Economics of NS Vocabulary Flashcards
(103 cards)
1
Q
Scarcity
A
A situation in which unlimited wants exceed the limited resources available to fulfill those wants.
2
Q
Choice
A
One alternative is selected over another. Selecting among alternatives involves three ideas central to economics: scarcity, choice, and opportunity cost.
3
Q
Opportunity Costs
A
The highest valued alternative that must be given up to engage in an activity; the loss of potential gain from other alternatives when one alternative is chosen.
4
Q
Rationality
A
Rational behavior decision-making process is based on making choices that result in the most optimal level of benefit or utility for the individual. Most conventional economic theories are created and used under the assumption all individuals taking part in an action/activity are behaving rationally
5
Q
Incentives
A
Something that motivates an individual to perform an action. The study of incentive structures is central to the study of all economic activities (both in terms of individual decision-making and in terms of co-operation and competition within a larger institutional structure).
6
Q
Efficiency
A
An economic state in which every resource is optimally allocated to serve each individual or entity in the best way while minimizing waste and inefficiency. When an economy is economically efficient, any changes made to assist one entity would harm another. In terms of production, goods are produced at their lowest possible cost, as are the variable inputs of production.
7
Q
Equity
A
The fair distribution of economic benefits
8
Q
Gross Domestic Product (GDP)
A
The market value of all final goods and services produced in a country during a period of time, typically one year
9
Q
Key Economic Indicators
A
Key Economic Indicators – provide measurements for evaluating the health of our economy, the latest business cycles and how consumers are spending and generally faring. Various economic indicators are released daily, weekly, monthly and/or quarterly. (ex. GDP, inflation, employment numbers, Consumer Price Index, Producer Price Index, Housing Starts, ect.)
10
Q
Marginal Benefit
A
The additional benefit to a consumer from consuming one more unit of a good or service
11
Q
Marginal Cost
A
The additional cost to a firm of producing one more unit of a good or service
12
Q
Marginal Analysis
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Analysis that involves comparing the marginal benefits and marginal costs
13
Q
Ceteris Paribus
A
All else equal; the requirement that when analyzing the relationship between 2 variables- such as price and quantity demanded- other variables must be held constant
14
Q
Macroeconomics
A
The study of the economy as a whole including topics such as inflation, unemployment, and economic growth
15
Q
Microeconomic
A
The study of how households and firms make choices, how they interact in markets and how the government attempts to influence their choices.
16
Q
The Invisible Hand
A
A metaphor for how, in a free market economy, self-interested individuals operate through a system of mutual interdependence that promotes the general benefit of society at large. Adam Smith used it to describe the unintended social benefits of individual self-interested actions.
17
Q
Geoeconomics
A
The study of the spatial, temporal, and political aspects of economies and resources.
18
Q
Inflation
A
The percentage increase in the price level from one year to the next
19
Q
Unemployment
A
The percentage of the labor force that is unemployed
20
Q
National Debt
A
The total amount of money that a country’s government has borrowed, by various means
21
Q
Factors of Production
A
Labor, capital, natural resources, and other inputs used to make goods and services
22
Q
Circular Flow in an Economy
A
All participants in the economy are linked. A circular-flow diagram is a model of this phenomenon
23
Q
Positive analysis
A
is concerned with that is
24
Q
Normative analysis
A
is concerned with what ought to be • Economics is vital tool for understanding statecraft/national security • Most policy makers don’t understand economics – but it is critical • Data - theory - analysis policy • The two principal branches of economics are macro and micro • Both aim at getting the most out of the basic resources available to us. • A robust economy provides the resources for a nation to pay for its • national security instruments. • The various components of an economy are all tied together in what • we call a circular flow.
25
Market
A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade
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**Market “efficiently**
Ideally, market prices will allocate resources efficiently among different users and uses
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Clearing the Market
Supply and Demand prices are set so there are no shortages or surpluses. Government attempts to mandate non-market prices will lead to shortages if the price is too low or unsold goods if the price is too high.
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Market Failure
A situation in which the market fails to produce the efficient level of output
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Elasticity
A measure of how much one economic variable responds to changes in another economic variable
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Elasticity of Supply and Demand
demand is elastic when the percentage change in the quantity demanded is greater than the percentage change in price, so the price elasticity is greater than 1 in absolute value. (elastic is sensitive to change so that %change in demand divided by %change in price is greater than 1 in absolute value) conversely (inelastic is insensitive to change so that %change in demand divided by %change in price is less than 1 in absolute value)
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Dead Weight Loss
The reduction in economic surplus resulting from a market not being in competitive equilibrium
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“Moving the supply/demand curve” – moving the supply curve: if the price of an input decreases or another factor changes that causes sellers to supply more of the product at every price, the supply curve will shift to the right- an increase in supply; moving the demand curve: If consumers’ income increases or if another factor changes that makes consumers want more of the product at every price, the demand curve will shift to the right- an increase in demand
“Moving the supply/demand curve” – moving the supply curve: if the price of an input decreases or another factor changes that causes sellers to supply more of the product at every price, the supply curve will shift to the right- an increase in supply; moving the demand curve: If consumers’ income increases or if another factor changes that makes consumers want more of the product at every price, the demand curve will shift to the right- an increase in demand
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“Moving along the supply/demand curve” – moving along the supply curve is simply a change in the quantity the seller is willing to supply as a function of the sales price; moving along the demand curve is simply a change in quantity demanded as a function of the sales price
“Moving along the supply/demand curve” – moving along the supply curve is simply a change in the quantity the seller is willing to supply as a function of the sales price; moving along the demand curve is simply a change in quantity demanded as a function of the sales price
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Perfectly competitive markets – a market that meets the conditions of having (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to firms entering the market
Perfectly competitive markets – a market that meets the conditions of having (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to firms entering the market
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Shocks to the market – events that produce a significant change within an economy, despite occurring outside of it. Economic shocks are unpredictable and typically impact supply or demand throughout the markets
Shocks to the market – events that produce a significant change within an economy, despite occurring outside of it. Economic shocks are unpredictable and typically impact supply or demand throughout the markets
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Inefficiency – in reference to production, maximum output is not being obtained from available resources.
Inefficiency – in reference to production, maximum output is not being obtained from available resources.
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Misallocation of resources – not allocating the resources at the maximum level that is where all the resources are combined to produce the maximum production
Misallocation of resources – not allocating the resources at the maximum level that is where all the resources are combined to produce the maximum production
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Normal good – a good for which the demand increases as income rises and decreases as income falls
Normal good – a good for which the demand increases as income rises and decreases as income falls
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Substitutes – goods and services that can be used for the same purpose
Substitutes – goods and services that can be used for the same purpose
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Complements – goods and services that are used together
Complements – goods and services that are used together
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Substitution effect – the change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.
Substitution effect – the change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.
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Income effect – the change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding all other factors constant
Income effect – the change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding all other factors constant
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Market Pricing: this is the key to our economic system and a central feature keeping the system efficient.
Market Pricing: this is the key to our economic system and a central feature keeping the system efficient.
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Market Efficiency: Ideally, market prices will allocate resources efficiently among different users and uses. Later, (in the spring IA course) we will examine in detail the reasons for government to intervene if there is “market failure.”
Market Efficiency: Ideally, market prices will allocate resources efficiently among different users and uses. Later, (in the spring IA course) we will examine in detail the reasons for government to intervene if there is “market failure.”
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Markets Clear: Supply and Demand sets prices so there are no shortages or surpluses. Government attempts to mandate non-market prices will lead to shortages if the price is too low or unsold goods if the price is too high
Markets Clear: Supply and Demand sets prices so there are no shortages or surpluses. Government attempts to mandate non-market prices will lead to shortages if the price is too low or unsold goods if the price is too high
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Elasticity: Market responses to changes (which include policies designed to affect the market) are significantly determined by the proportional response of demand and supply to a change in prices.
Elasticity: Market responses to changes (which include policies designed to affect the market) are significantly determined by the proportional response of demand and supply to a change in prices.
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Actual GDP – the market value of all final goods and services produced in a country during a period of time, typically one year
Actual GDP – the market value of all final goods and services produced in a country during a period of time, typically one year
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Per capita GDP – is a measure of the total output of a country that takes gross domestic product (GDP) and divides it by the number of people in the country. The per capita GDP is especially useful when comparing one country to another, because it shows the relative performance of the countries. Potential GDP – the level of real GDP attained when all firms are producing at capacity
Per capita GDP – is a measure of the total output of a country that takes gross domestic product (GDP) and divides it by the number of people in the country. The per capita GDP is especially useful when comparing one country to another, because it shows the relative performance of the countries. Potential GDP – the level of real GDP attained when all firms are producing at capacity
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Capital – manufactured goods that are used to produce other goods and services
Capital – manufactured goods that are used to produce other goods and services
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Human capital – the accumulated knowledge and skills that workers acquire from formal training and education or from life experiences
Human capital – the accumulated knowledge and skills that workers acquire from formal training and education or from life experiences
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Productivity – fueled by capital and technology/innovation
Productivity – fueled by capital and technology/innovation
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Diminishing marginal returns – diminishing returns is the decrease in the marginal (incremental) output of a production process as the amount of a single factor of production is incrementally increased, while the amounts of all other factors of production stay constant, technological change helps economies avoid diminishing returns to capital
Diminishing marginal returns – diminishing returns is the decrease in the marginal (incremental) output of a production process as the amount of a single factor of production is incrementally increased, while the amounts of all other factors of production stay constant, technological change helps economies avoid diminishing returns to capital
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Compound growth – Compound annual growth rate (CAGR) is a business and investing specific term for the geometric progression ratio that provides a constant rate of return over the time period.???
Compound growth – Compound annual growth rate (CAGR) is a business and investing specific term for the geometric progression ratio that provides a constant rate of return over the time period.???
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Exponential growth – Increase in number or size, at a constantly growing rate, exponential growth means runaway expansion, such as in population growth ???
Exponential growth – Increase in number or size, at a constantly growing rate, exponential growth means runaway expansion, such as in population growth ???
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Factors of production
Labor, capital, natural resources, and other inputs used to make goods and services
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What are the determinants of long term growth in the economy?
1. The advent of technology which improved human productivity. 2. Investment in human capital. 3. Supportive government structures and policies
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What is the role of innovation in long term growth? Innovation and risk taking is critical Albert Einstein: “Imagination is more important than knowledge.”
1. Innovation and risk taking is critical. 2. Albert Einstein: “Imagination is more important than knowledge.”
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• What are the current national and global trends and headwinds that might impact on the level of long term growth that can be achieved in the USA? Budgetary cutbacks Slow economic growth
• What are the current national and global trends and headwinds that might impact on the level of long term growth that can be achieved in the USA? Budgetary cutbacks Slow economic growth
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What is the formula for actual Gross Domestic Product (GDP)?
GDP(actual) = C + I + G + (X-M) C - Consumption; I - Investment; G - Government Expenditures; X - Exports; and M - Imports
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Consumption – spending by households on goods and services, not including spending on hew houses
Spending by households on goods and services, not including spending on hew houses. Consumption types – services, non-durable goods, durable goods
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Investment – spending by firms on new factories, office buildings, machinery, and additions to inventories, plus spending by household and firms on new houses Investment types (e.g. business fixed, residential, changes in business inventories)
Investment – spending by firms on new factories, office buildings, machinery, and additions to inventories, plus spending by household and firms on new houses Investment types (e.g. business fixed, residential, changes in business inventories)
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Trade surplus – if a country exports more goods than it imports, it has a trade surplus
Trade surplus – if a country exports more goods than it imports, it has a trade surplus
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Trade deficit – if a country exports less goods that it imports, it has a trade deficit
Trade deficit – if a country exports less goods that it imports, it has a trade deficit
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Exports – Goods and services produced domestically but sold in other countries
Exports – Goods and services produced domestically but sold in other countries
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Imports – Goods and services bought domestically but produced in other countries.
Imports – Goods and services bought domestically but produced in other countries.
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Foreign remittances – is a transfer of money by a foreign worker to an individual in his or her home country.
Foreign remittances – is a transfer of money by a foreign worker to an individual in his or her home country.
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Structural unemployment – Unemployment that arises from a persistent mismatch between the skills or attributes of workers and requirement of jobs.
Structural unemployment – Unemployment that arises from a persistent mismatch between the skills or attributes of workers and requirement of jobs.
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Frictional unemployment – short-term unemployment that arises from the process of matching workers with jobs
Frictional unemployment – short-term unemployment that arises from the process of matching workers with jobs
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Cyclical unemployment – unemployment caused by a business cycle recession
Cyclical unemployment – unemployment caused by a business cycle recession
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Business cycle – alternating periods of economic expansion and economic recession
Business cycle – alternating periods of economic expansion and economic recession
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Inflation – the percentage increase in the price level from one year to the next
Inflation – the percentage increase in the price level from one year to the next
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Lagging indicator (e.g. unemployment)
Lagging indicator (e.g. unemployment)
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Unemployment measures – ???
Unemployment measures – ???
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Recession
Recession
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What is the different between U, V, and bowl shaped recessions graphs? – U-shaped recession is longer than a V-shaped recession, and has a less-clearly defined trough. GDP may shrink for several quarters, and only slowly return to trend growth. V-shaped recession, the economy suffers a sharp but brief period of economic decline with a clearly defined trough, followed by a strong recovery. Bowl shaped recession is slow to go into the recession and slow to come out of the recession
U, V, and bowl shaped recessions – U-shaped recession is longer than a V-shaped recession, and has a less-clearly defined trough. GDP may shrink for several quarters, and only slowly return to trend growth. V-shaped recession, the economy suffers a sharp but brief period of economic decline with a clearly defined trough, followed by a strong recovery. Bowl shaped recession is slow to go into the recession and slow to come out of the recession
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Age pyramids –is a graphical illustration that shows the distribution of various age groups in a population (typically that of a country or region of the world), which forms the shape of a pyramid and show the distribution of the ages and who can work by what age.
Age pyramids –is a graphical illustration that shows the distribution of various age groups in a population (typically that of a country or region of the world), which forms the shape of a pyramid and show the distribution of the ages and who can work by what age.
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Demand-pull inflation – asserted to arise when aggregate demand in an economy outpaces aggregate supply. It involves inflation rising as real gross domestic product rises and unemployment falls, as the economy moves along the Phillips curve. This is commonly described as "too much money chasing too few goods".
Demand-pull inflation – asserted to arise when aggregate demand in an economy outpaces aggregate supply. It involves inflation rising as real gross domestic product rises and unemployment falls, as the economy moves along the Phillips curve. This is commonly described as "too much money chasing too few goods".
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Cost-push inflation – inflation caused by an increase in prices of inputs like labour, raw material, etc. The increased price of the factors of production leads to a decreased supply of these goods.
Cost-push inflation – inflation caused by an increase in prices of inputs like labour, raw material, etc. The increased price of the factors of production leads to a decreased supply of these goods.
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Nominal prices – the value of prices at current year dollars
Nominal prices – the value of prices at current year dollars
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Nominal GDP – the value of final goods and services evaluated and current year prices
Nominal GDP – the value of final goods and services evaluated and current year prices
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Real prices – the value of prices at base year dollars
Real prices – the value of prices at base year dollars
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Real GDP – the value of final goods and services evaluated at base year prices
Real GDP – the value of final goods and services evaluated at base year prices
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Services – (e.g. medical care, education, haircuts
Services – (e.g. medical care, education, haircuts
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Non-durable good – (e.g. food/clothing)
Non-durable good – (e.g. food/clothing)
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Non-durable good – (e.g. food/clothing)
Non-durable good – (e.g. food/clothing)
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Demand-pull inflation – inflation from high demand for goods and low employment
Demand-pull inflation – inflation from high demand for goods and low employment
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Cost-push inflation – inflation caused by sudden decrease in the supply of goods, which would increase good prices. Producers for these goods will increase the costs could then pass this on to consumers in the form of increased prices
Cost-push inflation – inflation caused by sudden decrease in the supply of goods, which would increase good prices. Producers for these goods will increase the costs could then pass this on to consumers in the form of increased prices
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What does it mean when there is, "Too much money in circulation?"
Too much money in circulation – more money in circulation causes the value of the money to fall leading to prices to increase in order to compensate for the decrease value of the money
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Speculation – bubble – a speculative demand or bubble is usually caused by exaggerated expectations of future growth (e.g. Dutch Tulip Mania and 2000s housing market)
Speculation – bubble – a speculative demand or bubble is usually caused by exaggerated expectations of future growth (e.g. Dutch Tulip Mania and 2000s housing market)
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Embargos/blockades – artificially constrains supply effecting inflation Nominal prices – the value of prices at current year dollars
Embargos/blockades – artificially constrains supply effecting inflation Nominal prices – the value of prices at current year dollars
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Stagflation – a combination of inflation and recession, usually resulting from a supply shock
Stagflation – a combination of inflation and recession, usually resulting from a supply shock
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Hyper-inflation – is caused by central banks increasing the money supply at a rate far in excess of the growth rate of real GDP
Hyper-inflation – is caused by central banks increasing the money supply at a rate far in excess of the growth rate of real GDP
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Philips Curve
Depicts the inverse relationship between unemployment and inflation As inflation goes up, unemployment goes down.
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Consumer Price Index (CPI)
A measure of the average change over time in the prices a typical urban family of four pays for the goods and services they purchase. This is the most commonly used measure of what people are experiencing As a result of inflation
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Monetary policy
Monetary policy
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Fed Tools
1. Jawboning - 2. Open market operations 3. Reserve ratios 4. Discount rate 5. Interest rate on excess reserves 6. Quantitative easing
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Progressive Taxes
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Regressive Taxes
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Proportional Taxes
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Marginal Taxes
101
Average Taxes
102
Sin Taxes
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Animal Spirits
Economic term used to describe the psychological factors that drive investors to take action when faced with high volatility in the capital market.
