Economics Overview Quiz

Economics Overview

• Economics is a social science that analyzes the production, distribution, and consumption of goods and services.
• It focuses on individual, business, government, and national choices to allocate limited resources.
• Economics impacts various fields, including politics, psychology, business, and law.
• Economics studies how societies allocate scarce resources efficiently for production, distribution, and consumption.
• Microeconomics examines individual and business choices while macroeconomics analyzes the economy's aggregate behavior.
• Early economists like Hesiod and Adam Smith significantly contributed to modern economic thought.

Key Economic Concepts

• Scarcity: Limited resources, leading to choices in allocation.
• Microeconomics: Studies individual and business decisions.
  • Responsiveness to price changes.
  • Demand for goods at different price points.
  • Valuation of goods, financial decisions, and cooperation.
  • Supply and demand dynamics, production costs, labor allocation, and risk/uncertainty management in business.
• Macroeconomics: Analyzes the entire economy.
  • Recurrent economic cycles.
  • Broad economic growth.
  • Foreign trade, fiscal/monetary policy, employment rates, inflation, interest rates, production, and business cycles (expansions, booms, recessions).
  • Uses aggregate indicators for economic policy.

Economic Indicators

• Gross Domestic Product (GDP): Measures total market value of finished goods/services produced annually (in the U.S., reported by BEA).
  • Advance and preliminary reports are used for forecasting before final figures, as they are viewed as lagging indicators.
  • GDPNow model, used by the Federal Reserve, provides immediate estimates.
• Retail Sales: Dollar value of merchandise sold in stores (monthly, reported by DOC).
  • Tracks consumer spending, which represents a significant portion of GDP.
• Industrial Production: Measures output changes in factories, mines, and utilities (monthly, reported by the Federal Reserve).
  • Capacity utilization levels assist in predicting price increases, supply shortages, or economic slack.
• Employment Data: Measures employment changes (monthly, reported by the BLS).
• Consumer Price Index (CPI): Measures retail price changes, indicating inflation (monthly, reported by the BLS).
  • Release often affects multiple markets (equities, fixed income, forex).
  • Inflation indicated by greater-than-expected price increases often leads to currency depreciation.
• Different economic systems (primitive, feudal, capitalist, socialist, communist) have approached resource allocation through history.

Schools of Thought

• Neoclassical economics: Focuses on market equilibrium and the interplay of supply and demand.
• Keynesian economics: Emphasizes government intervention in markets during downturns to stimulate demand and stability.
• Marxian economics: Critiques capitalism, arguing it benefits only the ruling class at the expense of the working class.

Economic Roles and Think Tanks

• Economists study relationships between societal resources, production, and output.
• Their opinions heavily influence economic policies.
• They analyze indicators like GDP and CPI.
• Economists play various roles from government agencies to consultancies, corporations, and think tanks.