Economics Semester Exam Study Guide Answers – Flashcards
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Using resources in such a way to maximize the production or output of goods and services.
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What makes an economy efficient
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Physical Capital
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A factory building is an example of which factor of production?
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What goods and services are produced? How are goods and services produced? Who consumes the good and services?
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What are the three economic questions?
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Mixed economy, but geared more towards free-market.
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As far as economic systems are concerned, describe the economy of the United States
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Making profit on sales.
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What is the Main incentive to sell a product?
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Guaranteeing all people the same legal rights will maximize the use of human capital
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Why is legal equality important?
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-impractical and inefficient to have consumers pay for good or service individually. -impractical and inefficient to exclude those who did not pay from using the good or service.
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What are the characteristics of a public good?
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-High Employment -Steady Growth -Stable Prices
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What are the three main outcomes policymakers try to achieve to protect the economy?
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To make the economy stronger and more efficient.
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Why does the government promote the use of technology?
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Demand
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What is it called when a consumer is both willing and able to purchase a good or service?
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As price rises,quantity demanded falls, as prices fall, quantity demanded rises.
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What is the law of demand?
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Rationing.
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What is it called when the government uses some tool other than money to allocate goods?
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a market that runs most efficiently when one large firm supplies all of the output.
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Describe a natural monopoly.
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Labor is cheaper in other parts of the world.
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Why are manufacturing jobs being outsourced?
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An LLP limits partners' risk of losing their personal assets to only their own acts and to the acts of the people under their supervision.
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What does it mean to say that corporate shareholders have limited liability?
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An IOU note
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Give some examples of representative money.
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Houses and property.
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What are mortgage loans used to purchase?
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It is portable.
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What characteristics of money does a coin have that larger and heavier objects do not?
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The government
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What gives fiat money its value?
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Store of Value
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When Russian sellers refused to exchange using the ruble what characteristic of money did this currency lack?
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A saver puts many in the bank and a borrower borrows money from the bank.
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How are savers and borrowers linked within financial institutions?
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Final goods and services
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What types of products are used in calculating US GDP?
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Increase government spending and cutting taxes.
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What types of things would the government do to implement expansionary fiscal policy?
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A sudden increase in market demand. (Price Ceiling. Binding. Below equilibrium price)
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What causes a shortage? And be able to give an example.
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The government answers the key economic questions.
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What is the main characteristic of a centrally planned economy?
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Pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets.
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What makes a money market mutual fund risky?
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Low denomination bond issued by the US Government.
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What is the main characteristic of a savings bond?
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State grants.
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What do local governments use to finance the building government facilities?
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Bond
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What is a good investment to utilize to reduce the risk of losing everything?
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They are high yield.
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What is the main advantage of investing in a junk bond?
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-Bull Market: A steady rise in the stock market over a period of time -Bear Market: A steady drop or stagnation in the stock market over a period of time
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What is the difference between a bull and bear market?
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Between the two, they can get more accurate figures.
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Why is it important to utilize both the income and the expenditure approach to calculating GDP?
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-The nominal GDP measures a country's production of final goods and services at current prices. -Real GDP measures a country's production of all final goods and services at fixed historical prices.
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What is the difference between real and nominal GDP?
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Total income vs income after taxes.
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What is the difference between gross income and disposable income?
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Good weather leads to an unusually productive harvest for corn farmers.
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What is an example of a positive external shock to aggregate supply?
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Limitations of GDP include nonmarket activities, the underground economy, negative externalities, and the quality of life.
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Identify the limitations of GDP.
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They look for changes in leading indicators.
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How do economists predict changes in the business cycle?
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Working at a job for which one is over-overqualified or working part-time when full-time work is desired.
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Define underemployed and be able to recognize an example.
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It forces consumers to make tradeoffs. If the price continues to rise but your income does not, eventually you will not be able to buy as much gas because your real income, or purchasing power, has dropped. The real income effect forces out to make a trade off in your gas purchases. Substitution effect is when the price of one item is different from another but the items are basically the same.
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What happens when your income stays the same but inflation continues to rise?
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Not a lot of access to a variety of jobs.
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Why do rural areas have high poverty rates?
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When someone is working, but is still below the poverty line.
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Define "working poor" and give an example.
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The Constitution.
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Where does the government taxing power come from?
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• Frictional • Seasonal • Structural • Cyclical
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Define the four types of unemployment and be able to recognize an example of each.
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Price Index
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What is used to show how prices change overtime?
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The state of being extremely poor.
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Define poverty.
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Benefits-received principle is when a person should pay based on the level of benefits he or she expects to receive. The ability-to-pay principle is when people should pay taxes according to their ability to pay.
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What is the benefits-received principle?
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A tax for which the percentage of income paid in taxes decreases as income increases.
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Define regressive tax.
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Estate- a tax on the estate, or total value of money and property, of a person who has died Gift- a tax on money or property that one living person gives to another.
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Compare and contrast gift tax and estate tax.
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•Characteristic 1: A tax system should be fair, a tax system should be flexible •Characteristic 2: Tax laws should be clear and simple •Characteristic 3: Taxes should be collected when most people can pay •Characteristic 4: Taxes should be stable. Taxpayers should know in advance how much they owe.
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What are the characteristics of a good tax?
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A tax for which the percentage of income paid in taxes increases as income increases.
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Define progressive tax.
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A method for determining whether someone qualifies for a financial-assistance program
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Define Means-Tested program
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The baby boomer generation will qualify for both programs.
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Why are Social Security and Medicare spending expected to increase further in the near future?
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Did not address how long it would take for the market to return to the equilibrium.
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Why did classical economics fail in the Great Depression?
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Creating more money will cause the dollar's value to decrease and will cause inflation.
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Why does the government not create more money to avoid debt?
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It is a tool used to expand or slow government growth.
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How does politics influence fiscal policy?
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To combat the Depression, government shifted from classical to Keynesian economic thought.
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How did the Great Depression bring about a shift in philosophy towards fiscal policy?
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By the time the change takes effect, the economy might be moving in the opposite direction.
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What is one possible consequence of the time it takes new fiscal policy to affect the economy?
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A body of economic theory that argues for a focus on the expansion of the long run supply curve. Usually associated with arguments in favor of less government (taxes and spending) as a solution to macroeconomic difficulties.
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What is supply-side economics?
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It is run by banks.
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Why does the Federal Reserve System have a high degree of political independence?
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To respond to banking problems caused by the panic of 1907.
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Why did Congress pass the Federal Reserve Act?
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A financial professional, a species of auditor, who has the task of making sure that banks, savings and loans, credit unions and similar financial institutions, and their branches, are operating legally and ethically.
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What is a bank examiner?
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The US Government.
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Which is the Federal Reserve's biggest customer?
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Because people at the time believed that if the government was running the bank, the federal government would have too much power.
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63. Why does the Fed control the money supply?
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Introduce an easy money policy.
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If economists predict that the economy is facing a long recession, what would the Fed be most likely to do?
