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ECONOMICS – FINAL EXAM STUDY GUIDE Definition of scarcity (vs. shortage) What are resources? Why are they limited? Difference between want and need Four types of economic resources (factors of production), what might be the fifth? Consumer good vs. capital good Definition of opportunity cost & trade-off Three types of economic systems – which one is this course primarily about? What does it mean a “mixed” economic system? Circular flow of business activity (diagram) Four basic questions all economic systems must answer What’s important about the rule of law and private property in economic growth? Adam Smith – Wealth of Nations (1776) – laissez-faire and invisible hand Five economic goals of a nation Disposable vs. discretionary income Purpose of credit What is “rational choice?” Differences between competitive, informative, and bait & switch advertising What do these agencies do: SEC, CPSC, FTC? Principal, interest, and installment debt What is credit necessary in a modern economy? Mortgage lending – fixed vs. ARM, what’s the difference? Types of lending institutions – commercial banks, dangers of finance companies Credit card debt – secured vs. unsecured loans, collateral APR – define its meaning Credit reports and credit scores – components / weights Usury laws Three lending rules – define “prime” and “sub-prime” Advantages of owning vs. renting Know how sub-prime lending caused the Great Recession of 08-09 Define “depreciation” Insurance Agent, Stock Broker, Financial Advisor – what’s the difference? Two types of capital gains (long / short) define What is a stock? What are bonds? (3 types: Federal, Local, Corporate) Define mutual fund What are IRAs and 401Ks – advantages/disadvantages Why is a 401K the best investment for the middle class? What are dividends? DJIA, NYSE, NASDAQ, S&P – what are these? What is “diversification?” What is a money market fund? What does it mean “Insured by FDIC” – what’s protected and what’s not? U.S. debt – differences between Treasury bills, notes, bonds Law of Supply Law of Demand Law of diminishing marginal utility Supply, demand curves & “equilibrium” Price determinants of demand (3) Non-price determinants of demand (5) Determinants of supply (6) Define price elasticity and inelasticity Shifting of demand / supply curves – interpreting results Four elements to every business Advantages / disadvantages Sole Proprietor Partnership (& limited partnership) Corporation Public corporation (define) Incorporating (purpose) Liability (Define) Four market structures: Monopoly, Oligopoly, Monopolistic Competition, Perfect Competiton Five conditions of perfect competition Types of monopolies Characteristics of oligopolies Characteristics of monopolistic competition (most common in free market capitalism) Sherman Anti-Trust Act Federal Trade Commission Securities & Exchange Commission National Income Accounting Gross Domestic Product [GDP] =C+I+G+E(n) Gross National Product [GNP] NDP [Net Domestic Product] National Income Personal Income Disposable Income Consumer Price Index [CPI] – Market Basket of Goods Business Cycles Economic Indicators – Lagging, Coincident, Leading Fractional Reserve Banking – how does it expand the money supply? How does money eliminate the need for a “double coincidence of wants?” Federal Reserve Bank Monetary Policy – the three “tools” – reserve percentage, discount rate, open market operations Inflation – how does “tight” monetary policy address? Unemployment – how does “loose” monetary policy address? Fiscal policy (definition) – “tax and spend” Entitlements – social insurance and public assistance Merit & Demerit Goods Types of unemployment: cyclical, structural, seasonal, frictional Cost-push inflation Demand-pull inflation Circular Flow of Income (Business Activity) Why do monetarists criticize fiscal policy? ( Too slow in acting to influence dynamic free market). Absolute v. Comparative Advantages of Trade Exchange Rates & Foreign Exchange Market (what is this?) IMF, WTO, NAFTA Characteristics of developing nations Types of foreign aid Obstacles to growth in developing countries / Cycle of poverty