Economics Overview and Key Concepts
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Questions and Answers

What does inelastic demand indicate about consumer behavior in response to price changes?

  • Consumers will continue to buy the good despite a price increase. (correct)
  • Consumers will only buy the good if it is on sale.
  • Consumers will significantly reduce their quantity demanded with a price increase.
  • Consumers will stop buying the good if the price rises.

    • Which factor is NOT considered to influence the elasticity of demand?

  • Availability of substitutes
  • Necessities vs Luxuries
  • Relative importance of the good in the budget
  • Consumer income levels (correct)

    • What happens to total revenue when a firm raises prices for a product with elastic demand?

  • Total revenue remains unchanged.
  • Total revenue decreases. (correct)
  • Total revenue becomes unpredictable.
  • Total revenue increases.

    • Why might the demand for a good become more elastic over time?

    <p>More substitutes become available.</p> Signup and view all the answers

    According to the law of supply, what is expected when the price of a good increases?

    <p>Suppliers will produce more of the good.</p> Signup and view all the answers

    What was a key change made to the federal reserve system in 1913 to improve its effectiveness?

    <p>Adjustment of the federal reserve structure for better crisis response</p> Signup and view all the answers

    Who oversees the actions of the federal reserve system?

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

    Which of the following describes the relationship between member banks and the federal reserve system?

    <p>Member banks must contribute funds to join and receive stock in return</p> Signup and view all the answers

    What does the Federal Open Market Committee (FOMC) primarily decide?

    <p>Interest rates and money supply growth</p> Signup and view all the answers

    How does reducing the required reserve ratio (RRR) during a recession affect banks?

    <p>It frees up reserves for banks to increase lending</p> Signup and view all the answers

    What does the term 'quantity supplied' refer to?

    <p>The amount of a good offered for sale at a certain price</p> Signup and view all the answers

    How do rising prices influence market supply?

    <p>They encourage firms to produce more and attract new suppliers</p> Signup and view all the answers

    What happens when input costs for production rise?

    <p>Marginal costs increase, leading to decreased profitability of supply</p> Signup and view all the answers

    What role do subsidies play in the market?

    <p>They increase the supply of a good</p> Signup and view all the answers

    What is the effect of government import restrictions on supply?

    <p>They decrease the supply of restricted goods</p> Signup and view all the answers

    How does the expectation of future prices influence current supply?

    <p>Higher expected prices reduce current supply and increase future supply</p> Signup and view all the answers

    What is a market supply schedule?

    <p>A table listing the quantity of a good all suppliers are willing to offer at different prices</p> Signup and view all the answers

    How does the entry of more suppliers affect market supply?

    <p>Market supply rises as more goods are available</p> Signup and view all the answers

    What is the purpose of markets?

    <p>To enable buyers and sellers to exchange goods and services</p> Signup and view all the answers

    What does specialization in economics refer to?

    <p>Concentration on a limited number of productive activities</p> Signup and view all the answers

    How is the profitability of a mutual fund typically measured?

    <p>By tracking net gain/loss each day or quarterly/yearly</p> Signup and view all the answers

    Which of these statements about a 401K is accurate?

    <p>Withdrawals without penalty are allowed after age 59.5</p> Signup and view all the answers

    What is a primary benefit of a Traditional IRA?

    <p>You can withdraw funds from a 401K without being taxed</p> Signup and view all the answers

    What distinguishes a Roth IRA from a Traditional IRA?

    <p>Roth IRAs offer the option to purchase cryptocurrencies in the right exchanges</p> Signup and view all the answers

    Which of the following is a benefit of the free enterprise system?

    <p>Private property rights allowing individuals to control possessions</p> Signup and view all the answers

    What is one of the fundamental roles of consumers in a free enterprise system?

    <p>To influence producers through their purchasing choices</p> Signup and view all the answers

    What is the primary objective of the profit motive in free enterprise?

    <p>Improving the material well-being of individuals</p> Signup and view all the answers

    Which characteristic is NOT a benefit of free enterprise?

    <p>Legal inequality</p> Signup and view all the answers

    What effect does reducing the discount rate have on the money supply?

    <p>It increases the money supply.</p> Signup and view all the answers

    Which monetary tool involves the buying and selling of government securities?

    <p>Open Market Operations</p> Signup and view all the answers

    What is the result of increasing the reserve requirement ratio (RRR)?

    <p>It decreases the money supply.</p> Signup and view all the answers

    How does an easy money policy affect interest rates?

    <p>It lowers interest rates.</p> Signup and view all the answers

    What happens when the Federal Reserve sells bonds in the market?

    <p>The money supply decreases.</p> Signup and view all the answers

    According to monetarism, what is considered the most important factor in macroeconomic performance?

    <p>Money supply</p> Signup and view all the answers

    What is the effect of increasing the discount rate?

    <p>Banks lend out less money.</p> Signup and view all the answers

    What happens to interest rates when the money supply is large?

    <p>Interest rates decrease.</p> Signup and view all the answers

    What does the law of demand state?

    <p>Consumers buy more of a good when its price decreases.</p> Signup and view all the answers

    What is a public good?

    <p>A shared good or service funded by the public sector.</p> Signup and view all the answers

    How do interest groups influence public officials?

    <p>By persuading public officials to align with the group's interests.</p> Signup and view all the answers

    Which of the following best describes externalities?

    <p>Economic side effects that impact parties not directly involved.</p> Signup and view all the answers

    What does a demand schedule illustrate?

    <p>The quantity of a good that consumers will buy at various prices.</p> Signup and view all the answers

    What is the poverty threshold?

    <p>A legally determined income level required for basic family support.</p> Signup and view all the answers

    What role does the government play in promoting economic strength?

    <p>It provides jobs for every able-working individual.</p> Signup and view all the answers

    How is unemployment measured?

    <p>Monthly, through labor market surveys.</p> Signup and view all the answers

    What is an in-kind benefit?

    <p>Goods and services provided by the government for free or at lower prices.</p> Signup and view all the answers

    What is the purpose of public disclosure laws?

    <p>To make companies disclose important product information to consumers.</p> Signup and view all the answers

    How does technology typically evolve within the government sector?

    <p>Through research funded by federal agencies.</p> Signup and view all the answers

    What is the aim of cash transfer programs?

    <p>To offer direct monetary assistance to eligible individuals.</p> Signup and view all the answers

    What is macroeconomics primarily concerned with?

    <p>The behavior and decisions of entire economies.</p> Signup and view all the answers

    What does the substitution effect imply?

    <p>Consumers switch to cheaper alternatives when prices rise.</p> Signup and view all the answers

    Study Notes

    Economics Notes

    • Economics is the study of how people make choices to satisfy their wants and needs.
    • GNP (Gross National Product) is the total value of all products produced by a nation, including those from outside its borders.
    • GDP (Gross Domestic Product) is the total value of all products produced within a country's borders.
    • Scarcity occurs when there are limited resources to meet unlimited wants and needs.
    • Shortages occur when producers cannot or will not offer goods or services at current prices.
    • Factors of production include land (natural resources), labor (human effort), and capital (human-made resources).
    • Risk and return are inversely related: higher potential returns usually come with greater risk.
    • Investments include stocks, bonds, exchange-traded funds, real estate, and mutual funds.
    • Basic market indicators include the Dow Jones Industrial Average (DOW), which tracks 30 leading industrial stocks; and the Standard & Poor's Composite Index, which tracks 500 stocks.
    • NASDAQ tracks faster-moving technological companies and speculative stocks.
    • Ticker symbols are used to identify stocks.
    • A bull market is characterized by rising stock prices; a bear market is characterized by falling stock prices.
    • Investment purchases are made through various brokers (full-service, discount, online, or investment advisors).
    • The New York Stock Exchange (NYSE) and American Stock Exchange (AMEX/NASDAQ) are large exchanges in the US.
    • Stocks are exchanged on markets that differ in terms of rules and regulations.

    Production Possibilities

    • A production possibilities graph displays alternative ways resources can be used.
    • The production possibilities frontier (PPF) represents the maximum combination of goods and services that can be produced given available resources.
    • Efficiency is demonstrated when resources are used to produce the maximum possible amount of goods and services.
    • Economic growth occurs when the economy's production capacity increases.
    • Exchange trade funds (ETFs) are pools of multiple stocks under a single ticker.

    Economic Systems

    • Traditional economics rely on habit, custom, or ritual.
    • Centrally planned economics have a central government controlling production and consumption choices.
    • Market economies are characterized by individual decision-making.
    • Mixed economies combine traditional and market elements.

    Economic Goals

    • Societies prioritize economic efficiency, freedom, security, equity, growth, and innovation.
    • The government plays a role in influencing markets (e.g., public disclosure laws, regulations) to achieve its goals.

    Decision-Making Grid

    • Economists use a decision-making grid to evaluate the benefits and costs of decisions.
    • Thinking on the margin involves considering the additional costs and benefits of taking one more action.
    • Opportunity cost refers to the next-best alternative given up when making a choice.
    • Production possibilities graphs show maximum outputs.

    The Role of Markets, Government, and Consumers

    • Markets exist to exchange goods and services amongst buyers and sellers.
    • Consumers make economic decisions based on their preferences, and their choices indicate desired products, quantities, and prices.
    • Public disclosure laws require companies to provide information about goods and services
    • Markets fail when resources are not distributed efficiently.
    • Public goods are shared goods or services that would be impractical for consumers to pay for individually.

    Financial Investments (Retirement)

    • 401(k)s and IRAs (Individual Retirement Accounts) enable savings for retirement.
    • Both rely on accounts managed by brokers for savings.

    Economic Measures

    • Business cycles track periods of expansion and contraction of economic activity.
    • GDP measures the total value of goods produced in a country.
    • Inflation is the sustained increase in general price levels.
    • Unemployment is the percentage of people without jobs and actively looking for work.

    The Law of Demand and Supply

    • Law of Demand: Higher prices lead to lower demand, and vice-versa.
    • Law of Supply: Higher prices lead to higher supply, and vice-versa.
    • Equilibrium occurs where supply and demand intersect.
    • Market failures happen when markets do not allocate resources efficiently.

    Elasticity of Demand

    • Elasticity measures how responsive demand is to price changes.
    • Inelastic goods have a low responsiveness.
    • Elastic goods show high responsiveness to price changes.

    Monetary Policy

    • Monetary policy influences the money supply, affecting interest rates, inflation, and economic growth.
    • Tools for manipulating the money supply include reserve requirements, discount rates, and open market operations.

    Price Ceilings and Price Floors

    • Price ceilings set a maximum price.
    • Price floors set a minimum price.

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    Economics Final Review and Notes PDF

    Description

    This quiz covers fundamental concepts in economics including the definitions of GNP and GDP, the importance of scarcity and shortages, and the factors of production. It also explores investments and market indicators. Test your understanding of these essential economic principles.

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