Economics Final Exam Study Guide Flashcard

question
Production Possibilities Frontier
answer
A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good
question
Examples of shortage rather than scarcity
answer
scarcity describes the general fact that there aren't enough goods or resources in the world to satisfy all our needs and wants shortage means that for a specific good at a specific price, there is excess demand e.g there is a shortage of apples in country x because at the market price of $3, producers are only willing to supply 10,000 but consumers demand 15,000
question
Physical capital
answer
all human-made goods that are used to produce other goods and services; tools and buildings
question
What causes production possibilities curves to shift downwards to the left?
answer
a major war causes destruction of capital equipment in the country. This would cause output to decrease and a shift toward the left
question
Why do free market economies need some government intervention?
answer
The main reason associated with government intervention in a free market economy is to prevent the formation of monopolies. This ensures fair competition within the market and cannot take advantage of the consumer. It also helps prevent abuse of the system.
question
Adam Smith
answer
1723-1790. Pioneering economic theorist. Father of economics. Explained how rational self-interest and competition, operating in a social framework which ultimately depends on adherence to moral obligations, can lead to economic well-being and prosperity.
question
Traditional economies
answer
rely on habit, custom, or ritual to decide what to produce, how to produce it, and to whom to distribute it.
question
Product market
answer
A market in which products are sold by firms and bought by households
question
Advantages of a free market
answer
economic efficiency, economic freedom, economic growth, consumer sovereignty
question
Socialism
answer
A system in which society, usually in the form of the government, owns and controls the means of production.
question
Rationing
answer
A limited portion or allowance of food or goods; limitation of use
question
What might lead to a black market?
answer
when governments or regulatory bodies set a maximum price for a good/rationing
question
Search costs
answer
the financial and opportunity costs consumers pay when searching for a good or service
question
What does it mean when it is said that in a free market prices lead to an efficient allocation of resources?
answer
A market system, with its freely changing prices, ensures that resources go to the uses that consumer value most highly. Also ensures that resource will adjust to the changing demands of consumers.
question
Why do fads often lead to shortages?
answer
demand increases so quickly and unexpectedly that time is needed for quantity supplied and price to increase to meet new equilibrium
question
Where is equilibrium and disequilibrium on a supply/demand curve?
answer
Equilibrium is the point of balance between price and quantity. Disequilibrium happens when quantity supplied is not equal to quantity demanded. Equilibrium will be found at the price which the quantity demanded is equal to quantity supplied.
question
Examples of barter system
answer
paint neighbors house in exchange for vegetables
question
Examples of money as a "unit of account"?
answer
Means for comparing the values of goods and services Suppose jacket was $30 and you compare with other jacket prices, instead of a jacket being 30 apples and another being 30 oranges
question
What did the Federalists believe about banking?
answer
Need a strong central government to establish economic and social order Therefore, a strong central banking system was necessary for the US to develop healthy industries and trade. Hamilton proposed a national bank
question
M1 money
answer
includes all currency plus checking accounts and traveler's checks, liquidity
question
Municipal bond
answer
a bond issued by a state or local government or municipality to finance such improvements as highways, state buildings, libraries, parks and schools
question
OTC market
answer
a stock exchange where securities transactions are made via telephone and computer rather than on the floor of an exchange
question
Characteristics of bonds
answer
Coupon rate is the interest rate that the bond issuer will pay the bond holder Maturity is the time at which the payment to the bondholder is due Par value is the amount that an investor pays to purchase the bond and that will be repaid to the investor at maturity/face value/principal
question
If a bond has a coupon rate of 5%, a par value of $2000, matures in five years, how much will the company have paid the holder when the bond matures?
answer
$500
question
Income stock
answer
a stock which pays higher than average dividends because the company chooses to retain only a small portion of the profits
question
Capital deepening
answer
an increase in the amount of capital per worker; one source of rising labor productivity Through saving and investment
question
How is nominal GDP converted to real GDP?
answer
Nominal is real time Real is unchanging/constant Usually Nominal GDP is quoted because it is directly measurable. Real GDP is actually relative term which is derived from Real GDP = Nominal GDP x CPI now/CPI base year.
question
Aggregate supply and aggregate demand
answer
The total amount of goods and services that all the firms in all the industries in a country will produce at various price levels in a given period of time; The amount of goods and services in the economy that will be purchased at all possible price levels.
question
What is an example of a positive external shock to aggregate supply?
answer
good weather leads to an unusually productive harvest for corn farmers
question
Why does higher saving lead to higher GDP in the future?
answer
more capital is available for investment, leading to higher output through capital deepening
question
Why does the federal gov't collect income taxes as a person earns?
answer
To pay their employees
question
What is a major difference between an operating budget and a capital budget?
answer
an operating budget is for day-to-day expenses; a capital budget is for investment spending
question
Tax bases and Tax burden
answer
The income, property, goods, or services that is subject to a tax, falls more heavily on the side of the market that is less elastic
question
Classical economics
answer
Modern, Western economic theories of the effects of resource scarcity, monetary policy, and competition on supply and demand of goods and services in the marketplace. This is the basis for the capitalist market system.
question
Automatic stabilizer
answer
Government program that changes automatically depending of GDP and a person's income (taxes and transfer payment)
question
When does a government's fiscal year begin?
answer
October 1
question
How many Federal Reserve Districts are there?
answer
12
question
tight money supply and easy money policy
answer
monetary policy resulting in higher interest rates and restricted access to credit; associated with a contraction of the money supply, Monetary policy that increases the money supply (occurs when the Fed wants to expand/stimulate the economy)
question
Why do banks sometimes hold excess reserves?
answer
to be sure they can meet their customers' demands
question
What is the role of the Federal Open Market Committee?
answer
The most important monetary policy-making body of the Federal Reserve System responsible for developing policies to promote economic growth, full employment, and stable prices
question
Money multiplier
answer
The amount of money the banking system generates with each dollar of reserves, the multiple by which deposits can increase for every dollar increase in reserves; equal to 1 divided by the required reserve ratio.
question
What effect would an increase in the discount rate have on the money supply?
answer
It would cause the money supply expand.
question
How well did the Federal Reserve Banks perform during the great depression?
answer
System did not work well because each bank acted independently. Separate actions often cancelled one another out.
1 of

Unlock all answers in this set

Unlock answers
question
Production Possibilities Frontier
answer
A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good
question
Examples of shortage rather than scarcity
answer
scarcity describes the general fact that there aren't enough goods or resources in the world to satisfy all our needs and wants shortage means that for a specific good at a specific price, there is excess demand e.g there is a shortage of apples in country x because at the market price of $3, producers are only willing to supply 10,000 but consumers demand 15,000
question
Physical capital
answer
all human-made goods that are used to produce other goods and services; tools and buildings
question
What causes production possibilities curves to shift downwards to the left?
answer
a major war causes destruction of capital equipment in the country. This would cause output to decrease and a shift toward the left
question
Why do free market economies need some government intervention?
answer
The main reason associated with government intervention in a free market economy is to prevent the formation of monopolies. This ensures fair competition within the market and cannot take advantage of the consumer. It also helps prevent abuse of the system.
question
Adam Smith
answer
1723-1790. Pioneering economic theorist. Father of economics. Explained how rational self-interest and competition, operating in a social framework which ultimately depends on adherence to moral obligations, can lead to economic well-being and prosperity.
question
Traditional economies
answer
rely on habit, custom, or ritual to decide what to produce, how to produce it, and to whom to distribute it.
question
Product market
answer
A market in which products are sold by firms and bought by households
question
Advantages of a free market
answer
economic efficiency, economic freedom, economic growth, consumer sovereignty
question
Socialism
answer
A system in which society, usually in the form of the government, owns and controls the means of production.
question
Rationing
answer
A limited portion or allowance of food or goods; limitation of use
question
What might lead to a black market?
answer
when governments or regulatory bodies set a maximum price for a good/rationing
question
Search costs
answer
the financial and opportunity costs consumers pay when searching for a good or service
question
What does it mean when it is said that in a free market prices lead to an efficient allocation of resources?
answer
A market system, with its freely changing prices, ensures that resources go to the uses that consumer value most highly. Also ensures that resource will adjust to the changing demands of consumers.
question
Why do fads often lead to shortages?
answer
demand increases so quickly and unexpectedly that time is needed for quantity supplied and price to increase to meet new equilibrium
question
Where is equilibrium and disequilibrium on a supply/demand curve?
answer
Equilibrium is the point of balance between price and quantity. Disequilibrium happens when quantity supplied is not equal to quantity demanded. Equilibrium will be found at the price which the quantity demanded is equal to quantity supplied.
question
Examples of barter system
answer
paint neighbors house in exchange for vegetables
question
Examples of money as a "unit of account"?
answer
Means for comparing the values of goods and services Suppose jacket was $30 and you compare with other jacket prices, instead of a jacket being 30 apples and another being 30 oranges
question
What did the Federalists believe about banking?
answer
Need a strong central government to establish economic and social order Therefore, a strong central banking system was necessary for the US to develop healthy industries and trade. Hamilton proposed a national bank
question
M1 money
answer
includes all currency plus checking accounts and traveler's checks, liquidity
question
Municipal bond
answer
a bond issued by a state or local government or municipality to finance such improvements as highways, state buildings, libraries, parks and schools
question
OTC market
answer
a stock exchange where securities transactions are made via telephone and computer rather than on the floor of an exchange
question
Characteristics of bonds
answer
Coupon rate is the interest rate that the bond issuer will pay the bond holder Maturity is the time at which the payment to the bondholder is due Par value is the amount that an investor pays to purchase the bond and that will be repaid to the investor at maturity/face value/principal
question
If a bond has a coupon rate of 5%, a par value of $2000, matures in five years, how much will the company have paid the holder when the bond matures?
answer
$500
question
Income stock
answer
a stock which pays higher than average dividends because the company chooses to retain only a small portion of the profits
question
Capital deepening
answer
an increase in the amount of capital per worker; one source of rising labor productivity Through saving and investment
question
How is nominal GDP converted to real GDP?
answer
Nominal is real time Real is unchanging/constant Usually Nominal GDP is quoted because it is directly measurable. Real GDP is actually relative term which is derived from Real GDP = Nominal GDP x CPI now/CPI base year.
question
Aggregate supply and aggregate demand
answer
The total amount of goods and services that all the firms in all the industries in a country will produce at various price levels in a given period of time; The amount of goods and services in the economy that will be purchased at all possible price levels.
question
What is an example of a positive external shock to aggregate supply?
answer
good weather leads to an unusually productive harvest for corn farmers
question
Why does higher saving lead to higher GDP in the future?
answer
more capital is available for investment, leading to higher output through capital deepening
question
Why does the federal gov't collect income taxes as a person earns?
answer
To pay their employees
question
What is a major difference between an operating budget and a capital budget?
answer
an operating budget is for day-to-day expenses; a capital budget is for investment spending
question
Tax bases and Tax burden
answer
The income, property, goods, or services that is subject to a tax, falls more heavily on the side of the market that is less elastic
question
Classical economics
answer
Modern, Western economic theories of the effects of resource scarcity, monetary policy, and competition on supply and demand of goods and services in the marketplace. This is the basis for the capitalist market system.
question
Automatic stabilizer
answer
Government program that changes automatically depending of GDP and a person's income (taxes and transfer payment)
question
When does a government's fiscal year begin?
answer
October 1
question
How many Federal Reserve Districts are there?
answer
12
question
tight money supply and easy money policy
answer
monetary policy resulting in higher interest rates and restricted access to credit; associated with a contraction of the money supply, Monetary policy that increases the money supply (occurs when the Fed wants to expand/stimulate the economy)
question
Why do banks sometimes hold excess reserves?
answer
to be sure they can meet their customers' demands
question
What is the role of the Federal Open Market Committee?
answer
The most important monetary policy-making body of the Federal Reserve System responsible for developing policies to promote economic growth, full employment, and stable prices
question
Money multiplier
answer
The amount of money the banking system generates with each dollar of reserves, the multiple by which deposits can increase for every dollar increase in reserves; equal to 1 divided by the required reserve ratio.
question
What effect would an increase in the discount rate have on the money supply?
answer
It would cause the money supply expand.
question
How well did the Federal Reserve Banks perform during the great depression?
answer
System did not work well because each bank acted independently. Separate actions often cancelled one another out.