Ch. 16 Flashcards
(32 cards)
Institutions that help the economy
Banks, Financial Markets, Labor Unions, Corporations, Government, Financial Intermediaries
Banks
take deposits and extend credit
Financial Markets (ex stock market)
ppl purchase shares of public companies, help the company grow, profit divided among shareholders
Labor Unions
reduce the social cost of goods and services
Corporations
producers and consumers of goods and services
Government
regulates corporations, unions, and actions in financial markets
Financial intermediaries
link savers and borrowers
Unemployment is measured by…
current population survey (CPS)
Frictional unemployment
Someone is in-between jobs
Cyclical unemployment
occurs due to changes in the economy. Buisiness cycle is up, consumer spending is up, cyclical unemployment is down
Structural unemployment
when you are no longer qualified for any job because your skill is obsolete. When new opportunities increase, so does structural unemployment
Inflation
the rate at which prices rise
100x ( CPI2-CPI1 / CPI1 )
CPI=Consumer Price Index, or cost of the selection of common products
When inflation rises, unemployment decreases
Deflation
the rate at which prices drop
Cost-Push Inflation
Supply shock, when the cost rises for a needed production resource and a substitute isn’t available
Demand-Pull Inflation
Demand shock, when consumer demand grows unexpectedly and producers are not prepared to handle the increase
Stagflation
when inflation and unemployment are both up
The business cycle
Expansion, (investments, stock prices, and purchases up, unemployment down)
Peak, (maximum growth)
Contraction, (unemployment up, spending, stock prices, GDP down)
Trough (econ hits bottom)
Fiscal Policy
How government balances income and expenditures to ensure the country remains econ. stable
Budget Surplus
revenue is greater than expenditures
Budget deficit
revenue is less than the expenditures. Long term our interest will drain the economy, but short term GDP and prices will go up
Two ways to respond to slow economic growth
- Supply-side Econ theory: decrease barriers, reduce taxes (trickle-down, Reagan)
- Demand-side Econ (Keynesian), increase demand, economic stimulus package puts more money in ppls pockets
Absolute advantage
the nation has a greater rate of production than others despite access to the same resources
Protectionists
increased restriction of free trade
Trading Price…
Tariffs, import quotas, barriers to importing or exporting (health and safety regulations), Export subsidies
