Principles of Economics Overview

Study Notes

Principles of Economics

Economics studies how societies allocate limited resources to meet unlimited wants and needs.
Scarcity means limited resources and unlimited desires.
Opportunity cost is the value of the next best alternative forgone when a choice is made.
Seven key economic principles: scarcity, costs and benefits, marginal thinking, incentives, trade, markets, and future consequences.

Types of Economies

Traditional economies rely on customs and traditions.
Capitalism (market economies) are characterized by private ownership and profit motives.
Communism (command economies) are centrally planned by the government.
Socialism combines government and private ownership.
Traditional economies are stable but resistant to change.
Capitalist economies are efficient but can lead to uneven wealth distribution.
Communist economies aim for equal distribution but limit freedoms.
Socialist economies balance safety nets with higher taxes.

The Business Cycle and GDP

Gross Domestic Product (GDP) is the total value of goods and services produced in a country.
GDP measures a country's economic health.
Four components of GDP: consumer spending, investment, government spending, and net exports.
Business cycles have stages: expansion, peak, contraction, trough, and recovery.

Macroeconomics

Macroeconomics examines the economy as a whole.
Fiscal policy involves government spending and taxation.
Monetary policy involves central banks managing the money supply and interest rates.
The Federal Reserve System comprises the Board of Governors, 12 Federal Reserve Banks, and the Federal Open Market Committee.

Supply and Demand

Supply represents the quantity producers offer at different prices.
Demand represents the quantity consumers are willing to buy at different prices.
Equilibrium occurs where supply meets demand.
A shortage occurs when demand exceeds supply.
A surplus occurs when supply exceeds demand.

2008 Financial Crisis

A mortgage is a loan used to purchase property.
Mortgage-backed securities are investments formed by bundling mortgages.
Subprime mortgages are high-risk loans to borrowers with questionable credit.
Predatory lending is the practice of making exploitative loans.
Collateralized debt obligations (CDOs) are complex investments formed by bundling various types of debt.
Credit agencies sometimes rated risky investments too highly, contributing to the crisis.
Moral hazard describes how the prospect of minimal consequences increased risky behavior.

Personal Finance

Gross pay is the total earnings before deductions.
Net pay is the amount received after deductions.
The W-4 form determines tax withholding.
The W-2 form reports annual earnings and taxes paid.
Deductions include health insurance and retirement contributions.
A budget is a plan for income and expenses.
Fixed expenses are those that remain the same each period (rent, insurance).
Variable expenses fluctuate (groceries, entertainment).
A zero-dollar budget assigns all income to expenses or savings.

Understanding Credit

Credit involves borrowing money and promising repayment.
Installment credit involves fixed payments (loans).
Revolving credit allows flexible borrowing (credit cards).
Service credit involves utilities, etc.

Credit Reports and Scores

Credit bureaus (Experian, TransUnion, Equifax) collect and report credit activity.
Get a free credit report at AnnualCreditReport.com.
Cosigning is agreeing to be responsible for someone else's debt.

Credit Cards

Credit cards allow buying now and paying later.
Credit card fees include interest and late charges.
Avoid debt by paying the balance in full each month.

Student Loans

Student loan repayment usually begins after graduation or a grace period.
Defaulting on student loans is failing to repay.
Plan for student loan debt by researching and budgeting.

Financial Services

Checking accounts offer convenience, security, and record-keeping.
Checks include a date, payee, amount, memo, and signature.

Description

This quiz explores key concepts from the study of economics, including scarcity, opportunity cost, and the various types of economic systems. Understand the fundamental principles that guide societies in resource allocation and the implications of different economic structures. Test your knowledge of traditional, capitalist, communist, and socialist economies.