Economics Semester Final Review

Market capitalization

# of shares outstanding times price per share

Unemployment rate

% of people in the labor force who do not have a job but are actively looking for one

Reasons to shift demand

-change in consumer tastes -change in consumer income -change in market size -change in consumer expectations -change in price of related goods -seasonal changes

Reasons to shift supply

-change in number of sellers -change in input costs -government influence -future expectations in price -change in price of other goods with similar production process

NOT included in the GDP

-used goods -illegal activities -gifts or transfers -financial transactions -intermediate goods

The 5 C's of Credit

1. Character: credit score, credit history 2. Capacity: ability to pay, income vs. debt 3. Capital: value of cash any other large (valuable) assets you own 4. Collateral: value of assets used to secure loan, co-signor 5. Conditions: interest rate, amount being borrowed, economic trends

Costs of Production

1. Fixed costs: costs that do not change even when level of production changes 2. Variable cost: costs rise or fall with level of production 3. Revenue: income before taxes are taken out

4 types of unemployment

1. Frictional: between jobs. 2. Seasonal: weather change or annual patterns cause job loss 3. Cyclical: jobs gained and lost in correlation with the business cycle 4. Structural: worker's skills do not match the jobs available in the economy.

Factors of Production

1. Land: natural resources; not man-made (fields, forests, minerals, livestock, sunshine, wind, etc.) 2. Capital: man-made good used to produce other goods (tools, equipment, machinery, factories, computers, etc.) 3. Labor: human effort on a task for which they are paid (based on skills and abilities) 4. Entrepreneurs: risk-taker in search of profits who does something new with existing resources

3 basic questions of economics

1. What to produce? 2. How to produce? 3. For whom to produce?

Problems with unemployment

1. discouraged workers: wanting a job, but no longer looking for one. 2. Underemployed: worker overqualified for a low skilled job, but still searching for a job that meets their skills

Full employment

5% or lower, the economy is considered to have attained the goal of full employment

Budget

A step by step plan for meeting expenses in a given period of time.

Deductible

Amount you pay out of pocket

M2

Cash in short tem savings accounts

Lorenz Curve

Graph showing how much the actual distribution of income differs from an equal distribution

GDP

Gross Domestic Product: dollar value of all goods and services produced within the boundaries of a country in one year.

Law of Supply

When price goes up quantity supplied goes up, and when price goes down quantity supplied goes down.

Mutual funds

a collection of financial securities owned by a group of investors

Credit Score

a rating given to borrowers by credit bureaus that are based on their credit history and are used by creditors in deciding whether to loan money or not

Inflation

a rise in the general level of prices

installment loans

a set amount is borrowed for a set amount of time being paid off monthly with fixed payments (mortgage, car payment, student loans)

Mixed economic system

a system of a combination of pure market and pure command (Capitalism, Communism, Socialism)

Pure Market Economic System

a system where there is 0% government intervention

Pure Command economic systems

a system where there is 100% government intervention.

Law of Diminishing Return

as more of one resource is added to production, the output may increase for a time but eventually output will decrease as too many resources are added.

Federal Reserve Bank

bank that controls money supply through buying and selling of government securities and changing the discount rate.

Revolving credit

creditor gives you a "credit limit" that you can access whenever and as often as you like

Price per share

current value of one share of stock

Regressive tax

everyone pays the same rate

Marginal utility

extra satisfaction or usefulness we get from acquiring one more unit

finance charge

fee to borrow money

Formula for Total Costs

fixed costs + variable costs

Rule of 72

formula to estimate amount of time it will take an investment to double in value

Sin tax

high tax designed to raise revenue on socially undesirable goods like alcohol, tobacco, pornography

Amortization Schedule

identifies the amount of principal and amount of interest that comprise each payment of the loan so the loan will be paid off on time

Hyperinflation

inflation rate of 500% or more

Discount Rate

interest rate Fed charges member banks for overnight loans

Scarcity

limited resources for production (ex. land, labor and capital)

M1

liquid cash, checking accounts

Beta

measures a stock volatility

Gross National Product

measures all production by US residents no matter where they live

Consumer Price Index

measures the average change in prices of goods and services, used to calculate cost of living

Stocks

ownership in a corporation

Dividends

portion of company's earnings paid to investors per share

Unintended Consequences

positive or negative outcomes from decisions

P/E Ratio

price per earnings ratio

Tight money

restricts the economy

Easy money

stimulates the economy

Income tax

tax based on your income

Sales tax

tax placed on general products

GDP Gap

the difference between a country's actual GDP and its potential GDP

Progressive tax

the more income you make the greater your tax rate

Opportunity Costs

the next best choice for the use of a resource

Principle

the original amount borrowed

Economics

the study of how people use scarce resources to satisfy their unlimited wants

Keynesian Economic Theory

theory stating business cycles are driven by how much people are willing to spend, but when spending stops and economic recessions begin, the government must step in to stabilize the economy and reduce volatility over a prolonged period of time.

Marxist Economic Theory

theory stating that capitalism requires profit, and therefore profit requires exploitation of worker. Eventually the workers will seize control of the means of production and establish a socialist economy.

Classical Economic Theory

theory stating that markets function naturally and the human tendency to trade and barter will constantly keep the markets stable. No government interference.

Neoclassical Economic Theory

theory stating when economies turn toward recession, governments should take a limited, short term action to stabilize it. But over the long term, governments should stay out of the economy and let the natural supply and demand dictate the economy.

certificate of deposit

timed deposit with a band "CD"

Bonds

timed loan to government, municipality or corporation

Monetary Policy

to achieve full employment, economic growth and price stability through Fed intervention

Representative

value held in commodity (gold)

Fiat

value is backed by the "full faith and credit of the government"

Incentives

what drives people to make the decisions that they do make to fulfill these wants

Price elasticity

when a change in price causes a large change in the quantity demanded

Surplus

when price is above equilibrium

Shortage

when price is below equilibrium

Law of demand

when price rises quantity demanded goes down, and when price goes down quantity demanded goes up

Equilibrium

where supply and demand equal