Econ Final Exam

what is meant by the concept of voluntary Exchange?

Acts of buyers and sellers freely and willingly engaging in Market transactions

what is the difference between GDP and real GDP?

GDP is the national output. real GDP is the GDP measured in today's prices

What does scarcity mean

A fundamemtal economic problem of meeting people's virtually unlimited wants with scarce resources.

What might the opportunity cost of building a new high school football stadium be for a local community?

A shopping center/other goods and services that have to be given up.

When a country is inside the frontier, it deals with/means:

Deals with economic growth It is inefficient

When a country is producing at max production, it means:

Full employment Eveeyone is doing good

Outside the frontier?

In recession Unattainable

how about one exchange rate between the US dollar and the Japanese Yen changes from 120 yen= $1.00 to 113 yen= $1.00

Japanese Goods are expensive to the US

what are the four causes of a decrease in aggregate demand?

Sav-Mor, higher taxes, loan transfer payments / consumer spending, government spending, increase in tax rates

What is the fundamental problem of economics?

Scarcity

What is so important about the role of entrepenuers in a market economy?

Start new businesses Bring new products to the market Make jobs

what would be the effect?

Surplus

In all economic systems, people face the problem of scarcity. What does this basic economic problem require people and societies to do?

To give up what people want and do what they need to do. (Making the best of resources)

what would be the most efficient approach for the government to use in order to less than negative externalities such as pollution?

a tax because of pollution

regressive tax

a tax that imposes a high percentage of tax on low incomes than high

When a country is producing along the production possibilities Frontier, an increase in production can only be accompanied by?

an increase in population, a stock of capital, technology / more resources / decrease in the production of another good.

how does economic growth affect the production possibilities Frontier?

an increase of resources does increasing productivity

what is a trade surplus

balance of payment outcome when revenues received from exports exceed spending on Imports

what should the government do to promote consumption of goods slash services with positive externalities?

because it has a good outcome as well as more money

who benefits from voluntary

buyers and sellers

give an example of the most recent voluntary exchange you participated in.

buying groceries from Kroger.

how can an increase in labor productivity be achieved?

by the "Invisible Hand" / increase in capital investment

what tools are available to unions in labor disputes?

collective bargaining, boycotts, mediation, arbitration, fact-finding, strikes, pickets, and lockouts

who does inflation benefit?

companies, big businesses / debtors - people paying back loans

what did Adam Smith believe would act as the "invisible hand" in a market economy?

competition and individual self-interest

what are the four causes of an increase in aggregate demand?

consumer spending, government spending, decreasing taxes, investment spending, exports and imports

what factors would decrease both the price and the quantity of products sold in a competitive market?

decrease in demand, decrease in Tech, increase in taxes, decrease and subsidies

during a period of economic growth, unemployment:

decreases

during a recession, business investment:

decreases

during a recession, economic growth:

decreases

during the recession, consumer spending:

decreases

how is the conflict between the law of demand and the law of supply resolved?

equilibrium / competition

what are the characteristics of a corporation that sets it apart from a sole proprietorship and partnership?

formal / legal, limited liability, double taxation, and common stock

what type of economic system did Adam Smith believe would bring the greatest wealth to Nations?

free market economy

what is the law of supply?

high prices equals business offers more for sale principle that more will be offered to sell at higher prices than lower

proportional tax

imposes the same percentage rate of tax on everyone regardless of income - flat rate

during a period of economic growth, consumer incomes:

increase

which monetary policy tool should the Federal Reserve use to combat High inflation?

increase discount rate and sell bonds

what factors would increase the price but decrease the quantity of a product sold in a competitive market?

increase in Supply, decrease in production cost, increase in productivity

what factors would decrease the price but decrease the quantity of products sold in a competitive market?

increase in Supply, increase and tag, and decrease in Supply factors

why would the federal government decide to reduce taxes?

increase incentives or increase federal spending increased consumer spending, stimulate economy

progressive tax

increase percentage of tax on high-income rather than low-income

according to Adam Smith what is the result of the specialization of Labor?

increase the production and output

during a period of economic growth, business investment:

increases

during a recession, unemployment:

increases

what are right to work laws?

it determines whether you have to join your company's Union or not; state laws require you to join unions

what has happened to the strength of the US dollar?

it has weakened

what does it mean when a country has a comparative advantage in the production of a good or a service?

it is cheaper for them to produce it

why does the government, instead of private businesses, provide public goods and services, such as National Defense, highways, flood control, prisons, and National warning system, Etc?

it is their civil duty to protect its citizens

what is the result of Nations specializing and increasing international trade?

less expensive for those who specialize to make them increase total production

how did Adam Smith believe a market economy would serve in the public interest?

less government involvement and increase in production and output

what is the result of banks increasing loans to businesses and consumers?

less money made more money in Supply

what function is money serving when it allows a common denominator to be used to express worth in terms most people understand and allows people to make comparisons between products?

measure of value

what function is money serving when it is used to buy prom tickets?

medium of Exchange

what are three functions of money?

medium of exchange, measure of value, and store of value.

what is the law of demand?

more will be demanded at lower prices than higher prices. consumers buy less at high prices and buy more at lower prices

which monetary policy tool should the Federal Reserve use to increase consumer demand and spending?

open market operations / buy bonds and lower the discount rate

if a monopoly were broken down into several competing firms, what would happen to output and prices in that industry?

output would increase and prices would decrease

what is the best measure of a nation's standard of living?

population growth in the US/ economic growth/ real income per capita

when the government passes a law to set the maximum price of a product, such as red control, what is this called?

price ceiling

when the government passes a law that sets the minimum price of a product / service, such as minimum wage or Farm subsidies, what is this called?

price floor

what is the difference between profit and Revenue?

profit is what employees and companies make revenue is a break even

what does an increase in real interest rates provide an incentive for people to do?

purchase less and save more (borrow less)

what does a decrease in real interest rates provide an incentive for people to do?

purchase more and save Less (borrow more)

what is the most economically efficient way to control pollution?

reduce pollution as long as benefits are greater than the cost

what is inflation?

rise in the general level of prices

what will be the effect?

shortage

what function is money serving when it allows a period of time to pass between earning income and spending income?

store of value

what is the most costly expense paid by American businesses

taxes / wages

what is a trade deficit?

the balance of payment outcomes when spending

what factors would increase both the price and the quantity of a product sold in a competitive market?

the price of complement decreases, expectations decrease, the number of consumers increase

who does inflation hurt?

the working Klass / creditors - people who live on fixed incomes

what is the debate regarding tariffs?

there is a protective tariff and a revenue tariff, traditionally they are used more for Revenue

of all the characteristics of a market economy, which one is the most important? Why?

they have economic freedom / competition promotes efficiently both the product and Factor markets

why do lawyers are more money than school bus drivers?

they have more education and skills

economics that grow rapidly overtime have a high rate of?

trade-offs / Capital Investments

what does it mean when the exchange rate between the US dollar and the Euro changes from one Euro = $1.44 to 1 euro = $1.60?

value of the US dollar is changing making it weaker or stronger / European goods are more expensive for the u.s.

what is a budget deficit?

when more money is used then the budget can support slash government spending is greater than the tax revenue

what is a budget surplus?

when there is more money than the budget anticipated tax revenue is greater than the government spending

4 factors of production.

•Land - natural resources; nothing man made •Labor - people with all their efforts, abilities, and skills •Capital - tools, equipments, & factories used in the production of goods and services •Entrepreneurs - risk takers in search for profits

What are 3 fundamental questions every economics system must answer?

•What to produce? •How to produce it? •Whom to produce it for?