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Flash Cards


									                                       Flash Cards

Quiz #1

                FRONT OF CARD                              BACK OF CARD
                  Scarcity                   Not enough resources to meet all individual
                                                           needs and wants
              Opportunity cost               Value of the choice you gave up when you
                                                           made a decision
         Allocation of resources                        What do we produce?
     (the three economic questions)                    How do we produce it?
                                                    For whom do we produce?
              Market economy                           Private property rights
                                                        Voluntary exchange
                                               Households and firms make economic
             Command economy                 Government controls resources and makes
                                                         economic decisions
                 Capitalism                                Mixed economy
                                               Market system with some government
                Consumption                   Spending on final goods and services for
                                                             personal use
                 Investment                  Use of money to acquire capital goods and
                                                       grow the size of firms
                Specialization                 Divide one large job into smaller parts
                                                        Improves efficiency
                                                      Example: Assembly line
          Four factors of production                             Land
               Simple interest                Earns interest only on original principal
                                                 Example: treasury/corporate bonds
             Compound interest                Earns interest on original principal plus
                                                       interest already earned
                                                     Example: savings account
Quiz #2
       FRONT OF THE CARD                  BACK OF THE CARD
          The law of demand          Consumers demand a greater quantity at
                                         lower prices than at higher prices
                                    Price and quantity demanded are inversely
          The law of supply           Producers supply a greater quantity at
                                         higher prices than at lower prices
                                     Price and quantity supplied are directly
             Price ceiling          Government sets the maximum price for a
                                               Set below equilibrium
                                                  Causes shortages
              Price floor           Government sets the lowest possible price
                                                      for a good
                                               Set above equilibrium
                                                  Causes surpluses
              Elasticity            How much will supply or demand change
                                                when price changes
         Functions of money                     Medium of exchange
                                                  Measure of value
                                                    Store of value
          Sole proprietorship             A firm with one owner/operator
                                               Has unlimited liability
             Partnership            A firm with two or more owners/operators
                                               Has unlimited liability
             Corporation                   A firm owned by shareholders
                                       Owners (shareholders) have limited
           Product market               Act of firms selling final goods and
                                               services to consumers
            Factor market             Act of households selling resources to
      Perfect or pure competition     Many sellers of identical products—no
                                          single firm can control the price
                                           Example: agricultural products
       Monopolistic competition     Many sellers but products are not identical
                                        Firms use product differentiation to
                                           monopolize part of the market
              Oligopoly                 A few large firms control a market
                                          They are highly interdependent
                                       Example: cereal, computers, tobacco
              Monopoly                A single firm controls a given market
                                      Output is lower, price is higher than it
                                                      should be
Quiz #3

      FRONT OF THE CARD                     BACK OF THE CARD
   Three measurements of the economy                Unemployment rate
                                              Consumer price index (CPI)
                                             Gross domestic product (CDP)
              Economic growth              Rate of increase in GDP per capita
                                                        (per person)
                Labor unions           Workers unite to negotiate as one in order
                                             to increase wages and benefits
                                                  Collective bargaining
          Fractional reserve banking   Banks take deposits, keep a fraction of it in
                                         the vault and loan out most of the rest
             US Federal Reserve                  Central Bank of the US
                                                         “The Fed”
                                         Main job: control the supply of money
              Monetary policy          The actions taken by the Fed to increase or
                                                reduce the money supply
      To increase the money supply            Lower reserve requirements
             (in a recession)                    Lower the discount rate
                                            Buy Treasury securities (bonds)
      To reduce the money supply               Raise reserve requirements
         ( to prevent inflation)                 Raise the discount rate
                                            Sell Treasury securities (bonds)
                    GDP                          Gross Domestic Product
                                       Value of all goods/services produced w/n a
                                          country’s borders over a given time
                                                      C + I + G + NX
                     CPI                          Consumer Price Index
                                       Most commonly used measure of inflation
                  Inflation                A rise in the general level of prices
                                                     Helps: borrowers
                                         Hurts: lenders, those on fixed incomes
                   COLA                         Cost of living adjustment
                                       When fixed incomes are increased annually
                                                   to allow for inflation
Quiz # 4
       FRONT OF THE CARD                 BACK OF THE CARD
            Fiscal policy           The government’s actions with tax rates
                                                  and spending
      Expansionary fiscal policy                 Reduce tax rates
        (used in a recession)      Increase the level of government spending
               Deficit               When tax revenue is less than expenses
                                         The amount must be borrowed
                                              The national debt rises
               Surplus              When tax revenue is more than expenses
                                        The national debt falls (in theory)
       Frictional unemployment                 Looking for first job
                                            In between jobs by choice
       Cyclical unemployment           Lost your job due to a downturn in
       Structural unemployment     An individual does not have the skills that
                                                  are in demand
                                    The economy has changed such that the
                                           person’s skills are obsolete
         Aggregate demand            Demand for all goods, services, capital
                                               goods in an economy
                                                 C + I + G + NX
          Aggregate supply         Total capacity in a nation to produce goods
                                                   and services;
                                       Availability of land, labor, capital,
                                    entrepreneurs and productive technology
            National debt             Total amount of money owed by the
                                           government to bond holders
       Low interest rates cause     More borrowing by consumers and firms
                                            The currency to depreciate
       High interest rates cause    Less borrowing by consumers and firms
                                            The currency to appreciate
             Productivity          How much production is accomplished per
                                                “output per input”
Quiz #5
       FRONT OF THE CARD                   BACK OF THE CARD
          Absolute advantage            One country can produce more than
                                                    another country
        Comparative advantage       One country can produce goods at a lower
                                       opportunity cost than another country
             Protectionism            Limiting international trade in order to
                                          protect domestic firms and jobs
                 Tariff                              Tax on imports
                                          imports go down and price rises
                 Quota                  Legal limit on the number of goods
                                          Imports go down and price rises
                Subsidy             A government payment to its firms to make
                                    them more competitive with foreign firms
               Free trade            International trade that is carried on with
                                            little if any trade restrictions
           Balance of trade                     Exports minus imports
            Trade surplus                          Exports > imports
                                               Positive balance of trade
             Trade deficit                         Imports > exports
                                              Negative balance of trade
            Balanced trade                         Exports = imports

             Exchange rate              Rate at which one currency can be
                                              exchanged for another
                                             Example: $1 = 13 pesos
            Strong currency            Imports go up and Exports go down
       (currency has appreciated)   Domestic goods are expensive to foreigners
                                      Foreign goods are cheap to domestic
            Weak currency              Imports go down and Exports go up
                                     Domestic goods are cheap to foreigners
                                     Foreign goods are expensive to domestic
               NAFTA                 North American Free Trade Agreement
                                     Free trade agreement between Can, US,
                 WTO                        World Trade Organization
                                     Monitors free trade agreements between
               ASEAN                Association of Southeastern Asian Nations
                 EU                              European Union
Quiz #6

          Human capital             Knowledge about production
                                Education improves human capital
          Savings accounts   Bank accounts that earn compound interest
                                        and are FDIC insured
                CD                      Certificate of deposit
                                    Timed deposit FDIC insured
          Treasury bonds                 Government IOUs
                                Pay simple interest payments twice
           Mutual funds          Pools of stocks not FDIC insured
             Stocks           Units of ownership in a corporation not
                                            FDIC insured
            Junk bonds        Bonds issued by firms with shaky credit
             Dividends       Amount of profit paid to shareholders per
                                            share per year
          Progressive tax      Tax rates go up as income goes up to
                              extract revenue from high wage earners
                                        Example: income tax
           Regressive tax     Tax burden is higher on lower incomes
                                       than on higher incomes
                              Example: Social Security and Medicare
             Collateral       Property that guarantees repayment of a
             Mortgage             Loan for the purchase of a home
           Delinquency            Being behind on loan payments
              Default           Refusal or inability to repay a loan
          Outstanding debt   Total amount of debt still owed to a lender
Quiz #7
       FRONT OF THE CARD              BACK OF THE CARD
             Insurance         Tool used to protect against loss or damage
              Premium          Monthly payment to an insurance company
             Deductible          Amount you must pay when you file an
                                               insurance claim
           Life insurance            Pays a beneficiary in the event of
                                    unanticipated death of the insured
            Beneficiary         The person you designate as the recipient
                                        of a life insurance payment
        Disability insurance      Pays you an income in the event of an
                                illness or accident that prevents you from
       Homeowner’s insurance   Pays for repairs and rebuilding if a home is
                                           damages or destroyed
          Health insurance               Covers medical expenses
          Auto insurance              Pays for repairs to damaged cars
         Commodity money       Money that has some kind of value in itself
                                        Examples: gold, cigarettes
            Fiat money          Money that has no value in itself, is only
                                valuable because the government say it is
           Private sector          All non-government business activity
                               Anyone who does not work directly for the
           Public sector         All government related business activity
                                    Anyone who works directly for the
Quiz # 8

            Fixed costs       Costs that do not change with levels of
                                 Example: rent or lease payments
           Variable costs       Costs that do change with levels of
                                          Example: wages
            Recession           A drop in business activity or fall in
                                         aggregate demand
                                            GDP shrinks
               Profit        The pay off an entrepreneur seeks when
                                      s/he goes into business
            Equilibrium     Price at which quantity supplied = quantity
             Incentive          Something that motivates a certain
           Disincentive       Something that motivates you not to do
             Averse                 Dislike of or desire to avoid
              Deter                        To discourage
           Capital goods        Goods used to produce other goods
            Efficiency      Getting the most production/benefit for the
                                            lowest cost
           Public goods     Goods provided by the government for the
                                          population’s use
                                    Example: roads, street lights

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