1. Economics Semester Review! Everything YOU ever wanted to remember… and COULD!!!

2. Introduction Unit  What are the three (3) economic questions?  What to Produce  How to Produce it  For Whom to Produce

3.  Explain a traditional society.  Repetition based on the past and by a strict hierarchy.

4.  Explain a command economy.  Strong government role in the economy.

5.  Explain a market economy.  Prices and the products manufactured are based on supply and demand/

6.  What is the definition of scarcity.  limited resources versus unlimited wants

7.  What do you love?  Economics of course!

8.  Individuals who make purchases are know as?  Consumers

9.  The creators of a new business is known as an?  Entrepreneur

10.  What is another word for utility?  Usefulness

11. Supply and Demand  Explain diminishing marginal utility.  the more you have of an item – the less satisfaction you get with each additional item.

12.  List two (2) determinants of supply.  Price of resources  Technology  Government tools  Price of other goods  Producer expectations

13.  List two (2) determinants of demand.  Substitute and complementary goods  market size  income  future expectations  tastes and preferences

14.  Explain demand- pull inflation  Prices rise due to the increased demand for goods

15.  Supply-side economics gives tax incentives to whom?  Business

16.  What is the point where supply and demand intersect?  Market Clearing Price or Equilibrium Point

17.  When there is a shift increase in demand. (Which way does the line move?)  Right

18.  When there is a shift increase in supply. (Which way does the line move?)  Right

19.  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

20.  What are the four (4) types of unemployment.  Cyclical  Frictional  Seasonal  Structural

21.  List the four (4) phases of the business cycle.  Expansion  Peak  Contraction  Trough

22.  What is a problem that occurs with inflation?  Prices go up faster than wages – The same $ now buys less.

23.  Give and example of frictional unemployment.  Just in between jobs

24.  Give an example of cyclical unemployment  the steel industry collapses and put people out of their jobs

25.  Give an example of structural unemployment  The new self- checkout lines at Jewel

26.  Define Inflation  An increase in the general price level of goods and services; alternatively, a decrease in purchasing power of the dollar.

27.  Define Deflation  A decline in the general price level of goods and services that results in increased purchasing power of money.

28. Fiscal / Monetary Policy  What is the purpose of the Federal Reserve?  Bank for banks

29.  What is included in M1?  Currency  Checking Accounts (Demand Deposits)  Traveler’s Checks

30.  What is included in M2?  All of M1 plus: –Savings –Money Market –CD’s

31.  List the tools of monetary policy.  Open Market Operations  Discount Rate  Reserve Rate

32.  Define Fiscal Policy  Practices of government spending and taxes

33.  Define Monetary Policy  The Federal Reserve policy to regulate the nation’s money supply and credit

34.  What are the three (3) types of taxes?  Progressive  Proportional  Regressive

35.  Why does the government tax?  To redistribute money throughout society  Pay for services

36.  List where U.S. tax revenues come from.  Individuals  Corporations  Property  Social Security  Sales

37.  What is an example of a regressive tax?  Sales

38.  List the characteristics of money?  Recognizable  Durable  Portable  Divisible  Acceptable  Limited Supply

39.  What is the U.S.’s money backed by?  Trust in our government and it’s ability to collect taxes

40.  How many districts are in the Federal Reserve System?  12

41.  Who carries out Monetary policy?  The Federal Reserve

42.  Who carries out Fiscal Policy?  The President and Congress

43.  GDP measures  Gross Domestic Product - the production of goods and services by a nation in a year.

44.  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

45.  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.

46.  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.

47.  A representative market basket of goods and services that are used by the average consumer in call  CPI – consumer price index

48.  What does a CPI of 200 mean?  The base yr = 100  The cost of the market basket has increased by 100%

49.  The study of how people choose to use their resources to satisfy their needs and wants is  Economics

50.  Factors of Production  Land  Labor  Capital  Entrepreneur

51.  What direction does a demand curve shift?  Downward slope and to the right

52.  Examples of the underground economy  Illegal drugs  Under the table payoffs where the gov’t doesn’t get taxes  Illegal gambling

53.  What causes a Production Possibility Curves to shift outward?  New resources or new technology

54.  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

55.  What is the largest Federal Budget expenditure?  Social Security

56.  Who is the chairman of the Federal Reserve?  Ben Bernanke

57.  If the fed sells securities (OMO) does this put money into the economy or take it out?  Takes money out of the economy

58.  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.

59.  What does aggregate mean?  Total

60.  Who does inflation help?  Who does inflation hurt?  Help – those who owe money  Those with savings  Those on fixed incomes

61.  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

62.  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

63.  What is loose monetary policy?  A policy that wants to increase the economy and encourage spending.

64.  Using a Tight Money Policy would you buy or sell government securities?  Sell

65.  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

66.  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

67.  Laissez Faire  What type of economic system is laissez faire associated with?  Hand off – gov’t should not interfere with business  Pure market economy

68.  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

69.  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

70.  Using an Easy Money Policy what actions would the Federal Reserve take?  Lower the Discount Rate  Lower the Reserve Requirement  Buy Government Securities (Bonds)

71.  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.

72.  What are two (2) characteristics of developing nations?  Low GDP Per Capita  Few Resources  Growing population  Agriculture based economy

73.  What was Marx’s view of capitalism?  It would destroy itself.  Eventually the people would want to create a classless society

74.  What percentage of nations are “developing?”  80%

75.  What did NAFTA accomplish?  A reduction and eventually elimination of tariffs between countries. An increase in trade between countries.

76.  List two (2) countries that are communist today.  North Korea  China  Vietnam  Cuba

77.  Name two (2) types of foreign aid.  Grants  Advice  United Nations  World bank  International Monetary Fund  Private Investment (Corporate)

78.  Explain absolute advantage.  Cheaper & control of the resources

79.  What are the benefits of globalization?  lower tariffs  lower prices  specialized labor  increased competition