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?