOU ever wanted to remember… and COULD!!! Introduction Unit What are the three (3) economic questions? What to Produce How to Produce it For Whom to Produce Explain a traditional society. Repetition based on the past and by a strict hierarchy. Explain a command economy. Strong government role in the economy. Explain a market economy. Prices and the products manufactured are based on supply and demand/ What is the definition of scarcity. limited resources versus unlimited wants What do you love? Economics of course! Individuals who make purchases are know as? Consumers The creators of a new business is known as an? Entrepreneur What is another word for utility? Usefulness Supply and Demand Explain diminishing marginal utility. the more you have of an item – the less satisfaction you get with each additional item. List two (2) determinants of supply. Price of resources Technology Government tools Price of other goods Producer expectations List two (2) determinants of demand. Substitute and complementary goods market size income future expectations tastes and preferences Explain demandpull inflation Prices rise due to the increased demand for goods Supply-side economics gives tax incentives to whom? Business What is the point where supply and demand intersect? Market Clearing Price or Equilibrium Point When there is a shift increase in demand. (Which way does the line move?) Right When there is a shift increase in supply. (Which way does the line move?) Right People love straw hats! A hurricane hits wiping out palm trees. What is the impact of the hurricane on the supply and demand for hats? Decrease in Supply What are the four (4) types of unemployment. Cyclical Frictional Seasonal Structural List the four (4) phases of the business cycle. Expansion Peak Contraction Trough What is a problem that occurs with inflation? Prices go up faster than wages – The same $ now buys less. Give and example of frictional unemployment. Just in between jobs Give an example of cyclical unemployment the steel industry collapses and put people out of their jobs Give an example of structural unemployment The new selfcheckout lines at Jewel Define Inflation An increase in the general price level of goods and services; alternatively, a decrease in purchasing power of the dollar. Define Deflation A decline in the general price level of goods and services that results in increased purchasing power of money. Fiscal / Monetary Policy What is the purpose of the Federal Reserve? Bank for banks What is included in M1? Currency Checking Accounts (Demand Deposits) Traveler’s Checks What is included in M2? All of M1 plus: – Savings – Money Market – CD’s List the tools of monetary policy. Open Market Operations Discount Rate Reserve Rate Define Fiscal Policy Practices of government spending and taxes Define Monetary Policy The Federal Reserve policy to regulate the nation’s money supply and credit What are the three (3) types of taxes? Progressive Proportional Regressive Why does the government tax? To redistribute money throughout society Pay for services List where U.S. tax revenues come from. Individuals Corporations Property Social Security Sales What is an example Sales of a regressive tax? List the characteristics of money? Recognizable Durable Portable Divisible Acceptable Limited Supply What is the U.S.’s money backed by? Trust in our government and it’s ability to collect taxes How many districts are in the Federal Reserve System? 12 Who carries out Monetary policy? The Federal Reserve Who carries out Fiscal Policy? The President and Congress GDP measures Gross Domestic Product - the production of goods and services by a nation in a year. What are the components of GDP? What is the largest component of GDP? G+C+I+(x-m) Gov’t spending Consumption Investment Exports – imports Consumption When is the economy most likely to experience an increase in unemployment? Downside of the business cycle or when total spending decreases in the economy. For those with structural unemployment to be successful they often need Retraining or additional educational because their skills are no longer productive for the economy. A representative market basket of goods and services that are used by the average consumer in call CPI – consumer price index What does a CPI of 200 mean? The base yr = 100 The cost of the market basket has increased by 100% The study of how Economics people choose to use their resources to satisfy their needs and wants is Factors of Production Land Labor Capital Entrepreneur What direction does a demand curve shift? Downward slope and to the right Examples of the underground economy Illegal drugs Under the table payoffs where the gov’t doesn’t get taxes Illegal gambling What causes a Production Possibility Curves to shift outward? New resources or new technology Opportunity cost The decision of choosing the best of all alternatives What you have to sacrifice in order to be able to have an additional item What is the largest Federal Budget expenditure? Social Security Who is the chairman of the Federal Reserve? Ben Bernanke If the fed sells securities (OMO) does this put money into the economy or take it out? Takes money out of the economy Why would the Fed lower the discount rate? To increase or stimulate spending in the economy. It increases the incentive to take out a loan. What does aggregate mean? Total Who does inflation help? Help – those who owe money Who does inflation hurt? Those with savings Those on fixed incomes What services does the Federal Reserve provide for the government? Financial advisor Checking account for the U.S. treasury pays social security checks, tax refunds, veteran payments, etc. Issuing Currency What services does the Federal Reserve provide for member banks? Clearing checks Loans to banks Transfers deposits from one account to another Supervise lending practices What is loose monetary policy? A policy that wants to increase the economy and encourage spending. Using a Tight Money Policy would you buy or sell government securities? Sell In inflationary times what Monetary Actions are available for the Fed to use? Increase the discount rate Increase the reserve requirement Sell open market operation Economic concepts associated with Adam Smith Society benefits by each of us working in our own self interest Invisible hand regulates the equilibrium price for supply and demand Laissez Faire What type of economic system is laissez faire associated with? Hand off – gov’t should not interfere with business Pure market economy To whom is most of our national debt owed? How large is our debt? What is deficit spending? US citizens 15 trillion Spending more than the gov’t takes in revenues in a year John Maynard Keynes is associated with what type of ______ side policy Milton Freidman is associated Monetarists and with which type of _____ side policy Demand Supply Using an Easy Money Policy what actions would the Federal Reserve take? Lower the Discount Rate Lower the Reserve Requirement Buy Government Securities (Bonds) Explain the Discount Rate. The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank. What are two (2) characteristics of developing nations? Low GDP Per Capita Few Resources Growing population Agriculture based economy What was Marx’s view of capitalism? It would destroy itself. Eventually the people would want to create a classless society What percentage of nations are “developing?” 80% What did NAFTA accomplish? A reduction and eventually elimination of tariffs between countries. An increase in trade between countries. List two (2) countries that are communist today. North Korea China Vietnam Cuba Name two (2) types of foreign aid. Grants Advice United Nations World bank International Monetary Fund Private Investment (Corporate) Explain absolute advantage. Cheaper & control of the resources What are the benefits of globalization? lower tariffs lower prices specialized labor increased competition