Economics Flashcards
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Questions and Answers

Economics may best be described as?

  • The social science concerned with the sufficient use of scarce resources to achieve the max satisfaction of wants. (correct)
  • The study of money.
  • The study of financial markets.
  • The study of wealth distribution.

    • What can be best described as the study of the economy as a whole?

    Macroeconomics

    What does a production possibilities curve show?

    Max amount of 2 goods that can be produced assuming full use of resources.

    What does a point inside a production possibilities curve illustrate?

    <p>Unemployment</p> Signup and view all the answers

    What is opportunity cost best defined as?

    <p>Amount of one product that must be given up to produce 1 unit of another.</p> Signup and view all the answers

    What are the two general types of economic systems that exist today?

    <p>Market System</p> Signup and view all the answers

    What does the demand curve show the relationship between?

    <p>Price and quantity demanded</p> Signup and view all the answers

    What does the law of supply indicate?

    <p>Producers will offer more at high prices than they will at low prices.</p> Signup and view all the answers

    When is a market in equilibrium?

    <p>Amount producers want to sell = amount consumers want to buy</p> Signup and view all the answers

    What are the two major virtues of the market system?

    <p>Allows economic freedom</p> Signup and view all the answers

    Which of the following is a fundamental characteristic of the market system?

    <p>Property rights</p> Signup and view all the answers

    What is the major source of tax revenue for the Federal Government?

    <p>Personal income taxes</p> Signup and view all the answers

    What are the three most important sources of Federal tax revenue from descending importance?

    <p>Personal income tax, payroll taxes, corporate income tax</p> Signup and view all the answers

    What is the largest category of Federal spending?

    <p>Pension and income security</p> Signup and view all the answers

    What is a progressive tax?

    <p>Tax rates are higher the greater the income.</p> Signup and view all the answers

    Who is the United States' most important trading partner in terms of dollar volume?

    <p>Canada</p> Signup and view all the answers

    A good should be produced in that nation where?

    <p>Domestic opportunity cost is least.</p> Signup and view all the answers

    What are the primary benefits of international trade?

    <p>More efficient use of resources, higher living standards.</p> Signup and view all the answers

    What are protective tariffs?

    <p>Excise taxes or duties placed on imported products.</p> Signup and view all the answers

    What are import quotas?

    <p>Max limits on the quantity of products imported to a nation.</p> Signup and view all the answers

    What is the primary economic advantage of the European Union to its members?

    <p>Reduction of trade barriers to achieve production economics.</p> Signup and view all the answers

    What is the North American Free Trade Agreement?

    <p>Free trade zone between Canada, Mexico, and the U.S.</p> Signup and view all the answers

    What does GDP exclude?

    <p>Market value of unpaid work in the home.</p> Signup and view all the answers

    What is nominal GDP?

    <p>Sum of all monetary transactions involving final goods and services.</p> Signup and view all the answers

    What does real GDP refer to?

    <p>Adjusted for changes in the price level.</p> Signup and view all the answers

    What is a price index?

    <p>Comparison of price of market basket from a fixed point of reference.</p> Signup and view all the answers

    How can economic growth best be defined?

    <p>An increase in real GDP or GDP per capita.</p> Signup and view all the answers

    What is a recession?

    <p>A period in which real domestic output falls.</p> Signup and view all the answers

    What is the natural rate of unemployment?

    <p>Rate of unemployment when the economy is at potential output.</p> Signup and view all the answers

    What does the labor force include?

    <p>Employed workers and persons who are unemployed but seeking work.</p> Signup and view all the answers

    What type of unemployment is associated with recessions?

    <p>Cyclical unemployment</p> Signup and view all the answers

    Why is inflation considered undesirable?

    <p>It redistributes real income and wealth.</p> Signup and view all the answers

    Fiscal policy is primarily carried out by?

    <p>The federal government</p> Signup and view all the answers

    What is an appropriate fiscal policy for a recession?

    <p>Decrease in tax rate</p> Signup and view all the answers

    What is an appropriate fiscal policy for severe demand-pull inflation?

    <p>Increase in tax rate</p> Signup and view all the answers

    What is the basic policy-making body of the U.S. system?

    <p>Board of Governors</p> Signup and view all the answers

    What are the three main tools of monetary policy?

    <p>Open market operations, reserve ratio, discount rate</p> Signup and view all the answers

    Which action by the Fed would cause the money supply to increase?

    <p>Purchases of government bonds.</p> Signup and view all the answers

    Study Notes

    Economics Overview

    • Economics is the social science focused on effectively utilizing scarce resources to maximize satisfaction of human wants.

    Macroeconomics

    • Macroeconomics examines the entire economy rather than individual markets.

    Production Possibilities Curve

    • The production possibilities curve illustrates the maximum output of two goods that can be produced with full resource utilization.
    • Points within the curve indicate underutilization of resources, commonly associated with unemployment.

    Opportunity Cost

    • Opportunity cost represents the value of the next best alternative forgone when one product is sacrificed to produce another.

    Economic Systems

    • Major economic systems include market systems, where decisions are driven by consumer demand, and command systems, where central authority dictates production.

    Demand and Supply

    • The demand curve illustrates the inverse relationship between price and quantity demanded.
    • The law of supply states that higher prices incentivize producers to offer more goods.

    Market Equilibrium

    • Equilibrium in a market occurs when the quantity supplied matches the quantity demanded.

    Market System Virtues

    • Two key advantages of the market system are efficient resource allocation and the promotion of economic freedom.

    Fundamental Characteristics

    • Property rights are essential to the function of a market system.

    Tax Revenue Sources

    • Federal government tax revenue is primarily generated from personal income taxes, followed by payroll taxes and corporate income taxes.

    Federal Spending

    • The largest portion of federal spending is allocated to pension and income security.

    Tax Structure

    • A progressive tax system imposes higher rates on individuals with greater income.

    International Trade

    • Canada is the United States' most significant trading partner by dollar volume.
    • Goods should be produced where domestic opportunity costs are lowest.
    • International trade offers benefits such as efficient resource use and improved living standards.

    Trade Barriers

    • Protective tariffs are taxes on imported goods, while import quotas set maximum limits on product imports.

    European Union Benefit

    • The European Union provides economic advantages through reduced trade barriers, allowing for production economies.

    North American Free Trade Agreement

    • NAFTA creates a free trade zone among Canada, Mexico, and the U.S.

    GDP Considerations

    • Gross Domestic Product (GDP) excludes the market value of unpaid domestic work.
    • Nominal GDP represents the sum of monetary transactions involving final goods and services.
    • Real GDP is adjusted for changes in price levels, indicating true economic growth.

    Economic Growth and Recession

    • Economic growth is characterized by an increase in real GDP or GDP per capita.
    • A recession occurs when real domestic output declines.

    Unemployment Types

    • The natural rate of unemployment reflects the level when the economy operates at potential output.
    • Cyclical unemployment is associated with economic downturns or recessions.
    • The labor force comprises employed individuals and actively seeking unemployed persons.

    Inflation and Fiscal Policy

    • Inflation negatively impacts income and wealth distribution.
    • Fiscal policy, primarily executed by the federal government, adjusts tax rates to regulate the economy.
    • To combat recession, a decrease in tax rates is beneficial, whereas an increase is appropriate during severe inflation.

    Monetary Policy

    • The basic policy-making body in the U.S. is the Board of Governors.
    • Three primary monetary policy tools are open market operations, reserve ratio adjustments, and discount rates.
    • Purchasing government bonds by the Federal Reserve increases the money supply.

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    Test your knowledge of economics with these flashcards that cover key concepts and definitions. Each card presents a term or concept, followed by its precise definition. Perfect for students looking to reinforce their understanding of economics.

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