Economics

debit card

A card which can be used like a credit card, but uses money from the owner's checking account

____ is the process by which banks record whose account gives up money and whose account receives money when a customer writes a check.

check clearing

A ____ is a booklet used to record checking account transactions.

check register

equities

claims of ownership in a corporation

A corporation that issues stock to only a few people is called a ____ corporation.

closely held

merger

combination of two or more companies into a single firm

communism A political system in which the government owns all property and dominates all aspects of life in a country

competitition rivalary

A business combination that merges more than three businesses that make unrelated products is called a ____.

conglomerate

M2

consists of all the assets in M1 plus several additional assets that cannot be used as cash directly, but can be converted fairly easily (near money) examples: savings deposits, small denomination time deposits, retail money market fund

consumer sovereignty the power of consumers to decide what gets produced

continuum a range with no clear divisions

options

contracts that give investors the choice to buy or sell stock and other financial assets

futures

contracts to buy or sell at a specific date in the future at a price specified today

A ____ is a legal entity owned by individual stockholders.

corporation

A graph of the quantity supplied of a good at different prices is called a supply curve

cost of producing one more unit of a good marginal cost

Money ____ is the process by which money enters into circulation.

creation

A person or institution to whom money is owed is called a ____.

creditor

The coins and paper bills used as money are called ____.

currency

____ duty is a tax on certain items purchased abroad

customs

The rate the Federal Reserve charges for loans to commercial banks is called ____

discount rate

price discrimination

division of customers into groups based on how much they will pay for a good

Medicaid

entitlement program that benefits low income families, people with disabilities, and elderly people in nursing homes

___ are social welfare programs that people are entitled to if they meet certain eligability requirements such as being at a certain income level or age

entitlements

the dow

index that shows how certain stocks have traded

A new industry is often called a(an) ____ industry

infant

The ____ rate is the rate of interest banks charge on short-term loans to their best customers.

prime

The amount borrowed on a loan is called the ____

principal

Real GDP (gross domestic product) divided by the total population is called ____

real GDP per capita

A ____ cooperative provides a service instead of a good.

service

royalty

share of earnings given as payment

There are ____ Federal Reserve Districts

12

State the money multiplier formula.

1 / Required Reserve Ratio (RRR) x initial cash deposit = increase in money supply

List three reasons your reading gives for business failure.

1. A failing economy 2. A rise in competition 3. Management and employees lack necessary skills

What are the two difficulties that arise with protecting infant industries?

1. A protected infant industry lacks the incentive to become more efficient and competitive 2. Once an industry is given tariff protection, it is difficult to take the protection away (the infant may never "grow up")

Identify four factors that keep the business cycle going.

1. Business Investment 2. Interest Rates and Credit 3. Consumer Expectations 4. External Shocks

List three services the Federal Reserve provides for banks

1. Check clearing - record whose account gives up money and whose account receives money when a customer writes a check 2. Supervise lending - protects consumers by enforcing truth-in-lending laws which require sellers to provide full and accurate information about loan terms 3. Lender of last resort - borrow from the Federal Reserve in financial emergencies such as severe recessions

Trade barriers take three common forms. Name and describe them.

1. Tariffs - a tax on imported goods 2. Import Quotas - a limit on the amount of a good that can be imported 3. Voluntary Export Restraints - a self imposed limitation on the number of products shipped to a particular country

Name five types of financial institutions.

1. Commercial banks - offer checking services, accept deposits, and make loans 2. Savings and Loan Associations - originally chartered to lend money for buying and building homes, but take on the same functions as commercial banks as well 3. Savings Banks - serve people who make smaller deposits and transactions then commercial banks want to handle 4. Credit Unions - lending associations for particular groups of people like employees of a specific firm or government agency, specialize in home and car loans, also provide checking account services (sometimes) 5. Finance Companies - make installment loans to consumers that spread the cost of major purchases like computers, cars, and home appliances over a number of months, usually charge higher interest rates than banks

What are the six characteristics of money?

1. Durability - must withstand physical wear and tear that comes with being used over and over again 2. Portability - must be easily transferable from one person to another when used for purchases 3. Divisibility - must be easily divided into smaller units of value when divided 4. Uniformity - must be able to be easily counted and measured 5. Limited Supply - must only have so much in circulation 6. Acceptability - everyone in an economy must be able to exchange the objects that serve as money for goods and services

List the five advantages of sole proprietorships.

1. Ease of start-up 2. Face few legal requirements, a proprietorship is the least-regulated form of business organization 3. The owner gets to keep all profits after taxes 4. Sole proprietors can run their business however they wish 5. If they decide to stop operation, they do not meet any other legal obligations other then paying their debts and taxes, so it's easy to discontinue

List four advantages of forming a partnership when creating a business.

1. Ease of start-up 2. Shared decision making and responsibility, each brings different strengths and skills to the table 3. Larger Pool of Capital 4. The business doesn't have to pay taxes, the partners pay taxes on their share of income that the partnership generates

List four areas that state tax dollars are spent on.

1. Education 2. Highways and transportation 3. Hospitals 4. Public safety

The typical business cycle consists of four phases. Name and define them.

1. Expansion - a period of economic growth; plentiful jobs, falling unemployment rate, business prosperity 2. Peak - the height of an economic expansion; real GDP stops rising 3. Contraction - economic decline marked by falling real GDP; causes unemployment to rise 4. Trough - the lowest point in an economic contraction; when real GDP stops falling

What are four disadvantages of incorporation?

1. Expense and difficulty of start-up 2. Double taxation 3. Potential loss of control by the founders 4. More legal requirements and regulations

List four programs or categories that discretionary spending is used for.

1. Housing 2. Environmental cleanup 3. Education 4. Student loans

You have learned that government plays an important role in regulating business and industry. However, businesses also influence government. For example, national business associations often use lobbyists to impress their ideas on our elected representatives. And government is usually very sensitive to the needs of business, for if businesses are hurt, their employees are also hurt. Assume that you own a factory that makes children's clothes for both the United States market and for export. State whether you would want your elected representative to support the following proposals, and give your reasons 1. A tax on imported clothing that will raise its price by 15 percent. 2. Deregulation of the trucking industry designed to increase competition among firms that transport manufactured goods.

1. I would want my elected representative to support this proposal. If there is a tax on clothing coming in then it is likely to be more expensive and less people will buy it. 2. I wouldn't want my elected representative to support this proposal. This would eliminate entry barriers and price controls, which would most likely make the trucking company that my factory uses to transport prices' go up.

flow chart a graphic representation using symbols interconnected with lines, of the successive steps, in a procedure or system

1. Identify the steps of the process 2. Analyze the relationships among steps 3. Predict possible future developments how to analyze a flowchart

What were the effects of the following events on the history of banking? 1. expiration of the charter of the Second Bank of the United States 2. Panic of 1907 3. Great Depression

1. The people distrusted the federal government's banking power Growth in state-chartered banks led to bank runs, wildcat banks, fraud, and many currencies. 2. Many banks had to stop exchanging gold for paper money Many people lost their jobs because businesses didn't have access to money The government made plans to reinstate a central bank 3. Failure of thousands of banks across the country The FDIC was established and currency became fiat money.

List the four requirements for a perfectly competitive market.

1. Many buyers and sellers participate in the market 2. Sellers offer identical products 3. Buyers and sellers are well informed about products 4. Sellers are able to enter and exit the market freely

What are the four conditions of monopolistic competition?

1. Many firms 2. Few artificial barriers to entry 3. Slight control over price 4. Differentiated products

What are the three functions (uses) of money?

1. Medium of exchange- used to determine value during the exchange of goods or services 2. Unit of account - provides means for comparing the value of a good or service 3. Store of value - it keeps its value whether you decide to hold on to it or to spend it

Give three examples (forms) of non-price competition.

1. Online shopping 2. Self-checkout at a grocery store 3. Longer hours - physical characteristics location - service level - advertising - image - status

Give an example of each of the following: 1. commodity money 2. representative money 3. fiat money

1. Precious gems or stones (can be made into jewelry) 2. Gold and silver receipts/certificates 3. Money that the United States uses today

List the three arguments in favor of protectionism

1. Protecting jobs 2. Protecting infant industries 3. Safeguarding national security

The district banks that make up the core of the Federal Reserve System carry out several important functions. List four.

1. Provides banking and fiscal services to the federal government 2. Provides banking services to member and nonmember breaks 3. Regulates the banking industry 4. Tracks and manages the national money supply to meet current demand and to stabilize the economy

The Federal Reserve has three tools for adjusting the amount of money in the economy. List them.

1. Reduce or increase reserve requirements (money creation) 2. Increase or decrease discount rate 3. Buying and selling of government securities and bonds (open market)

List four ways the federal government uses policies to keep firms from controlling the supply and price of goods.

1. Regulating business practices 2. Breaking up monopolies 3. Blocking mergers 4. Preserving incentives

List five factors listed in your reading that influence technological process.

1. Scientific research 2. Innovation 3. Scale of the market 4. Education and experience 5. Natural resource use

4 characteristics of a good tax

1. Simplicity - Simple and easily understood 2. Efficiency - able to collect taxes without spending too much time or money, should not have to pay a ton of fees 3. Certainty - should be clear when a tax is due, how much money is due, and how the tax should be paid 4. Equity - should be fair so that no one bears too much/too little of the tax burden

What are two disadvantages of sole proprietorships?

1. Sole proprietors are fully and personally responsible for all of their business debts 2. Lack of Stability, if a sole proprietor dies or retires, gets sick, loses interest, the business does not exist

Describe three services that banks provide.

1. Storing money - provide a safe, convenient place for people to store their money 2. Provide loans 3. Issue credit cards

Traditional - relies on habit, custom and ritual to decide what to produce, how to produce it, and whom to distribute it to Market - decisions on production and consumption of goods and services based on voluntary exchange in markets Centrally planned - the government makes all the decisions on the production and consumption of goods and services Mixed - combines the free market with little government involvement four basic economic systems

1. What goods and services should be produced? 2. How should these goods and services be produced? 3. Who consumes these goods and services? three key economic questions

List the four categories economists use to estimate the annual expenditures of final goods and services.

1. consumer goods and services 2. business goods and services 3. government goods and services 4. net imports/exports of goods and services

What are three forms of price discrimination listed in your text?

1. discounted airline fares 2. manufacturers' rebate offers 3. senior citizen or student discounts 4. children fly-free or stay-free promotion

1. Employment 2. Steady growth 3. Stable prices main outcomes policyholders pursue in stabilizing the economy

1. economic efficiency 2. economic freedom 3. economic growth 4. additional goals advantages of the free market

What are three major categories of local government spending?

1. education 2. highways 3. police protection

List four functions of the World Trade Organization (WTO).

1. negotiate new trade agreements 2. resolve trade disputes 3. monitor national trade policies 4. enforces rules agreed upon by the member countries

List three ways stocks are traded.

1. stock exchanges 2. The OTC market 3. day trading

What is electronic banking?

24-hour access to cash through an ATM, debit card, or Direct Deposit of paychecks into checking or savings accounts It's banking that uses computers to keep track of transactions.

Economists usually call an industry an oligopoly if the four largest firms produce at least __ percent of the output.

70-80

What is a balanced budget?

A budget in which revenues are equal to spending

Explain what is meant by a strong or a weak dollar. How does a strong or a weak dollar affect prices of imports and exports?

A currency becomes stronger when it increases in value. A currency becomes weaker when it decreases in value. A strong dollar can cause a nation's products to become more expensive in other countries. However, imported goods would be less expensive for that country. On the other hand, a weak dollar causes a nation's products to become cheaper in other countries. At the same time, other nations' products become more expensive and imports to that country will likely decrease. A strong U.S. dollar is a situation in which the dollar has increased in value in relation to other currencies. A weak dollar is a situation in which the U.S. dollar has decreased in value in relation to other currencies. A strong dollar makes imports less expensive. A weak dollar makes imports more expensive.

What are inside lags and why do they occur?

A delay in implementing monetary policy 1. It takes time to identify and recognize a problem - economists cannot know for sure where the economy is headed into a new phase of the business cycle until it i already there 2. Once a problem has been recognized it can take additional time to enact appropriate policy - changes in government spending and taxation

is the production in which the marginal product of labor decreases as the number of workers increases diminishing marginal returns

A level of production in which the marginal product of labor increases as the number of workers increases is called increasing marginal returns

is when quantity supplied is not equal to quantity demanded in a market disequilibrium

A minimum price for a good or service is called price floor

A(n) ___ is the most important sacrifice that results from making a decision. Opportunity cost

A person who starts a new business or develops an original idea is known as a(n) ___. Entrepreneur

Shortage

A situation in which a good or service is unavailable

What is a state's capital budget? Give an example of what it is used for.

A state's capital budge pays for major capital, or investment, spending Example: a new bridge or building

A variable cost is a cost that does not change, no matter how much of a good is produced. False

A subsidy is a government payment that supports a business or market True

three factors of production land - natural resources that are used to make goods and services labor - capital - any human made resource that is used to create other goods and services

According to the text, which of the following are forms of search costs? Driving to a different town to find a product

Services

Actions or activities that one person performs for another

Compare the advantages and disadvantages of opening a business franchise.

Advantages - Franchisers help inexperienced owners gain experience by management training and support Parent companies require owners to follow rules and processed to guarantee product quality Parent companies pay for national advertising programs to establish their brand names Some franchisers provide financial assistance to help owners start their businesses Franchisers buy material in bulk for all franchise locations and pass on the savings to the owners Disadvantages - Franchisers often charge high fees for the right to use the company name and they charge owners a share of the earnings (royalties) Franchise owners must follow ALL rules laid out in the agreement (hours of operation, employee dress codes, operating procedures) Owners have purchase restrictions on their supplies, the must go through the parent company or from approved suppliers Franchise agreements allow stores to only offer approved products

____ is the amount of goods and services in the economy that will be purchased at all possible price levels

Aggregate demand

____ is the total amount of goods and services in the economy available at all possible price levels

Aggregate supply

Economists define ___ as "limited quantities to meet unlimited wants." Scarcity

All decisions involve ___ because we must give up some alternatives when we choose a certain course of action. Trade-offs

safety

An account owner must be aware of this issue to take necessary precautions

endorse

An account owner must do this in order to approve a check to be deposited into their account

What is technological progress?

An increase in efficiency gained by producing more output without using more inputs

Want

An item that we desire but that is not essential to survival

1. Temporary Assistance for Needy Families 2. Social Security 3. Unemployment insurance 4. Workers' Compensation four direct cash transfer programs

As a consumer, I make several decisions that influence the economy. What I do and do not buy cues producers to make more (or less) of a specific product. What I do and do not buy also influences the prices of products. how do thee decisions you make as a consumer influence the economy?

How did the raising of reserve requirements by the Federal Reserve affect the economy in the long run in case study "Banking, Monetary Policy, and the Great Depression"l?

Banks reduced lending, triggering a recession

What are two benefits and two risks of buying stock.

Benefits: dividends - corporations pay out part of their profits to their stockholders capital gains - you can sell the stock for more than you paid for it Risks: stockholders receive dividends only if there is money left over after bondholders are paid Returns are lower (not higher) than expected

credit

Bouncing a check can cause damage to this

checkbook

Contains the checks and the register

outstanding

Check is considered this if it has not yet cleared the financial institution

bounce

Check will do this if written with insufficient funds

market is when goods are sold illegally black

Costs of production that affect people who have no control over how much of a good is produced is called spillover costs

Entrepreneurs recognize an existing or potential demand for which there is no supply. False

Demand for goods is usually directly linked to price True

Regulation is government intervention in a market that affects the price, quantity, or quality of a good. True

Equality is the point at which quantity demanded and quantity supplied are equal. False

The term ___ refers to all natural resources that are used to produce goods and services. Land

Economists use the phrase ___ to describe the trade-offs a country is forced to make when choosing between military and consumer production. "Guns or butter"

Human Capital The skills and knowledge gained by a worker through education and experience

Entrepreneur Ambitious leader who combines land, labor, and capital to create and market new goods and services

Name and describe the four phases of typical business cycles.

Expansion—period of economic growth as measured by a rise in real GDP Peak—height of an economic expansion, when real GDP stops rising Contraction—period of economic decline marked by falling real GDP Trough—lowest point in an economic contraction when real GDP stops falling

__ taxes fund social security and medicare

FICA

he ____ makes key decisions about interest rates and the growth of the United States money supply

Federal Open Market Committee

President ____ declared a national "bank holiday" and closed the nation's banks to restore trust in nation's financial system.

Franklin Roosevelt

The severe economic decline that began in 1929 and lasted for more than a decade is called the ____.

Great depression

Trade-Off An alternative that we sacrifice when we make a decision

Guns or Butter A phrase that refers to the trace-offs that nations face when choosing whether to produce more or less military or consumer goods

In your opinion, should a tax be applied at the same rate to all people, or should those who are wealthier be expected to pay at a higher rate? Support your opinion with a concrete example.

I believe the wealthy should have to pay more in taxes. They have enough money to pay off their expenses, and they have a lot of money left over to live comfortably (and lavishly). There are people starving to death that don't even have a 'home' to go home to. They should not be taxed the same amount as the wealthy.

How can a trade imbalance be corrected?

Individuals and companies could purchase fewer foreign goods or sell more of their products abroad. The country could cut back spending by adjusting its monetary or fiscal policy.

statement

Information about an account mailed each month

Explain the purpose of the Federal Deposit Insurance Corporation (FDIC).

Insures customer deposits up to $250,000 per account if a bank fails

Why is a nation with abundant resources better off trading than being self-sufficient?

It still needs to trade for goods and services where it does not have a comparative advantage, the ability to produce a product most efficiently given all the other products that could be produced.

Land Natural Resources that are used to make goods and services

Labor The effort that people devote to a task for which they are paid

Factors of Production

Land, labor, and capital; the three groups of resources that are used to make all goods and services

Cost To an economist, the alternative that is given up because of a decision

Law of Increasing Costs Law that states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases

The total amount of money a firm receives by selling goods or services is called cash total False

Law of effect occurs when consumers buy more of a good when its price decreases and less when its price increases. False

Scarcity

Limited quantities of resources to meet unlimited wants

List three primary methods that corporations use to obtain money.

Methods that corporations use to obtain money include issuing stock, selling bonds, borrowing from a bank, merging with other corporations, and using profits.

____ is the belief that the money supply is the most important factor in macroeconomic performance.

Monetarism

____ are funds that pool money from small savers to purchase short-term government and corporate securities.

Money market mutual funds

____ is an agreement that will eliminate all tariffs and other trade barriers between Canada, Mexico, and the United States.

NAFTA (North American Free Trade Agreement)

Which of the following is a restatement of the law of comparative advantage?

Nations should produce those goods and services that they can produce most efficiently

Compare and contrast the characteristics of natural monopolies and monopolies created by government. Give an example of each.

Natural monopolies - markets that run most efficiently when one large firm supplies all of the output Example: Public water system Natural monopolies are created to avoid the use of unnecessary land, water, and resources Government monopolies -consist of several firms, created by the government Example: Franchises and licenses Franchises allow sales of a good or service within an exclusive market Licenses are government-issued rights to operate a business

How does a supply shock affect equilibrium price and quantity?

Negative supply shock - increase in quantity at a lower price Positive supply shock - decrease in quantity at a higher price Supply shock causes the market to move into a brief disequilibrium and will usually cause an increase in the price of the good thus decreasing the quantity demanded.

social security number

Never have this printed on checks

pin

Number required to access an account at an ATM. (abbr.)

Explain "pay-as-you-earn" taxation.

People pay their income tax throughout the year as they earn their income, and pay any additional taxes they owe at the end of the tax year

reconcile

Person does this monthly to make sure the account is balanced

Capital Any human-made resource that is used to create other goods and services

Physical Capital All human-made goods that are used to produce other goods and services; tools and buildings

Goods

Physical objects such as clothes or shoes

register

Place to immediately record all transactions

atm

Place where an account owner can complete electronic transactions without talking to a teller. (abbr.)

Production Possibilities Curve A graph that shows alternative ways to use an economy's resources

Production Possibilities Frontier The line on a production possibilities graph that shows the maximum possible output

Congress established the ____ in 1816 to restore order in the monetary system.

Second Bank of the United States

Who serves on the Board of Governors of the Federal Reserve and how long do they serve?

Seven members appointed by the President They serve ~staggered~ 14-year terms

Need

Something like air, food, or shelter that is necessary for survival

____ occurs when producers decide to produce only certain goods and services.

Specialization

In the section titled "The European Union", which of the following statements is not supported by text.

The EU no longer trades with the United States

What was the reasoning behind the creation of the Federal Reserve System?

The Federal Reserve was created in 1913 to restore confidence in the banking system, regulate and supervise the banking system, and act as a lender of last resort to avoid banking panics.

How would you describe the balance of trade in the United States?

The United States balance of trade is unbalanced. We import more goods then we export (trade deficit).

payee

The person/institution to whom the check is written

Economics

The study of how people seek to satisfy their needs and wants by making choices

example of variable costs electricity labor heat

The total amount of money a firm receives by selling goods or services is called total revenue

According to the text, why do companies offer targeted discounts?

They offer discounts to entice people who might not normally purchase their goods or services.

Opportunity Cost The most desirable alternative given up as the result of a decision

Thinking at the Margin Deciding whether to do or use one additional unit of some resource

What is a tight money policy and why would the Federal Reserve enact a tight money policy?

Tight money policy is a monetary policy that reduces the money supply. The Federal Reserve might enact a tight money policy when the economy is experiencing a rapid expansion that may cause high inflation.

When there is a huge increase in the number of people buying something, the excess total revenue is called monopoly profits False

Time is the key factor in determining whether the supply of a good will be elastic or inelastic True

checking account

Type of account which allows for a paper transaction between a consumer and a business

signature

Type of card kept at the financial institution once the account is opened which is used for a reference to prevent fraud

fee

Type of charge to use an ATM not owned by the account owner's financial institution

starter

Type of check given to a new account owner while waiting for ordered checks to arrive

special

Type of checking account generally for people who write only a few checks each month

free

Type of checking account often recommended for students and senior citizens

regular

Type of checking account which generally does not charge a monthly fee with a minimum maintained balance

restrictive

Type of endorsement allowing for deposit only

deposit

Type of slip accompanying money when put into an account

Efficiency Using resources in such a way as to maximize the production of goods and services

Underutilization Using fewer resources than economy is capable of using

national government monopoly

Unitary form of government

____ join two or more firms involved in different stages of producing the same good or service.

Vertical mergers

How does the quantity of a good with a large elasticity of supply react to a price change? A good with a large elasticity of supply will be very responsive to change in price. Supply will rise swiftly in response to a price increase.

What circumstances cause a firm to experience diminishing marginal returns? Diminishing marginal returns occurs when output declines with each additional unit of labor. They generally result when the supply of capital does not increase work force, such as when there are not enough sewing machines or scissors for the added workers.

is the point at which quantity demanded and quantity supplied are equal equilibrium

When quantity supplied is more than quantity demanded it is called excess supply

Excise taxes are sometimes used to discourage the sale of goods that the government thinks are harmful to the public good. True

When there is excess demand, and the quantity demanded exceeds the quantity supplied, suppliers will keep lowering the price False

Which of the following shows the relationship of elastic demand to total revenue? prices rise, demand falls, revenues decrease

Which of the following is not a factor that affects elasticity? total revenue

additional income from selling one more unit of a good marginal revenue

Why do economics use percentage change to calculate elasticity demand? Percentage change provides comparable numbers for change in demand and change in price. To predict the next rise/fall of the price of a good.

The ____ is an organization whose goal is freer global trade and lower tariffs.

World Trade Organization (WTO)

budget

Written record of expenses which can be monitored with a check register

The ideal level of output is where marginal revenue (price) is ____ marginal cost equal to

a measure of the way suppliers respond to a change in price elasticity of supply

Explain why you need to know the exchange rate when you travel to a foreign country.

You need to know the exchange rate in the country you are visiting so you can convert prices in their currency to prices in your currency, and understand how much money you are spending.

Widespread panic in which great numbers of people try to redeem their paper money is called ____.

a bank run

cooperative

a business organization owned and operated by a group of individuals for their mutual benefit

Credit card

a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services

Debit card

a card used to withdraw money

stock

a certificate of ownership in a corporation

bond

a formal contract to repay borrowed money with interest at fixed intervals

license

a government-issued right to operate a business

patent

a license that gives the inventor of a new product the exclusive right to sell it for a certain period of time

monopoly

a market dominated by a single seller

stock exchange

a market for buying and selling stock

oliogopoly

a market structure in which a few large firms dominate a market

perfect competition

a market structure in which a large number of firms all produce the same product

monopolistic competition

a market structure in which many companies sell products that are similar but not identical

natural monopoly

a market that runs most efficiently when one large firm supplies all of the output

commodity

a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk

tax

a required payment to a local state or national government

business franchise

a semi-independent business that pays fees to a parent company in return for the exclusive right to sell a certain product or service in a given area

bear market

a steady drop in the stock market over a period of time

bull market

a steady rise in the stock market over a period of time

regressive tax

a tax for which the percentage of income paid in taxes decreases as income increases

gift tax

a tax on money or property that one living person gives to another

A nation has a (an) ____ advantage when it can produce more of a given product using a given amount of resources

absolute

producer cooperatives

agricultural marketing cooperatives that help members sell their products

Which of the following markets falls under an oligopoly?

air travel

money supply

all the money available in the United States economy

A laissez-faire economic policy would ____.

allow the economy to fix itself

price fixing

an agreement among firms to charge one price for the same good

collusion

an agreement among firms to divide the market, set prices, or limit production

trust

an illegal grouping of companies that discourages competition

barriers to entry

any factor that makes it difficult for a new firm to enter the market

medium of exchange

anything that is used to determine value during the exchange of goods and services

The relationship between a nation's imports and its exports is called its ____

balance of trade

savings

bank account used for depositing money that may be needed within a short period of time; income not used for consumption

central bank

bank that can lend to other banks in times of need

____ is the direct exchange of one set of goods or services for another.

barter

A ____ is a period of macroeconomic expansion followed by a period of macroeconomic contraction

business cycle

The process of increasing the amount of capital per worker is called ____

capital deepening

___ of resources occurs when an economy uses fewer resources than it is capable of expending. Underutilization

capitalism An economic system based on private property and free enterprise

A __ is a formal organization of producers that agree to coordinate prices and production.

cartel

A license to form a corporation issued by state government is called a ____.

certificate of incorporation

decision making grid A graph-like form into which people may enter notations about the costs and benefits of various alternatives; used for assistance in making decisions

demand Consumer willingness and ability to buy products

The money in a checking account is called ____.

demand deposits

The loss of value of capital equipment that results from normal wear and tear is called ____

depreciation

demand that will not change despite a price increase inelastic

describes demand that is very sensitive to a change in price elastic

two goods that are bought and used together complements

describes demand that will not change despite a price increase inelastic

describes demand whose elasticity is exactly equal to 1 Unitary elastic

describes demand whose elasticity is exactly equal to 1 Unitary elastic

economic stability A situation in which there is economic growth, rising national income, high employment, and steadiness in the general level of prices

economics The study of how people seek to satisfy their needs and wants by making choices

a __ tax is a tax on the estate, or total value of the money and property of a person who has died

estate

Reserves greater than the required amounts are called ____.

excess

The ____ is the value of a foreign nation's currency in terms of the home nation's currency

exchange rate

A (an) ____ is a good that is sent to another country for sale

export

factor market market in which firms purchase the factors of production from households

factor payments the income people receive for supplying factors of production, such as land, labor, or capital

economies of sale

factors that cause a producer's average cost per unit to fall as output rises

default

failure to pay back a loan

The interest rate that banks charge each other for loans is called the ____ rate.

federal funds

____ money has value because the government has decreed that it is an acceptable means to pay debts.

fiat

A currency system that allows the exchange rate to be determined by supply and demand is called ___

flexible exchange rate system

The ____ consists of banks and other financial institutions that facilitate the buying and selling of foreign currencies.

foreign exchange market

tax return

form used to file one's income taxes

free enterprise Economic system in which individuals and businesses are allowed to compete for profit with a minimum of government interference

free rider An individual who does not to join a group representing his or her interests yet receives the benefit of the group's influence

graphic representation of a demand schedule demand curve

goods that consumers demand less of when their incomes increase inferior goods

A table that lists the quantity of a good that a person will purchase at each price in a market is called demand schedule

goods that consumers demand more of when their incomes increase normal goods

The dollar value of all final goods and services produced within a country's borders in a given year is called ____

gross domestic product (GDP)

The annual income earned by U.S.-owned firms and U.S. citizens is called ___

gross national product (GNP)

____ mergers join two or more firms competing in the same market with the same good or service.

horizontal

gross domestic product The sum total of the value of all the goods and services produced in a nation

human capital the skills and knowledge gained by a worker through education and experience

____ occurs when prices rise rapidly and uncontrollably

hyperinflation

tax base

income, property, good or service that is subject to a tax

incentive A positive or negative environmental stimulus that motivates behavior

interest group An organization of people sharing a common interest or goal that seeks to influence the making of public policy

____ goods are goods used in the production of final goods

intermediate

The financial and opportunity costs consumers pay when searching for a good or service is called search costs

is a system of allocating scarce goods and services using criteria other than price rationing

invisible hand A phrase coined by Adam Smith to describe the process that turns self-directed gain into social and economic benefits for all

laissez faire doctrine that government generally should not intervene in the marketplace

under utilization Using fewer resources than an economy is capable of using

law of increasing cost an economic principle which states that as production shifts from making one good or service to another, more and more resources are needed to increase production of the second good or service

The ____ are a set of key economic variables that economists use to predict a new phase of a business cycle

leading indicators

Authorization to start a business issued by the local government is called a business ____.

license

A ____ partnership is a partnership in which only one partner is required to be a general partner.

limited

A ____ partnership is a partnership in which all partners are limited partners.

limited liability

____ is the ability to be used as, or directly converted to, cash.

liquidity

____ interest rates encourage greater investment spending by business firms.

lower

differentiation

making a product different from other similar products

___ refers to money that lawmakers are required by existing laws to spend on certain programs or to use for interest payments on national debt

mandatory spending

physical property such as land and buildings are called __ property

real

macroeconomics study of behavior and decision making of entire economies

medicaid A federal and state assistance program that pays for health care services for people who cannot afford them

the ___ program is a national helath insurance program that helps pay for healthcare for people 65+

medicare

medicare A federal program of health insurance for persons 65 years of age and older

microeconomics the study of how households and firms make decisions and how they interact in markets

____ refers to the actions the Fed takes to influence the level of real GDP and the rate of inflation in the economy.

monetary policy

assets

money and other valuables belonging to an individual or business

The gross domestic product (GDP) measured in current prices is called ____

nominal GDP

An institution that functions much like a business but does not operate for the purpose of generating profits is called a ____.

nonprofit

tax exempt

not subject to taxes

Commodity money

objects that have value in themselves as well as for use as money

shows the quantities demanded at each price by all consumers market demand schedule

occurs when consumers react to an increase in a good's price by consuming less of that good and more of other goods substitution effect

A sudden shortage of a good is called supply shock

occurs when quantity demanded is more than quantity supplied excess demand

social security

old age, survivors and disability insurance (OASDI)

____ are the buying and selling of government securities to alter the supply of money

open market operations

a states __ budget pays for day to day expenses

operating

E Pluribus Unum

out of many, one

____ is the time it takes for monetary policy to have an effect.

outside lag

greenbacks

paper currency issued by the North during the Civil War

A ____ is a business organization owned by two or more persons who agree on a specific division of responsibilities and profits.

partnership

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

patent A document that gives an inventor the sole legal right to an invention for 20 years

According to the text, which of the following might the government use to encourage firms to research and develop new products?

patents for a specific length of time

fringe benefits

payments to employees other than wages or salaries, such as paid vacation and health insurance

___ are set amounts that you subtract from your gross income for yourself, your spouse and any dependents

personal exemption

patriotism A sense of pride in one's country

physical capital all human-made goods that are used to produce other goods and services; tools and buildings

share

portion of stock

private sector the part of the economy that involves the transactions of individuals and businesses

profit Money that is left after expenses have been paid for from a business or an investment

a ___ is a tax for which the percentage of income paid in taxes increases as income increases

progressive

a ___ tax is a tax for which the percentage of income paid in taxes remains the same for all income levels

proportional

Which of the following is a harmful effect of protectionism?

protection of inefficient industries

____ is the use of trade barriers to protect a nation's industries from foreign competition

protectionism

public disclosure laws laws requiring companies to provide full information about their products

public sector the part of the economy that involves the transactions of the government

A(An) ____ is a prolonged economic contraction

recession

M1

represents money that people can gain access to easily and immediately to pay for goods and services (able to be directly converted into cash) examples: currency, demand deposits, checkable deposits, traveler's checks

The ratio of reserves to deposits required of banks by the Federal Reserve is called ____ ratio

required reserve

the income received by a government from taxes and other nontax sources is called

revenue

tax base on the dollar value of a good or service being sold is called __ tax

sales

__ taxes provide the largest part of state revenues

sales and individual income

The proportion of disposable income that is saved is called the ___

savings rate

safety nets Aid programs such as unemployment insurance, welfare payments, medical insurance, old-age benefits, and food subsidies

scarcity A situation in which unlimited wants exceed the limited resources available to fulfill those wants

The least amount that an employer can pay a worker for an hour of labor is called minimum wage

shows the relationship between prices and the total quantity supplied by all firms in a particular market market supply schedule

A ____ is a business owned and managed by a single individual.

sole proprietorship

Store of value

something that keeps its value if it is stored rather than used

socialism A system in which society, usually in the form of the government, owns and controls the means of production social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout a society

specialization The concentration of the productive efforts of individuals and firms on a limited number of activities

a ___ is a tax on imported goods

tariff

costs that rise or fall depending on the quantity produced variable costs

tax on the production or sale of a good excise tax

___ income is a person's gross income minus exemptions and deductions

taxable

standard of living A measure of quality of life based on the amounts and kinds of goods and services a person can buy

technology The application of technical processes and knowledge to meet people's needs and wants

market power

the ability of a company to change prices and output like a monopolist

capital gain

the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the seller

start-up costs

the expenses a firm must pay before it can begin to produce and sell goods

incidence of a tax

the final burden of a tax

liability

the legally bound obligation to pay debts

otc market

the over-the-counter market; an electronic marketplace for stock that is not listed or traded on an organized exchange

dividends

the portion of corporate profits paid out to stockholders

speculation

the practice of making high-risk investments with borrowed money in hopes of getting a big return

deregulation

the removal of some government controls over a market

franchise

the right to sell a good or service within an exclusive market

Nonprofit organizations that promote the interests of particular industries are called ____.

trade associations

A situation in which the value of goods a country imports is higher than the value of goods it exports is called ____

trade deficit

trade offs Alternatives that must be given up when one is chosen rather than another

transition A change from one state or condition to another

deductions

variable amounts that you can subtract or deduct from your gross income

A ____ is a law in a city or town which designates separate areas for residency and for business.

zoning law