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Final ReviewFinal Review
Mr. Hess
Economics
Inflation
A steady rise in prices throughout the economy
The entire economy
All products!
Imports
Goods that are brought from another country into ours
Labor Specialization
The process by which people choose to concentrate on one job of greater skill by pursuing additional education and training
More specific the job = the higher the pay!
Aggregate Demand
The demand for everything in our entire economy
Public Good
A service or product provided by the government. Everyone benefits from it no matter whether they pay taxes or not.
Resource Price
The price of a good that is needed to make another good.
EG – oil is necessary to make gas
Price of oil goes up, so will gasoline’s
Scarcity
Everything in the world is in short supply
It is the fundamental problem of economics
Credit
Your ability to borrow other people’s money
If it’s bad, you get no loans!
AFL-CIO
The biggest labor organization in the USA today
Great Depression
Period of seriously inhibited productivity growth that existed during the decade of the 1930s
Deficit
A budget situation in which revenue does not cover expenses, money must be borrowed to pay bills
EG – The US government’s current budget
Dividends
The share of profits bestowed to stockholders
Say
“Supply creates its own demand”
John L. Lewis
Founder of the CIO in 1935
The George Washington of the American labor movement
Thomas Jefferson
Third President of the US who believed in conservative principles of small central government
Opposed starting a national bank
Contraction
A period of economic activity whereas the rate of GDP decreases from year to year
Sole Proprietorship
A business formation in which all liability is assumed by the owner(s)
Most common business formation in the US today
Fair Labor Standards Act
1938 act of congress that established a minimum wage, 48-hour work week, and overtime pay
Gross Domestic Product The dollar value of all final goods and services produced in a nation’s economy in
one year
Final goods only~$10 Trillion this yearC + I + G + (i-e)
Depreciation
The yearly decline of value experienced by businesses in some capital resources
EG – a car loses 20% of value each year
RegulationA rule or restriction placed upon a business in how it produces a
product or provides a service
EG – EPA rules that prohibit dumping of wastes in schoolyards
Liquidate
The selling of capital assets and to turn them into cash
Unemployment Rate
The percentage of the American workforce that is either working or looking for work
Exports
Products and services made by Americans then sent to other countries
M2The category of money supply that includes currency, checking
and savings accounts
The most common monetary figure referenced by economists
monopoly
A market situation in which one company dominates production of a good or service
Flat Tax
A tax that charges each person the same percentage of income
Collective Bargaining
The process by which a union negotiates with employers for new contracts
CorporationA business formation that has registered papers with its state of origin
Has limited liabilityNever expiresSeen as an individual by the law
Mortgage
A loan with which one buys land or a house
Socialism
Economic system in which the factors of production are owned by the state
Non-ProfitsBusiness formations/corporations whose primary purpose is not to make money.
Surplus revenue used to grow the business
EG – Heart Association, Saint Ignatius.
Debt
The amount of money our government has borrowed from banks and bondholders due to its continued deficits
Currently $6.3 Trillion
Trough
The bottom most point of a business cycle
Also called a recession
Profit
Gross revenue – costs = ?
LafferEconomist who theorized that fiscal policy concentrating on
businesses and business owners can most effectively revive an economy
EG – Reaganomics, supply-sided theory
Public Corporation
A corporation that has issued stock to the public through an IPO
“gone public”
National Labor Relations Act
1935 Act of congress that gave unions the right to collectively bargain of behalf of their membersip
Producer Price Index
Economic indicator that tracks the prices of products used primarily by manufacturers
Liability
Legal and financial responsibility for the actions of an individual or a business
Principal
The amount of money you borrow in a loan
Real IncomeYour income over time compared to the rate of inflation
IE – A 5% raise is really only 3% if inflation rates are 2%
Trade Deficit
A situation that exists when a nation imports more goods and services than it exports
Fiscal Policy
The act of a government in which it taxes citizens in order to provide goods and services
Discount Rate
The lowest rate set by the Federal Reserve
Money lent to banks in trouble
Oligopoly
A market situation in which the production of a good or a service is dominated by only a few companies
Progressive Tax
A system of taxation in which a government takes a higher percentage of income from those citizens that make more money
Medium of Exchange, store of value, measure of value
What are the functions of money?
Entrepreneur
A person who takes the initial risk of time and capital to start a business
Diversification
The dispersal of surplus money into a wide variety of investments
Communism
A socialist regime that is headed by a dictatorship
Perfect Competition
A market situation in which there are many producers, many consumers, and no government intervention
capital, natural resources, labor, entrepreneurs, technology
What are the factors of production?
Asset
Something that you own that is worth some sort of money
Ralph Nader
The father of American consumer activism
Alexander Hamilton
The father of American liberal thought who proposed a strong federal government and a national bank
Union
Labor organization that collectively bargains on behalf of its membership
Peak
The top level of production in a business cycle
Partnership
A business formation in which two or more individuals share responsibility and liability
The Business Cycle
Peak Expansion
Troughcontraction
Social Security
FICA tax program that provides transfer payments
SEC
Government regulatory agency responsible for the stability of stock and bond markets
Investigate insider trading and corporate fraud
Economy
A system of consuming and producing
Futures
An investment in which you buy a contract to take delivery of a commodity at a pre determined date
Money Income
Your take home pay from year to year without inflation figured in
Opportunity CostThe dollar value of the economic decisions you did NOT make
IE – if you build a school right now, you can’t go and build a new community pool
Wage
Hourly pay
InterestPercentage of money you pay to use someone else’s capital
Usually calculated on a yearly basis with monthly installments,
Capital
Factor of production that includes money and anything you buy with money
Foreclosure
To default on a mortgage
EquityThe amount of something that you own
IE – another name for a stock -- what portion of your house you own
401K
Most popular retirement program in the US today
Pretax, tax-exempt investments
IPO
Companies go public in a process called an ____ _____ _____.
Some Foreign Moneys
EnglishRussianFrenchChineseMexicanJapaneseGerman
Pound
Ruble
Euro
Yuan
Peso
Yen
Euro
Adam SmithAuthor of The Wealth of Nations
Father of modern capitalistic thought
“invisible hand”
Reaganomics
Conservative economic policy of the 1980s that promoted lower taxes and less government regulation
Strike
Workers that refuse to work are on …
Deductions
These are amounts of money that you can subtract from your gross income when you file your taxes
Children, charitable contributions, mortgage interest
Sherman Anti-Trust Act
1890 Act of congress that forbade “any contract, combination or conspiracy” in the “restraint of trade”
FDIC
Government regulatory agency that oversees banks and insures your deposits up to $100,000
Microeconomics
Field of Economics that studies individuals, businesses and the choices that they make
Bond
An IOU issued by a government or a corporation
They pay you interest over time for the use of your capital
Options
A contract that you invest in that gives you the right to buy or sell a share of stock at a given price at some point in the future
Floating Exchange Rates
The American dollar fluctuates against foreign moneys due to a system of . . .
Comparative AdvantageSituation in which a country has the ability to produce a product
more cheaply and efficiently than another country
IE – The opportunity cost of Haiti producing cars is so expensive when compared to that of the USA
Prime Rate
The interest rate that banks loan money to their best customers
Productivity
The efficiency with which people and countries provide and create goods and services
Saving less, and buying more
People react to higher lower rates in the economy by . . .
Bankruptcy
A legal declaration of your inability to pay debt
Collateral
Money or property put up as a good faith measure for the repayment of a loan
Poverty Rate
Percentage of American citizens who live in a household of 4 that makes less than $17,100
Going Public
Selling stock in your company to raise capital for expansion
Karl Marx
Author of the Communist Manifesto, Father of Socialism
Alan Greenspan
Led the Federal Reserve through the boom of the 1990s
Current chair
Political Action Committee (PAC)
Organization that raises for a specific cause in order to lobby congress
Consumer Price Index (CPI)
Economic indicator based upon the prices of 80,000 products
Our most reliable indicator of inflation
FOMC
The decision making body of the Federal Reserve
Meets every 6 weeks on a Tuesday
Open Market Operations
The Fed controls our money supply through the bond market
The Federal Reserve loosens the money supply by buying bonds
Stock
A certificate of ownership in a public corporation
JM Keynes
1930s economist that advocated the use of government taxes and programs to control an economy
Demand-sided ideas
They must decide what gets produced and consumed, and thus, what gets produced and
consumed
What role do individuals play in an economy?
They assume risk, create new businesses, and thus bring about economic growth
What do entrepreneurs do?
Less of something else is produced
If a factory or country is FULLY productive, more of one product can only be produced if . . .
More stuff in less time
When workers are more specialized and are better trained, their become able to produce . . .
Productive!
When a company buys new machinery and equipment, we should expect that the workers will get more . . .
Individual acting for themselves in competitive markets!
Who does a better job of deciding what gets produced and consumed?
Both you and the store benefit.
When you get something on sale, who benefits from this?
medium of exchange
When you buy a sweatshirt, what role does money play?
competitive markets and free trade
What keeps businesses from gouging consumers with very high prices?
Higher
A decrease in the supply of sweatshirts will result in ____ prices.
Fewer, more expensive cars
What will a shortage of steel do to the market for cars?
Electrical engineers are more scarce and their labor is more specialized
Electrical engineers make more money than bus drivers because . . .
Everyone benefits no matter what taxes they pay
Government provides something like national defense because . . .
Increase supply and decrease price
Breaking up a monopoly in the phone industry should do what to price and quantity of phone service?
Go up
In a free market, when worker output increases, wages should
Controlling pollution is cheaper than its negative impact
Why does the government make pollution illegal?
Good and free access to factors of production
What limits our GDP (productivity)?
People would consume less
How would declining incomes impact consuming?
Less spending
How do higher taxes impact consumers and businesses?
It should decrease!
What happens to unemployment when the economy grows at a higher rate?
it goes down, this is called a real income
What happens to standard of living when inflation goes up faster than income?
It increases the money supply
When the Fed lowers the reserve requirement, banks can lend out more money. What does that do to the money supply?
LESS
More trade, coupled with more job training and specialization will result in ____ worldwide unemployment
Deficit
If the government cannot pay its bills, it will borrow money. This is called a budget ______
Inhibits free trade
Tariffs, taxes on imports, tend to have what impact on free trade.
No. They tend to favor one industry over another
Can tariffs ever be fairly assessed on imports?
Trade Deficit – Definitely a bad thing
The value of your country’s imports exceed the value of exports. What’s that called?
Holy Hell Yes!
Do the values of our moneys around the world impact world trade?
Strengthened
If a dollar is worth more euros than it was worth yesterday, we can say that the dollar ______ against the euro.
Makes them more affordable
What will a weaker dollar do to the value of American goods in France?
Real per capita income growth over time
What is the best measure of our standard of living?
