Economy Flashcards, test questions and answers
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What is Economy?
The economy is the backbone of any nation, and its health is of utmost importance. It affects every aspect of society, from the availability of jobs to the prices in stores. To understand how an economy works, it helps to look at some key concepts: supply and demand, inflation and deflation, aggregate demand and supply, and fiscal policy. Supply refers to the amount of goods or services that producers are willing to sell at a given price. Demand is simply how much people are willing to purchase a product for. When the level of demand exceeds supply, prices will go up; when there’s more supply than demand, prices will go down. Inflation occurs when prices rise over time due to an increase in money circulating in the economy; deflation occurs when prices fall due to a decrease in money circulating. The Federal Reserve sets interest rates as one way to manage these forces and maintain economic stability. Aggregate demand is the total amount of goods or services people want to buy at a given price point; aggregate supply is how much people are willing to produce at that same price point. When aggregate demand exceeds aggregate supplyalso known as overheatingthe economy can experience inflationary pressures as producers raise their prices in order to meet higher levels of consumer spending power. Finally, fiscal policy involves government intervention through taxes or spending programs designed to influence economic activity; this includes things like tax cuts or stimulus packages meant encourage investment by businesses or consumers alike. In conclusion, understanding these economic concepts can help us better understand our own economiesand why taking action on them matters so much for our future prosperity.