Big Economics Review
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What is the name for the type of economics that focuses on decisions made by
individual economic actors?
What is the name for the study of entire economies?
What are the two main types of things that consumers purchase?
goods and services
What are the four main types of resources? (or factors of production)
human resources, natural resources, capital resources, and entrepreneurship
What are capital resources or goods?
buildings & machinery used to create products & the money thatís invested in them
What two things must an entrepreneur have to start a business?
an idea and some capital
What is the most basic problem in economics? How does it drive decision making?
scarcity, resources are limited so choices must be made
What are the 3 basic economic questions?
what to produce, how to produce, for whom to produce
What is the name for the level at output that results from a certain level of input?
What is the name for the value of the next best alternative given up to obtain a certain item?
What is the best visual method for quantifying trade offs and opportunity costs?
production possibilities curve
How would new technologies or resources impact the production possibilities curve?
shift it to the right
If youíre trading chickens for computers, what kind of exchange is it?
What are the two types of exchange most common in our economy?
cash and credit
What do utility and scarcity help define about a particular product?
What is the definition of a self sufficient economy?
one that can meet all of its needs successfully
Who makes all the important decisions in a command economy?
Who makes all the decisions in a free market economy? Who is the father of this type of economics?
individuals, Adam Smith
capitalism and authoritarian socialism are examples of what type of economy?
Give three examples of nations with capitalist economies.
United States, Canada, Great Britain, Japan, Mexico
What are the 4 of the main economic goals of the United States?
freedom, efficiency, equity, security, stability, and growth
What are the two main measures of economic stability?
price stability & full employment
What is the primary measure of economic growth?
standard of living
How do nations decide which trade offs need to be made?
by prioritizing their economic goals
What almost always happens to quantity demanded as price drops?
it goes up
What impact does increasing income have on demand?
it increases purchasing power which increases demand
What is the substitution effect?
consumers will purchase a lower price substitute if its effective
What is the name for reduced satisfaction achieved from continued consumption of a particular good?
diminishing marginal return
What is an oligopoly?
when a few major firms dominate a particular market
What is a cartel?
when an oligopoly colludes to set prices & ruin competition
Where is market equilibrium?
where the demand curve hits the supply curve
What is a shortage? a surplus?
a shortfall in the amount supplied, an excess of the amount supplied
Name two different types of monopoly?
natural, geographic, technological, and government
Identify two factors that place price pressure on monopolies.
consumer demand, potential competition, & govít regulation
What system is used by consumers and producers to communicate?
the price system
What is the greatest single advantage of the price system?
What is the name for officially limiting the supply of a particular good?
What are two of the major criticisms of rationing?
unfair, too expensive, creates black markets
What is the name for a situation in which many buyers and sellers compete under the laws of supply and demand?
What is the opposite of perfect competition?
What is product differentiation?
monopolies using small differences to set their products apart
Name two types of monopolies.
geographic, technological, geographic, natural
Give an example of a price ceiling and a price floor.
ceiling: rent & war rationing; floor: subsidies, crop prices, min. wage
Give two examples of how price controls can have negative side effects.
black markets, create shortages (e.g. rent control - housing)
What is the primary purpose of anti-trust legislation?
eliminate imperfect competition
What are two of the main benefits of a sole proprietorship?
ease of start up, full personal control, exclusive right to the profits
What are three of the disadvantages of a sole proprietorship?
unlimited liability, sole responsibility, limited growth potential, lack of longevity
What are two advantages of partnerships?
easy start up, specialization, shared decision making, shared losses
What are two disadvantages of partnership?
unlimited liability, potential for conflict, lack of longevity
What is a horizontal corporate combination? A vertical combination?
horizontal: all in same phase of production, vertical: all in different phases of production
What is the name for a group of businesses that share a name and product line but are individually owned?
What is a cooperative?
a business that is owned by its customers (REI, the Green Bay Packers)
What is used to measure the total productivity of an economy?
Gross Domestic Product (GDP)
What are the major components of GDP?
Personal consumption, gross investment, govít purchases, exports minus imports
What is Real GDP?
GDP adjusted for inflation
Does GDP measure all economic activity? Why/Why not?
no, lots of other stuff happening (black market, non-market, etc.)
What are the four components of the business cycle?
expansion, peak, contraction, trough
Why is per capita GDP important?
it measures a nationís productivity based on population
Identify three of the things nations require for economic growth.
natural resources, human resources, capital, and entreprenuership
What are the key factors involved in boosting productivity?
advancing technology, deeper capital, increasing education/skill of labor force
What is the basic definition of an unemployed person?
someone who wishes to work but cannot find a job
Identify three types of unemployment.
frictional (moving from job to job), structural (change in technology), seasonal, cyclical (tied to business cycle)
What is aggregate supply? aggregate demand?
total goods and service produced, total spending by businesses & individuals
What are the two key types of inflation?
demand-pull (ag demand pulling prices up) and cost-push
What is the most commonly used measure of inflation?
Consumer Price Index (CPI)
What are three of the main effects of inflation?
decreased purchasing power, decreased value of wages, increased interest rates, decreased saving, increased production costs
What does the poverty rate measure?
the percentage of people in a nation living under the poverty line
How is the income gap currently changing?
itís getting larger
What are three causes of this growing income gap?
changing households, labor market, technology, growing global economy
Name three factors that have led to the growth of the government.
population growth, changing public attitudes, rising std of living, natíl emergencies
What are the three basic functions of money?
Medium of exchange, standard of value, store of value
Name 3 of the necessary characteristics of money.
Durability, portability, divisibility, stability of value, and acceptability
What is representative money?
When the money actually represents a valuable commodity
What is fiat money? Name a major country that uses this form.
When money has value b/c of government decree, the U.S.
What U.S. president dismantled the first national bank?
Which period of U.S. history has been marked by reform and regulation in the Banking industry?
The last 90 years
Name two New Deal banking reforms.
FDIC, canít sell securities, margin & reserve limits
Identify three ways automation is changing the banking industry.
ATM machines, POS/Debit transactions, Online banking, Automated Clearinghouse transactions
What was the S & L crisis of the late 1980ís?
Many S & Lís went under because of bad loans & help from Congress that loosened their regulations
What major change in Federal banking was caused by the Panic of 1907?
The Federal Reserve System (FED)
Who makes the policy decisions for the FED?
The FED Board of Governors
How many FED district banks are there? Who do they supervise?
12, the member banks in their respective regions
What is the primary influence the FED has over the economy?
They can regulate the money supply
What are the two main services the FED supplies to banks?
Check clearing and short term loans
What is the purpose of an easy money policy?
Boost aggregate demand & stimulate the economy
What is the purpose of a tight money policy?
Cut aggregate demand & cool off the economy (fear of inflation)
What are three of the main tools the FED uses to carry out monetary policy?
Open market operations, changing the discount rate, reserve requirements, margin requirements, moral suasion
Name three factors that limit the effectiveness of monetary policy.
Forecasting, time lags, priorities, lack of coordination, conflicting opinions