Text of the Honors Economics Quist II Review

Who makes all the important decisions in a command economy?

the government

Who makes all the decisions in a free market economy?Who is the father of this type of economics?

individuals, Adam Smeeeth

What is the driving motivating factor in a market economy?

self interest, actors respond to incentives

Give three examples of nations with capitalist economies.

United States, Canada, Great Britain, Japan, Mexico

Identify three of the key rights that individuals have in the United States economy.

private property, enter contracts, economic competition, act on self interest, limited government involvement

What are 4 of the main economic goals of the United States?Which of these is most difficult to achieve?

freedom, efficiency, equity, security, stability, and growth; equity is most difficult to achieve

What are the two main measures of economic stability?

price stability & full employment

What is used to measure the total productivity of an economy?

Gross Domestic Product (GDP)

What is Real GDP? Per capita GDP?

GDP adjusted for inflation; GDP divided by population

What are the four components of the business cycle?

expansion, peak, contraction, trough

What does a leading indicator tell economists.

The direction the economy is headed in the future

What are two key leading indicators?

housing starts, orders for durable goods, investment in capital

In a laissez faire system, what determines the price of a given product?

Interaction of supply and demand

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 are two other factors that greatly impact overall demand?

market size (population), tastes and preferences, prices of related goods, consumer expectations

What is the substitution effect?

consumers will purchase a lower priced substitute if itís effective

What is the name for reduced satisfaction achieved from continued consumption of a particular good?

diminishing marginal return

What does elasticity of demand measure?

the impact on demand of a price change in a particular good

If demand for a good changes little with changes in price then demand is elastic or inelastic?


What are three key factors that affect elasticity?

availability of substitutes, relative importance, need or want, how quickly price changes over time

What does a supply schedule measure?

the amount supplied at a given price

If producers are willing to produce a much larger quantity with a small increase in price supply is considered elastic or inelastic?


What are two factors that cause shifts in supply?

price of resources, technology, competition, price of related goods, government activity

What will suppliers do when there is excess demand? Excess supply?

Raise their price to match equilibrium

Lower their price to match equilibrium

What is the amount of additional cost required to produce one more unit?

marginal cost

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

What are the two ways of making money on a share of stock?

Dividends (share of the profit) and appreciation (capital gain)

What does a ďfutureĒ represent?

the right to buy a commodity (oil, pork bellies, corn, etc.) in the future at a set price

What are the two main types of bonds? Are they generally more or less risky than stocks?

government and corporate, less

What are low risk ways to invest money?

Money market account, CDís, savings bonds, savings accounts

What is the strategy that spreads out investments to reduce risk?

Diversification (investing in a variety of different things)

What do mutual funds do?

Pool the savings of many individuals and invests money in a variety of stocks

What are the contracts that give investors the choice to buy or sell stock at a set price in the future?


What is insider trading?Why is it illegal?

Making a stock sale based on information that has not been made public; unfair to rest of market

What is the primary influence the FED has over the economy?

They can regulate the money supply by setting key interests rates, buying/selling securities, and setting reserve requirements

Who prepares the initial budget proposed to Congress?

The President

Which office manages development of this budget and negotiates between the President and the various agencies?

Office of Management and Budget (OMB)

Name two entitlements.What portion of the federal budget do they represent?

Medicare, Medicaid, Social Security, more than half

What does Congressí concurrent budget resolution do?

Sets forth the spending and tax plan for the upcoming fiscal year

What is happening when House and Senate budget committees fit the concurrent budget resolutions to the specific needs of agencies and programs?

budget reconciliation

What is the final step in the budgeting process after reconciliation?

The House must issue an appropriations bill approving the money to fund the budget

What government agency is charged with maintaining high standards for worker health and workplace safety?

Occupational Safety and Health Administration (OSHA)

What government agency has primary responsibility for overseeing investments and financial markets?

Securities Exchange Commission (SEC)

What is the FTC responsible for?

Maintaining the needed conditions for fair trade, enforcing anti-trust laws

When govít revenues exceed expenditures itís called a ____.When expenditures exceed revenue itís a ______.

Surplus; Deficit

What does the FDA do?

Responsible for maintaining and enforcing government standards for the purity and safety of food and drugs

What agency insures bank deposits up to $250,000?


Which agency works to ensure fairness in employment and hiring practices?

Equal Employment Opportunity Commission (EEOC)

Equal Employment Opportunity Commission (EEOC)

Which agency controls everything from broadcast spectrum to standards for broadcast content?

Federal Communications Commission (FCC)