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Economics Final Exam Study Guide
100 Point Homework Grade
Foundations of Economics Notes
What is economics?
How does trade make everyone better off?
In a voluntary exchange why do people give something up?
Why does trade increase the value of an item?
Describe the teachings of Adam Smith. Why do historians consider him one of the most influential people in
What type of economy is the most successful?
Explain the characteristics of the US economy.
Who ultimately determines the products that are produced in the US mixed economy?
What is the difference between microeconomics and macroeconomics?
What is absolute advantage?
What is comparative advantage?
Why is trade a “two way street”?
Scarcity and Factors of Production
What is the difference between a need and a want?
Why is scarcity always present?
What is a shortage?
List and describe the factors of production.
What does an increase in productivity lead to?
What is the difference between human and physical capital?
Do entrepreneurs fuel economic growth?
Without scarcity there would be no competition- true or false?
What do all entrepreneurs have in common?
What would an economy with lots of entrepreneurs be like?
What is opportunity cost?
Keynes Articles
Describe the ideas of Keynes. Do you agree or disagree with him? Explain.
What is the principal economic argument for deficit spending or Keynesian economics?
What is the primary goal of supply side economic policies?
Ch 1
What is the difference between goods and services?
Describe the “economic way” of thinking.
What is “thinking at the margin”?
What are marginal costs? What are marginal benefits?
What is voluntary exchange?
What are three basic choices that people in all societies must make?
What do economists recognize as the gains of trade?
Ch. 2
What is the circular flow of money?
What is profit?
What is medium of exchange?
What is economic growth?
List the three major functions of money.
Explain what a circular flow model shows?
Competitive Markets and Supply and Demand Notes
What type of economy does the US have?
What is a market economy? What is another name for it?
What is equilibrium?
What does a surplus of product mean when it comes to equilibrium price?
Quantity demanded moves along the demand curve in response to changes in what?
Supply depends on the willingness and ability of what?
What is a price ceiling? Give an example.
What is a price floor? Give an example.
What is the most important argument many economists make against price controls?
What are fixed costs?
What are variable costs?
What is marginal cost?
What naturally drives markets toward equilibrium?
In a market with perfect competition, how are prices determined?
What are the two characteristics of competitive markets?
What is total cost?
What is interest?
What is the difference between simple and compound interest?
Explain the law of supply and demand.
Financial Intermediaries Notes
What financial intermediary are people most familiar with?
What are mutual funds?
What is the main function of banks?
What are other functions of banks?
How does personal savings help the economy grow?
What are two advantages of a mutual fund?
Where would funds invested for a newborn child’s college fund be best placed?
What does the FDIC do?
Financial Markets Notes
What is a bond?
Who sells bonds?
What type of term on a bond is riskier?
What is default?
Who rates the credit risk of different bonds?
What is a stock?
Do stocks have a higher risk than bonds?
Do most countries have their own stock exchanges?
How do stockholders make money?
Ch 3
The law of demand states that as quantity demanded decreases what else happens?
What role do prices play in a market economy?
Why do people buy more of something at a lower price and less at a higher price?
What is a substitute? Give an example.
What is a compliment? Give an example.
Ch. 4
Supply depends on the willingness and ability of what?
How is opportunity cost related to the supply of goods and services?
Why do producers want to sell more of something at higher prices and less at lower prices?
Ch 5
In a market with perfect competition, how are prices determined?
What are shortages and surpluses?
How does market competition eliminate them?
Why doesn’t the market system work to provide street lighting and other public goods?
Ch 7
What is the role of small business in the US economy?
How are large corporations organized?
Entrepreneurship is always what?
What does it mean when we say a corporation is a legal “person”?
What is entrepreneurship?
What characteristics does an entrepreneur need?
What do many sole proprietorships depend on to get more money to expand their businesses?
What is an advantage of a partnership over a sole proprietorship?
Who is the board of directors of a corporation selected by and accountable to?
What is an advantage that applies to corporations but not to other types of business organizations?
What does the term business cycle describe?
GDP and GNP Notes
What is gross domestic product (GDP)?
How do you find GDP per capita?
List and describe the 4 components of expenditure of GDP.
What is gross national product (GNP)?
What are economic indicators? Give examples. (Ch 14)
Monetary System Notes
List the 3 functions of money.
Why did gold and silver become regarded as money?
What is liquidity?
What types of investments are consider more liquid? Less liquid?
What does the Federal Reserve do?
Who are the primary customers of the Federal Reserve?
Who is the current chairman of the Fed?
How does the FDIC encourage saving?
What is inflation?
If the Federal Reserve sells a significant amount of government securities in the open market, which of the following
will occur?
Who are the primary customers of the Federal Reserve?
What institution determines what fraction of deposits a bank must set aside to be available for customer
When banks increase their lending activities what happens to the domestic money supply?
What is the discount rate?
What is structural unemployment?
Why can the unemployment rate never reach zero?
Give examples of indicators of economic prosperity.
Is real GDP or nominal GDP adjusted for inflation?
Give examples of indicators of an economic recession.
Taxes Notes
How does the federal government raise money?
What type of taxes do state and local governments use the most to raise money for education, roads, etc?
What is a budget surplus?
What is a budget deficit?
What is the difference between average tax rate and marginal tax rate?
How do taxes affect market activity? Explain.
Should taxes on the rich be raised? Explain.
What role do you think the government should play in the economy? Explain.
How is standard of living determined?
Why is Japan’s standard of living higher than Nigeria’s?
How can policymakers raise productivity?
Does lowering or raising taxes help reduce unemployment?
If productivity goes up, what happens to output? Inflation?
When is a person considered employed?
When is a person considered unemployed?
What is cyclical unemployment? Give an example.
Who makes up the labor force?
Why will we always have some unemployment?
Why are most sales taxes considered regressive?
What is a right to work state? Is Arizona one?
International trade Notes
What is currency?
Where can you exchange one currency for another?
What is the difference between nominal and real exchange rates?
What is appreciation?
What is depreciation?
List 4 government policies that encourage economic growth.
Factors Influencing the International Community Printed Notes
Does culture change over time?
What is cultural diffusion?
What often causes cultural diffusion?
What is a democracy? Give an example.
What is an authoritarian government? Give an example.
What is a theocracy? Give an example.
What is a monarchy? Give an example.
What is a traditional economy?
What is a market economy? What are two other names for it?
What is a command economy?
What is socialism?
What is a tariff?
What is a quota?
List two reasons cultures change rapidly today.
How do political systems affect business?
What are trade barriers?
What is a favorable balance of trade?
What is the key factor in determining globalization?
Ch 15
What is the difference between absolute advantage and comparative advantage?
What is a balance of payments? Do they always balance?
What is a balance of trade?
What is the difference between an import and an export?
What do economists recognize as the gains of trade?
What is protectionism?
Why is productivity important in international trade?
What is capitalism? What do you think about it?
What is socialism? What do you think about it?
What is privatization?
How are resources allocated in an economy that relies on central planning?
What is the main problem for developing nations?
What does the World Bank do?
Wealth, Credit, and Budgeting (Printed) Notes
List 3 sources of income.
What factors influence wealth accumulation.
When you use a credit card, who are you actually borrowing from?
List the advantages of credit.
List the disadvantages of credit.
What do lenders look at when you are trying to obtain credit?
What steps can you take to establish credit?
List the three steps in budgeting.
How does personal saving help the economy grow?
How can a monthly budget help you achieve financial security?
Ch 6, 8, 10, 11, 12
What was the US Patent and Trademark Office established to protect?
What are complimentary goods?
What is the barter system?
What is a monopoly?
Why are monopolies allowed in public utilities?
When it comes to economic efficiency, how much of a good does a monopolist? What are their prices like?
What is interest?
During periods of rapidly increasing inflation rates will a person’s salary buy more goods than before?
What is an externality?
When federal expenditures exceed federal tax revenues, how does the government fund the deficit?
Why is consumer confidence important to the business cycle?
What government measure is most likely to be used to keep track of inflation?
Give an example of a benefits received tax.
What would a decline in consumer incomes do to consumer spending?
Why is not fully accurate to describe the national debt as money we owe ourselves?
How does the US borrow dollars from foreign investors?
Barter System
Monetary Policy
Fiscal Policy
Economic Interdependence
Stabilization Policies
Compound Interest