Ch. 2 AP Microeconomics (Thinking Like an Economist)

Firms

Economic entities which buy or employ factors of production(which they get from households) and organize them to create goods and services for sale

Treasury Department

Government department responsible for management of federal governments finances and currency and designing tax policy.

Fiscal Policy

Government policy that attempts to manage the economy by controlling taxing and spending. DIFFERENT from Monetary Policy.

Monetary Policy

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates. Controlled by a central bank, in the United States, this would be the Federal Reserve.

Factors of Production

Land, labor, and capital (LLC) ; the three groups of resources that are used to make all goods and services, are created by HOUSEHOLDS and used by FIRMS

Microeconomics

The study of the economic behavior and decision making of small units, such as individuals, families, and businesses

Economic Report of the President

What work does the Council of Economic Advisers (CEA) send to Congress, stating the president's take on the economy?

Rent Control

A government set price ceiling on rent. Most economists believe that this adversely effects the availability and quantity of housing and is a very costly way to help needy members of society.

Council of Economic Advisers

A group of three professional economists who give the president expert advice on the economy. Created in 1946, it is responsible for forecasting economic trends, analyzing economic issues, and helping prepare the "Economic report of the President" submits each year to Congress. Abbreviate CEA.

Import Quotas

A limit imposed by a nation on the quantity (or total value) of a good that may be imported during some period of time. Most economists hate this because it restricts free trade between countries.

Correlation

A statistical relation between two or more variables such that systematic changes in the value of one variable are accompanied by systematic changes in the other, does NOT imply causation(As shown in the graph).

Circular Flow Diagram

A visual model of the economy that shows how dollars flow through markets among households and firms. Includes the market for goods and the market for factors of production.

PPF

Abbreviation for the Production Possibilities Frontier, a economic model that shows the combination of outputs that the economy can possibly produce given available LLC, and Technology. The economy can only produce all the points on or within the line not beyond it. The line is usually bowed outwards.

Normative economics

An approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad(makes value judgement), and may prescribe courses of action. Also called policy economics.

Positive economics

An approach to economics that seeks to understand behavior and the operation of systems without making judgments. It describes what exists and how it works.

Reverse Causality

Coming to an erroneous conclusion about which is the dependent and which is the independent variable by reversing the true direction of causality between the two variables

CBO

Congressional Budget Office. This assesses the economic implications and likely costs of proposed federal programs, such as the Bush administration rescue packages for the failing financial system in 2008 and Barack Obama's Stimulus package in 2009. The answer is the abbreviation.

Opportunity Cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another.

Tariffs

Taxes on imports or exports, most economists hate this because it along with import quotas limits free trade between countries.

Households

The basic unit of analysis in many microeconomic and government models. The term refers to all individuals who live in the same dwelling, they own all the factors of production (LLC)

Federal Reserve

The central bank of the U.S. Incorporates 12 Federal Reserve branch banks and all national banks and stated charted commercial banks as well as some trust companies. Sets the countries "Monetary Policy" (Controlling Money Supply, and interest rates)

Department of Labor

The federal department responsible for promoting the working conditions of wage earners in the United States

Macroeconomics

The part of economics concerned with the economy as a whole; with such major aggregates as the household, business, and government sectors; and with measures of the total economy line employment, inflation ,etc.,.