Unit 2 Econ Study Guide

Social Security (understand what this program is and what percentage of federal spending it makes up)

any government system that provides monetary assistance to people with an inadequate or no income. 34%

Explain how consumer expectations influence the business cycle. (provide two examples, one that would result in an expansion and one that would result in a contraction. These must be different than your prior example).

if consumers are confident about the economy then they will consume more. If they are concerned about losing their job or having income decrease they will spend less. EX- there is a huge surge in job openings =expansion EX- people know they are going to get laid off at the their job so they will spend less.

How/why does the government act to protect consumers?

if the gov doesn't protect consumers no one will buy anything. They need to make sure that the products are reliable.

Poverty/Poverty Rate

-A situation in which a person lacks the income and living resources to achieve minimum standard of living. -minimum standard of living varies from country to country -poverty threshold- the minimum income needed to for the basic necessities of life in the US

Explain how changes in interest rates influence the business cycle.(provide two examples, one that would result in an expansion and one that would result in a contraction. These must be different than your prior example).

-If interest rates go up, businesses and individuals spend less. - If interest rates go down, businesses and individuals spend more. Ex- if interest rates go up it probably bc we are in contraction and slowing the consumers buying. EX- if interest rates go down then people will want to spend more = expansion.

What are the major concerns about the national debt?

-Many people are concerned about the a large debt will place on the next generation -Foreign ownership of the national debt concerns Americans for two reasons 1. they do not like seeing money flow out of the U.S. economy. 2. the worry that Congress is becoming to dependent on foreign lenders .

What three actions can the Federal Reserve take to manage the supply of money? EXPLAIN how each works

-Open-market operations- the purchase and sale of gov bonds by the FED to regulate the money supply buying bond increases money supply selling bonds reduces the money supply -required reserved ratio- a change in reserves required designed to control the money supply increasing rr reduces money supply decreasing rr increases money supply -discount rate- a change in the interest rates the FED charges to private banks to control the money supply.

What other demographic factors contribute to poverty?

-certain trends within the population such as divorce and birth to single moms tend to increase poverty. -as more education becomes necessary for employment more people are having a difficult time finding work.

What are the benefits of private property?

-encourages people to take care of their property -encourages people to make the most of their productive use of their property. -encourages people to develop their property in a way that benefits others.

Income inequality

-occurs when the majority of a country's resources are concentrated within a minority of the country's population. -less developed country's tend to have more income equality.

How do economists define unemployment?

-workers >16 not working and who have looked for work sometime during the previous 4 weeks are considered to be unemployed. -Unemployment Rate- the % of the labor force that is jobless and actively looking for a job.

Balanced Budget

A balanced budget (particularly that of a government) refers to a budget in which revenues are equal to expenditures. Thus, neither a budget deficit nor a budget surplus exists (the accounts "balance"). More generally, it refers to a budget that has no budget deficit, but could possibly have a budget surplus.

How do economists define full employment

A level of unemployment in which none of the unemployment is caused by decreasing economic activity.

Explain how decisions made by businesses influence the business cycle (provide two examples, one that would result in an expansion and one that would result in a contraction. These must be different than your prior examples).

A single decision by a business has a ripple effect throughout the economy. Ex- business spends money on new equipment to farm crops Ex- business lays off workers to pay for his land.

GDP per capita (what is it, and what does it measure)

Adjusting for population is accomplished by calculating per capita GDP. Per capita means "per person." Per capita GDP is a nation's real gross domestic product divided by its population. It is an accepted measure of a society's standard of living.

What is a recession

Also known as contraction which can last more than six months and GDP is decreasing.

Explain inequality as it relates to unemployment

Also limits opportunities for personal growth and increases inequality in standard of living

What is the concept of the business cycle?

a series of periods of expanding and contracting economic activity.

Federal Deficit

a shortfall between government revenues and expenditure in any given year.

Entitlements

Entitlements are programs through which individuals receive benefits based on their age, income, or some other criteria. Entitlement programs include Social Security, Medicare, and welfare. The amount of money spent on such programs depends on the number of people who sign up for them.

How does the government discourage negative externalities?

Externalities are spillover effects resulting from production or consumption. They are costs or benefits that affect someone other than the producer or consumer of a good or service. Externalities can be negative or positive. Air pollution and secondhand smoke, for example, are negative externalities associated with driving and smoking. Without government intervention, such negative externalities can cause great, even if unintended, harm.

How does the government promote positive externalities?

Governments can be equally helpful in promoting activities that have positive externalities. Immunizations, for example, prevent individuals from getting harmful diseases.

Medicare (understand what this program is and what percentage of federal spending it makes up)

Medicare is the federal health insurance program for people who are 65 or older, certain younger people with disabilities. 21%

Explain how external issues influence the business cycle. (provide two examples, one that would result in an expansion and one that would result in a contraction. These must be different than your prior example

Issues and events outside a country's borders or beyond a country's control can influence an economy. EX- a neighboring country finds a new oil pumping sight and starts producing rich oil to sell = expansion EX- there is a war going on in another country and cause trade with that country to stop or slow down.

Explain each stage of the business cycle ?

Peak- GDP is at its highest Expansion- GDP if growing Contraction- GDP is not growing Trough- GDP is at the lowest

Tax Structure

Taxes are also defined by their structure, which in turn depends on tax rates. Economists identify three types of tax structures: proportional, progressive, and regressive. Each structure has its advocates and critics.

Frictional Unemployment (provide an example. This must be different than your prior example)

Temporary unemployment experienced by changing jobs. EX- you move to china and are unemployed during that time

Corporate Income Tax

a tax determined by a corporation's profits

Individual Income Tax

a tax determined by an individual income form of all sources.

How/why does the government protects workers?

The federal government safeguards the interests of workers through the Department of Labor. One of DOL's primary aims is to protect workers' economic rights. It does this by making sure workers get the wages due to them, fostering workplaces that are free of discrimination, and providing unemployment insurance. Another goal of DOL is protecting workers' physical well-being. To ensure safe and secure workplaces, DOL relies mainly on the Occupational Safety and Health Administration.

Gross Domestic Product (what does it include, what does it measure?)

The main measure of the size of a nation's economy is its gross domestic product. GDP is an economic indicator that measures a country's total economic output. In formal terms, gross domestic product is the market value of all final goods and services produced within a country during a given period of time. A steadily growing GDP is generally considered a sign of economic health.

Contractionary Fiscal Policy (provide two specific examples)

a policy designed to lower inflation and cool overheated economy by cutting gov spending, increasing taxes, or both EX-Plans to build a coast to coast highway are cancelled- the gov stops offering subsidies to businesses.

How/why does the government act to maintain competition?

The pressures of competition force producers to use resources efficiently, to develop new or better products, and to keep products and services affordable. Because competition is vital to the economy, the government acts to maintain competition when markets fail to do so.

Expansionary Fiscal Policy (provide two specific examples)

a policy designed to promote economic activity by increasing gov spending, cutting tax, or both EX-All households receive $1,000 from the gov-Unemployment payments are increases

Sales Tax

a tax determined by the value designed goods/services at the time of the sale

Property Taxes

a tax determined by the value of an individual's business assets.

Cyclical Unemployment (provide an example. This must be different than your prior example)

Unemployment caused by a part of the business cycle. EX- people lost their jobs due to the great depression

Monetary inflation

When the price level rises, each unit of currency buys fewer goods and services.

In general what impact does GDP (growth vs decline) have on the economy (job opportunities etc...)?

Whether the economy is going to be healthy or not. A GDP that grows steadily is considered a healthy economy. When GDP rates go up there is more business and job opportunities

Federal Budget

a fiscal plan for spending tax money

Tax Base

a form of wealth- such as income, poverty, goods, or services- that is subject to taxes.

Progressive Tax (define understand the arguments in favor of this type of tax)

a higher percentage rate of taxation is placed on high income workers earners than low income earners. -why should the people who work hard for their money be taxed more -the rich get taxed

Regressive Tax

a larger percentage of taxes are taken from people with low income than from people with high income.

Tax

a mandatory payment to a local, state, or national government used to fund public goods and services.

Consumer Price Index (CPI)

a measure of changes in wholesale prices. Reflects the prices producers receive for their goods and services.

Expansionary (easy money) Monetary Policy (provide two specific examples)

a monetary policy designed to accelerate growth of the money supply in order to stimulate economic growth. EX-the FED reserve purchasing bonds EX- Spending money on big corporations

Contractionary (tight money) Monetary Policy (provide two specific examples)

a monetary policy designed to slow rate of growth of the money supply in order to reduce inflation.

How do interest rates impact inflation?

as interest rates go up people will spend less and if interest rates go down people will want to spend more.

Monetary Policy

consists of decisions made by a central bank about the amount of money in circulation and interest rates.

How does government protect property rights?

created a legal system that protects individual property rights.

How does inflation impact the value of the dollar?

decreases the value of the dollar

What are the Government's fiscal policy tools? Provide specific examples

expansionary fiscal policy-EX-The gov approves spending on 300 new army tank Contractionary fiscal policy-EX- Federal income taxes.

What economic powers does The Constitution grant the federal government?

individual property rights.

Explain discouraged workers as it relates to unemployment

it wastes human resources. people that are young and least experience tend to lose their job first.

Structural Unemployment (provide an example. This must be different than your prior example)

jobs exist but workers do not have the skills needed EX- a shoe company replaces workers with robots.

What is deflation?

money is being produced slower than goods/services being produced.

Cost Push Inflation (provide two examples. These must be different than your prior examples)

occurs when increases in the cost of production pushes prices up. Ex-decreasing value Ex- interest rates

Demand Pull Inflation (provide two examples. These must be different than your prior examples)

occurs when total demand rises faster than the production of goods and services. EX- consumers spending exceeds supply EX- consumers want more and advanced technology so business are forced to keep updating their technology.

The Federal Reserve/Central Bank

our nation's main monetary authority responsible for monetary policy.

Nations with higher GDP per capita tend to be...

people in countries with high per capita GDP tend to be more prosperous than people in low-GDP countries. Their houses are bigger and more comfortable. They have more food and clothing and better access to services. While such material prosperity is surely no guarantee of individual happiness, overall, people are better off living in a society with a high standard of living.

Ability to Pay Principle (define and provide an example. This must be different than the prior example)

people should be taxed on their ability to pay, no matter the level of benefits they receive. Ex- if people have more availability, like they have enough money to pay- like the rich- they should be taxed more.

Public goods

people want more public goods but the gov doesn't have enough resources which relates to scarcity forces trade offs Ex- roads, library, drinking fountain.

Benefits Received Principle (define and provide an example. This must be different than the prior example)

people who benefit directly from public goods should pay for them in a proportion to the amount of benefits received. Ex: if someone were to use a lot of gas they should pay more taxes.

Regulation (provide two examples. These must be different than your prior examples)

rules aimed at influencing the behavior of businesses and individuals -gov act to maintain competition -gov acts to protect consumers -gov acts to protect savers and investors-FDIC -gov acts to protect workers *ultimately based on the powers granted by the Constitution. EX- regulate interstate trade EX- regulate competition

Seasonal Unemployment (provide an example. This must be different than your prior example)

seasonal work EX- a gardener

Inflation/Inflation Rate

sustained rise in the level of prices or a sustained fall in the purchasing power of money

The primary source of income for federal and most state governments is...

taxes

Fiscal Policy

the federal govs use of taxes and gov spending to stabilize the economy

What is the relationship between education and poverty?

the higher the education the lower likelihood one will be in poverty

What impact does deflation have on the economy?

the money will become more valuable therefore no one will want to spend any money which will affect businesses which will causes businesses to rice prices on products.

Proportional Tax (define and understand the arguments in favor of this type of tax)

the same percentage of income is taken from all taxpayers regardless of income level- equal pay in taxes

supply-side economics

the theory that the best way to ensure economic growth is to simulate overall supply by cutting taxes on businesses and high-income taxpayers

demand-side economics

the theory that the best way to ensure economic growth is to stimulate demand by putting more money in the hand of consumers via lowering taxes on lower income earners or increasing spending

National Debt (understand how much it is and who owns the majority of it)

the total amount by a nation's government as a result of borrowing.

What are the drawbacks from government regulation?

they can overregulate which can end up being really expensive. Sometimes regulations are so detailed and complex that they actually discourage economic activity.

Explain efficiency as it relates to unemployment

when people become unemployed they will look for new job opportunities