PowerPoint Review Q & A Session BRING SOMETHING TO DO THE DAY OF THE FINAL No computers, no leaving the room! Economics

The Study of Economics

Economics Defined Economics is the study of how people, firms, and societies (nations) satisfy their wants with scarce resources It is the STUDY OF CHOICE due to the fundamental economic problem of scarcity

Due to money being scarce, individuals will choose to spend their money or save their money. Businesses have to decide if they should incorporate (offer stocks) because they may not have a lot of capital. Due to jobs being scarce, the government must decide which firms to award contracts to. Natural resources are scarce so nations must choose who to trade with.

Every decision made by households, businesses, and governments has a cost, nothing is free!

Opportunity cost: the value of the next best alternative

The circular flow economic model is a “model" of an economy in action.

Economics is split into two studies: MicroeconomicsandMacroeconomics

Consumer Behavior

How responsive are consumers to a change in price? VERY= Elastic NOT VERY= Inelastic Elasticity of Demand

Types of Businesses

The growth of productivity—output per unit of input—is the fundamental determinant of the growth of a country’s material standard of living. Innovation is critical in this process! The Production Possibilities Frontier graph shows the different rates of production of two goods and/or services that an economy can produce efficiently during a specified period of time with a limited quantity of productive resources. Innovation can shift the PPF outward.

Producer Behavior

Equilibrium: quantity demanded equals quantity supplied

Prices send signals!

PRICE CONTROLS

Macroeconomic Challenges

Economic Indicators Defined: set of key economic variables (statistics) that economists use to predict a new phase of the business cycle and identify trends in the economy.

Economic Indicator: GDP What is included in GDP? What is not? What is the difference between nominal and real?

Economic Indicator: The Stock Market

Economic Indicator: Inflation

Economic Indicator: Unemployment

Role of Government in the U.S. Economy Define Rules Regulate Monopolies Stabilize the Economy Externalities: Correct Negative / Promote Positive Provide Public Goods Provide Programs to Help the Poor

THREE TYPES OF TAXES

Government Budget: a plan for outlays and revenue for a specified period.

There are 3 macroeconomic goals that our nation strives to meet:

Fiscal Policy And/OR Monetary Policy

Decrease Taxes Expansionary Fiscal Policy Producers and consumers have more money to spend b/c the gov’t collects less taxes and offers more tax credits Increase Government Spending Gov’t increases the number of contracts and/or subsidies with businesses. Producers sell more goods to the government and producers hire more workers, increase wages, etc.– spending increases Also, more money on transfer payments (unemployment benefits) More production Decrease in Unemployment Producers spend more on human and capital resources Consumers spend more money More spending- increase in aggregate demand Intended Results: Economic Growth, High Employment Possible unintended results: budget deficit (higher national debt), inflation

Increase Taxes Contractionary Fiscal Policy Producers and consumers have less money to spend b/c the gov’t collects more taxes and offers less tax credits Decrease Government Spending Gov’t decrease the number of contracts and/or subsidies with businesses. Producers sell fewer goods to the government and producers lay off workers, cut wages, etc.– spending decreases Also, less money on transfer payments (unemployment benefits) Lower production Increase in Unemployment Producers spend less on human and capital resources Consumers spend less money Less spending- decrease in aggregate demand Intended Results: Stable Prices Possible unintended results: Economy cools too quickly leading to higher than expected unemployment and even deflation. Possibly a recession occurs. The budget could also result in a surplus.

The Federal Reserve System

Monetary Policy

Contrasting Perspectives: the role of government in the economy Friedrich von Hayek John Maynard Keynes

The absence of restrictions on trade. Tactics used to either promote or protect a sector of the domestic economy.

Trade Blocks

Developing Nations How do you differentiate between a developed and developing country? Human development index (HDI)

Balance of Trade Exchange Rates

Video Clips Viewed This Semester Our Dear Friend, MJM Foodie 1.Productive ResourceProductive Resource 2.Shifting the PPFShifting the PPF 3.Change in QD vs. Change in DChange in QD vs. Change in D 4.Price ControlsPrice Controls 5.GDPGDP 6.Unemployment: labor forceUnemployment: labor force 7.Comparative AdvantageComparative Advantage Other Clips 1.Tour : NYSE Trading FloorTour : NYSE Trading Floor 2.Tracking InflationTracking Inflation 3.ZimbabweZimbabwe 4.Movie: Public GoodsMovie: Public Goods 5.Debt ClockDebt Clock 6.GLOBAL ECONOMIC COLLAPSEGLOBAL ECONOMIC COLLAPSE 7.Keynes v. HayekKeynes v. Hayek 8.China’s Rising EconomyChina’s Rising Economy 9.OPECOPEC Countries, 200 Years, 4 Minutes200 Countries, 200 Years, 4 Minutes