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 demand- pull 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 self- checkout 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 of a regressive tax?  Sales

 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 people choose to use their resources to satisfy their needs and wants is  Economics

 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?  Who does inflation hurt?  Help – those who owe money  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