Economic study guide

In what way is a credit score important? What affects a person's credit score?

- Your credit score determines two important things and can affect your chances for getting approved. First, lending money entails risk, and your credit rating tells prospective lenders how reliable or unreliable you are at repaying loans. Second, your credit score determines what sort of terms you are likely to get - It's often a heavily weighted factor in calculating a credit score, so just one or two late payments could significantly affect your score. Paying bills on time is one of the best ways to keep up good credit health; it shows lenders and creditors that you're reliable and will pay back your debts

Describe the tax types used by the government to raise revenue. What is an example of each?

1) Payroll taxes: social security 2) corporate income taxes: net profit 3) Federal Excise taxes: cigarette and alcohol

Compare and contrast the characteristics of the four market structures.

1) pure competition: a market that has a broad range of competitors who are selling the same products, In an ideal purely competitive market, the products being sold would be identical, which removes the option of one seller offering something different or better than another seller. Because there are so many competitors in the market offering the same product at the same price, one competitor doesn't have an edge over the others. Essentially, all the sellers are equal. New companies can easily enter the market. The price of products is determined solely by what consumers are willing to pay. 2) pure monopoly: market structure where one company is the single source for a product and there are no close substitutes for the product available. Pure monopolies are relatively rare. In order for a provider to maintain a pure monopoly, there must be barriers preventing competitors from entering the market. Legal barriers, control of resources and economies of scale 3) monopolistic competition: While a monopolistic competition is similar to a perfect competition in that there are many smaller firms in the market, the defining characteristic of a business entering into monopolistic competition is this notion of product differentiation oligopoly: occurs when only a few firms control the market. These firms may have a high portion of control divided between each other

What are the risks an entrepreneur faces and what incentive do they have to take those risks?

1. Abandoning a steady paycheck 2. Sacrificing personal capital 3. Relying on cash flow 4. Estimating popular interest 5. Trusting a key employee 6. Betting on a crucial deadline 7. Personal time If they give their all to the thing they are making then there is a good chance that they could make big, it is a game of luck and chanse

Explain the risk and reward of each of the following investment tools: a. Corporate bond b. Municipal bond c. Stocks d. Mutual funds e. Money Market accounts f. Saving accounts

1. Corporate bond: One way companies borrow money is by issuing bonds. When you buy a corporate bond, you're loaning money to the company. In return, you receive periodic interest payments until the bond matures and your principal investment is returned. 2. Municipal bond: high risk 3. Stocks:middle risk 4. Mutual funds: Mutual fund risks vary depending on the type of fund. For example, money market mutual funds are less risky than stock mutual funds. Generally, a fund carrying more risk has the potential to generate higher returns. Riskier funds are more volatile and you risk large losses investing in them. 5. Money market accounts: Unlike money market funds, money market accounts are insured by the U.S. government through the Federal Deposit Insurance Corporation (FDIC). That makes them a safe investment. ... There are also other benefits to money market accounts 6. Saving accounts: In fact, one great disadvantage to savings accounts is that they offer low interest rates, which means a poor return for you. In fact, the returns may be so low that you risk inflation eating away at the value of your deposit.

Analyze the importance of monetary policy and determine the primary responsibilities of the Federal Reserve system?

1. This alignment helps the public make better financial and economic decisions, thereby making monetary policy more effective. ... A systematic approach to financial stability policy is perhaps even more important than in the case of monetary policy because of the important role played by incentives 2. The Federal Reserve System, often referred to as the Federal Reserve or simply "the Fed," is the central bank of the United States. It was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system.

What are the three questions that must be answered in any economic system? How are those questions answered in each of the economic systems below? a. Traditional b. Market c. Command d. Mixed/Modified Free Enterprise

3 economic questions: what, how, and for whom to produce Traditional Economies: In a traditional economy, economic decisions are based on custom and historical precedent. For example, in tribal cultures or in cultures characterized by a caste system, people in particular social strata or holding certain positions often perform the same type of work as their parents and grandparents, regardless of ability or potential. Command Economies: In a command economy, governmental planning groups make the basic economic decisions. They determine such things as which goods and services to produce, their prices, and wage rates. Cuba and North Korea are examples of command economies. Market Economies: In a market economy, economic decisions are guided by the changes in prices that occur as individual buyers and sellers interact in the market place. As such, this type of economy is often referred to as a price system. Other names for the market system are free enterprise, capitalism, and laissez-faire. The economies of the United States, Singapore, and Japan are identified as market economies since prices play a significant role in guiding economic activity. Mixed Economies: There are no pure command or market economies. To some degree, all modern economies exhibit characteristics of both systems and are, therefore, often referred to as mixed economies. For example, in the United States the government makes many important economic decisions, even though the price system is still predominant. Even in strict command economies, private individuals frequently engage in market activities, particularly in small towns and villages.

What impact does trade have on the American and Global economy?

A growing trade volume benefits our standard of living in several ways, GDP rises, Our imports grow with higher domestic demand and a more expensive dollar

Compare the advantages and disadvantages of using credit compared to debit

Advantages of a Debit Card Easy to obtain. Once you open an account most institutions will issue you a debit card upon request. Convenience. Purchases can be made using a chip-enabled terminal or by swiping the card rather than filling out a paper check. Safety. You don't have to carry cash or a checkbook. Readily accepted. When out of town (or out of the country), debit cards are usually widely accepted (make sure to tell your financial institution you're leaving your city; to not have an interruption in service). Disadvantages of a Debit Card No grace period. Unlike a credit card, a debit card uses funds directly from your checking account. A credit card allows you to borrow funds on credit, leaving disposable cash in your account. Check book balancing. Balancing your account may be difficult unless you record every debit card transaction. Less protection. Most financial institutions will try and protect their customer from debit card fraud. However, a customer could potentially be liable for up to $500 on fraudulent debit card transactions compared with only $0 on credit cards. Be sure to check with your financial institution to learn the details. Fees. Using your debit card for ATM transactions may be costly if the ATM is not affiliated with your institution. Advantages Disadvantages Convenience--Credit cards can save you time and trouble--no searching for an ATM or keeping cash on-hand. Overuse--Revolving credit makes it easy to spend beyond your means. Record keeping--Credit card statements can help you track your expenses. Some cards even provide year-end summaries that really help out at tax time. Paperwork--You'll need to save your receipts and check them against your statement each month. This is a good way to ensure that you haven't been overcharged. Low-cost loans--You can use revolving credit to save today (e.g., at a one-day sale), when available cash is a week away. High-cost fees--Your purchase will suddenly become much more expensive if you carry a balance or miss a payment. Instant cash--Cash advances are quick and convenient, putting cash in your hand when you need it. Unexpected fees--Typically, you'll pay between 2 and 4 percent just to get the cash advance; also cash advances usually carry high interest rates. Perks--From frequent flier miles to discounts on automobiles, there is a program out there for everyone. Many credit card companies offer incentive programs based on the amount of purchases you make. No free lunch--The high interest rates and annual fees associated with credit cards often outweigh the benefits received. Savings offered by credit cards can often be obtained elsewhere. Build positive credit--Controlled use of a credit card can help you establish credit for the first time or rebuild credit if you've had problems in the past--as long as you stay within your means and pay your bills on time.

What are arguments for, and against, free trade?

Advantages of free trade: It increases total production, productivity and efficiency. If another country can produce a commodity cheaper than us,we should import from them. Reversely, if we can produce a commodity cheaper than others, they import from us. Countries that specialize in goods and services where they have the comparative advantage will produce more. Free trade increases people's consumption basket. It increases a country's gross domestic product (GDP) Free trade leads to increased competition and innovation. Every country gains from free trade, because it is mutually advantageous Disadvantages of free trade: Free trade and the political establishment: Free trade policies could end up endangering the economic and political independence of the underdeveloped world. Free trade policy is based on the assumption of laissez-faire (government non-intervention), which is only possible in a developed and strong political system. Free trade and the marketplace: Free trade policies need perfectly competitive markets. Very few economies have perfect competition. Free trade needs countries to cooperate, not a very practical expectation. Free trade and economic independence: Free trade leads to increased economic dependence, which could be cause for concern during wartime. At an ideological level, for political freedom a country needs to have economic independence. Free trade may lead to political subservience. Free trade and balanced economic growth: Too much emphasis on specialization could lead to unbalanced economic development. It could result in lop-sided and unbalanced economic development. Free trade could kill the import substitution industries Free trade could lead todumping. Free trade and export of harmful products: Under free trade, harmful products could be exported. Free trade and monopoly: Free trade leads to increased competition and lower cost of production. This is good in itself, but can be achieved through economies of scale. This could lead to the creation of monopolies. Free trade and the less developed world: Free trade is highly beneficial to the developed countries, but less so to the developing and under developed countries. The latter are less economically advanced, and hence are not able to exploit comparative advantage. The playing field is not level between developed and the underdeveloped world. Under free trade, the less developed countries cannot protect their infant industries.

Be able to identify and describe each of the stages of a business cycle.

Business cycles are identified as having four distinct phases: expansion, peak, contraction, and trough. An expansion is characterized by increasing employment, economic growth, and upward pressure on prices. A peak is the highest point of the business cycle, when the economy is producing at maximum allowable output, employment is at or above full employment, and inflationary pressures on prices are evident. Following a peak, the economy typically enters into a correction which is characterized by a contraction where growth slows, employment declines (unemployment increases), and pricing pressures subside. The slowing ceases at the trough and at this point the economy has hit a bottom from which the next phase of expansion and contraction will emerge.

When nations trade what is the best way to determine what should be traded, and who should produce which item?

Comparative advantage and absolute advantage

What are the conditions (determinants) that can increase or decrease market demand or market supply for any given product?

Demand: 1. Change in buyers tastes 2. Change in number of buyers 3. Change in income 4. Change in the prices of related goods 5. Change in consumer expectations Supply: 1. Change in resources 2. Technology 3. Taxes and subsidies 4. Prices of other goods 5. Producer expectation 6. Number of suppliers

What role does education, production, and price stability have in the overall economic growth of an economy?

Education: the more education that a person has then the more that they know and the more that they know means new things can be invented or no ideas can be put out into the economy to better itself Production: it all comes down to the law of supply and demand. And quantity vs quality Price stability: there needs to be a stable price. If the price is to high then not allot of growth will happen because people will not be able to buy as many things

Explain the Factors of Production and be able to identify examples of each type

Factors of production is an economic term that describes the inputs that are used in the production of goods or services in order to make an economic profit. The factors of production include land, labor, capital and entrepreneurship. These production factors are also known as management, machines, materials and labor, and knowledge has recently been talked about as a potential new factor of production

What leads to Economic Growth and which economic system is most likely to achieve it.

Growth causes: natural resources, physical capital, population, human capital, technology, law Mixed economics

Why is competition important in a free market system? How is price affected when there is little or no competition?

In economics, a free market is an idealized system in which the prices for goods and services are determined by the open market and consumers, in which the laws and forces of supply and demand are free from any intervention by a government, price-setting monopoly, or other authority. competition" is the rivalry among sellers trying to achieve such goals as increasing profits, market share, and sales volume by varying the elements of the marketing mix: price, product, distribution, and promotion.

What effect does an increase/decrease in federal government spending have on the economy? Consider both the approaches of a balanced budget and deficit spending.

In general, however, governments do not use resources efficiently, resulting in less economic output. The negative multiplier cost. Government spending finances harmful intervention. Portions of the federal budget are used to finance activities that generate a distinctly negative effect on economic activity. Taxes finance government spending; therefore, an increase in government spending increases the tax burden on citizens—either now or in the future—which leads to a reduction in private spending and investment. This effect is known as "crowding out."

How can the production possibility curve be used to show scarcity, opportunity cost, and economic growth?

In the field of macroeconomics, the production possibility frontier (PPF) represents the point at which a country's economy is most efficiently producing its goods and services and, therefore, allocating its resources in the best way possible. There are just enough apple orchards producing apples, just enough car factories making cars, and just enough accountants offering tax services. If the economy is not producing the quantities indicated by the PPF, resources are being managed inefficiently and the stability of the economy will dwindle. The production possibility frontier shows us that there are limits to production, so an economy, to achieve efficiency, must decide what combination of goods and services can and should be produced

What are the effects of inflation and deflation on the economy?

Inflation: less savings, social unrest, interest rates, greater uncertainty, damage to export competition Deflation: When the change in prices in one period is lower than in the previous period, the CPI index has declined, indicating that the economy is experiencing deflation. ... A general, persistent fall in prices, however, can have severe negative effects on growth and economic stability

How do higher levels of education impact the potential for a secure financial future?

It is not set but if you have a higher education you have a better economic circumstance then someone with only a Highschool diploma, but you never know who will hire you and for what reasons. However if you have a higher education there is a better chance that you will get a higher paid job and then you will have a good secure future because you will most likely be making more money then someone with a lower diploma then you.

Why would the Federal Reserve choose to implement loose money policy? What tools are used to implement loose or tight money policy be?

Loose, or expansionary, monetary policy seeks to stimulate production and employment through an increase in the availability of money and credit in the marketplace. Reducing the discount rate or reserve requirements provides banks with an incentive to loan money and make credit available. With the implementation of loose monetary policy, small businesses benefit from expanded credit opportunities, leading to increased investment, production and employment options. The main tool that they can use are key rates

What is the relationship between risk and rewards when investing?

Low levels of uncertainty or risk are associated with low potential returns, whereas high levels of uncertainty or risk are associated with high potential returns. According to the risk-return tradeoff, invested money can render higher profits only if the investor is willing to accept the possibility of losses.

What are the characteristics of the mixed market economies?

One main characteristic of a mixed economy is the ownership of goods by both private and government/state-owned entities. Monopolies have the potential to occur in this type of economy, but the government closely monitors this. For the economy to be mixed, the government can control some parts but not all. For example, the government may control health care and/or welfare in some mixed economy countries

Explain the relationship between scarcity, opportunity cost and trade-offs when making economic choices

Scarcity — The condition that exists when there are not enough resources to satisfy all the wants of individuals or society. Choices — The decisions individuals and society make about the use of scarce resources. Opportunity Costs — The next highest valued alternative that is given up when a choice is made. They are are used for ways to make economic descsions when you want to buy, sell or be an entrepunuer

Why would the Federal Reserve choose to implement tight money policy? What would the steps of tight money Policy be?

The Fed tightens policy or makes money tight by raising short-term interest rates through policy changes to the discount rate, also known as the federal funds rate. Increasing interest rates, increases the cost of borrowing and effectively reduces its attractiveness. 1. Manage growth, reduce inflation, reduce amount of credit 2. The Fed often looks at tightening monetary policy during times of strong economic growth. ... In an easing policy environment, the central bank lowers rates to stimulate growth in the economy. Lower rates lead consumers to borrow more, also effectively increasing the money supply.

Using a demand/supply graph, or schedule, be able to explain the law of demand/supply

The law of supply states that the quantity of a good supplied (i.e., the amount owners or producers offer for sale) rises as the market price rises, and falls as the price falls. Conversely, the law of demand (see demand) says that the quantity of a good demanded falls as the price rises, and vice versa.

What is the overall importance of the interaction of market supply and market demand?

The two influence each other and impact prices of consumer goods and services within an economy. this relationship balances out in an equilibrium with prices, supply and demand reaching a close approximation of the perfect allocation of resources to production. At this point, prices are perfectly set to interest consumers and companies produce neither too much nor too little product. Market economies use this as the mechanism determining product development and production.

What are the advantages and disadvantages of each type of system?

Traditional: ad (all memebrs have a job, stable, predictable, everyone is provided for) dis (discourages new ideas, stagnation and lack of progress, standard living is lower) Command: ad (change is dramatic over a short period of time, basic education, health care and public services available at little to no cost) dis (consumer needs md wants not met, no effective incentive to get people working, not flexable, quanitity over quality) Market: ad (incividual freedom, gradually adjust to change, lack of gov interference, decentralized desicion making) dis (rewRds only productive resources, not enough public giids produced, competition and change uncertainty) Mixed: ad (assistance provided, more services provided, elect and answers questions) dis (high taxes)

Explain how investment in factories, machinery, new technology can raise future standards of living.

When we all advance in technology, safety, space etc we are given room to do more, to make more and to make better things. with more money factories do not have to take more risks and they take quality over quantity

Describe the economic indicators that can be evaluated to determine the overall health of an economy?

a piece of economic data, usually of macroeconomic scale, that is used by analysts to interpret current or future investment possibilities or to judge the overall health of an economy. Economic indicators can be anything the investor chooses, but specific pieces of data released by government and non-profit organizations have become widely followed. Such indicators include but aren't limited to: the consumer price index (CPI), gross domestic product (GDP), and unemployment figures GDP: Gross domestic product is a monetary measure of the market value of all final goods and services produced in a period of time. CPI: A consumer price index measures changes in the price level of market basket of consumer goods and services purchased by households Unemployment: people who are able to have a job but don't have one

Explain the possible consequences of the government imposing a fixed price in the market? (i.e. Price Floor/Ceiling)

consumers will be forced to pay more for that good or service than they would if prices were set on free market principles, increase in supply, reduced demand, general effects, specifics contracts, political measures