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Final Exam Study Guide: Economics
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*** essay questions
How has the Constitution Shaped the Economic System in the United States?
Give an example of each:
Labor resource: Worker Natural resource: Oil, Land, Water Capital resource: Money or anything that can be bought with money
How many wants does a person have? Unlimited
What is Economics?
Economics: The study of humankinds wants and how we attempt to satisfy these wants
Production: Changing resources into goods that satisfy needs and wants
Profit: Money left after all the costs of production-wages, rent, interest and taxes have been paid
Resource: Anything that people can use to make what they need or
Scarcity: A state in which people do not and cannot have enough income, time or other resources to satisfy their every desire
Wants: Economists term for everything people desire beyond basic goods and services
What is the basic economic problem? Limited resources for infinite human wants
What are the 4 reasons why wants and needs are virtually unlimited?
1.
Goods wear out and need to be replaced
2.
New or improved products become available
3.
People get fed up with what they already own
4.
Increase in salary, expectations rise
Economic Choice
Incentive: A perk you get from completing a task
Opportunity Cost: What is given up in order to obtain a desired goal
Focus on the Factors of Production
List the 5 factors of production and give an example of each.
1.
Land: natural resources
2.
Labor: Workers, work people do
3.
Capital: Money and all property used to produce goods and services
4.
Entrepreneurship: The ability to start new businesses and make new products
5.
Technology: All new technology added to the economy
Notes on Taxes
Taxes: payments made to the government that are withheld from income
Proportional tax: Tax that takes the same percentage of all incomes and as income rises, the amount of tax paid also rises but the
percentage remains the same
Progressive tax: Tax that takes a larger percentage of higher incomes than lower incomes; this is justified on the ability to pay
principle
Regressive tax: Tax that takes a larger percentage of lower incomes than higher incomes, which tends to fall hardest on those with the
least amount of income
Direct tax: A tax that cannot be shifted onto others
Indirect tax: A tax that increases the price of a good so that consumers are actually paying the tax by paying more for the products
Types of Economies
Define market economic system: Individuals own the factors of production and make economic decisions through free interaction
Define command economic system: Government controls the factors of production and makes all decisions about their use
Define traditional economic system: Based on beliefs, customs and ways of doing things handed down from generations
Define mixed economic system: A blend of all types of the economies
Supply and Demand
Law of Demand: Law that states that the quantity demanded and price move in opposite directions
Substitution effect: If two items satisfy the same need and the price of one rises, people will buy the other
Law of Supply: Quantity supplied and price move in the same direction
Shortage: Quantity demanded is higher than quantity supplied
Surplus: Quantity supplied is higher than quantity demanded
Define complimentary good and give an example: Goods that go together PBJ, Hamburgers and Buns
Define substitute good and give an example: Goods that you are able use when you one out of one Ex: Butter/Margarine
Federal Reserve
***What is the Fed? What is its purpose? Who is the current chairman of the Fed? Who appoints the Board of Governors? Who
confirms the appointments? How long is a term for the Board of Governors? Give 4 day-to-day tasks that the Fed takes part in?
The Fed is the central bank of the U.S., it is the heart of the economic system, it also carries out the monetary policy of the U.S.
The purpose of the Fed is that it strives to maintain an orderly, steady supply to the functioning part of the government
The current chairman of the FED is Ben Bernanke
The President appoints the Board of Governors
The Senate confirms the appointments
The Board of Governors term is 1 term that lasts 14 years
Tasks of the FED are: Offer financial advice, holds deposits, provide quick access to currency, and provide a check-clearing facility
for member banks.
Personal Finance
What is money? Money is a medium of exchange
What is interest? The amount of money the borrower must pay for the use of someone else’s money
How long is the typical home mortgage? 30 years
What percent should a person expect to spend on their house per month? 25-30%
What percent should a person expect to spend on their taxes per month? 15-20%
How long is a typical car loan? 3-5 years
Why are interest rates higher for car loans? Loans are taken out for a shorter period of time
What is a grace period from a credit company? How much time a person has to pay without interest
Amount of money the borrower must pay for the use of someone else’s money is known as what? Interest
What is the APR? The interest rate or % that you pay for using someone else’s money (ex: credit card)
Explain the difference between good interest and bad interest? Good- Account that pay you interest (savings account, CD’s, Bonds)
Bad Interest: Accounts that you have to pay an interest rate (or money back) because you borrowed someone else’s money (ex: Loans,
Credit Cards, Car, Mortage, Student loads)
What is “bouncing” a check? If a person has insufficient fund in the account, the check will be sent back
When something is easily converted into cash, it is what? A liquid account
What type of account is more liquid (you can easily convert it into cash)? Passbook Savings Account or Regular Savings Account
A stock is defined as what? Share of ownership in the corporation issuing the stock, which entitles the buyer to certain part of the
future assets and profits
A share of profits one receives as a stockholder is what? Profit
Should you use your credit card for cash advances? NEVER, only in emergencies
A credit card is an example of what type of credit? Revolving credit
***List and describe the 3 C’s of credit. How can credit score affect your financial situation? Identify 2 factors that can lead to one
having good credit and 2 factors that can lead to one having bad credit?
Character- Can you repay the debt? Are you honest and reliable? Do you pay your bills on time?
Captial- What if you don’t repay the debt? Do you have a steady job? Do you own property? Do you have a savings account?
Capacity- Can you repay the debt? Do you have a steady job? How many other debts do you have?
A credit score determines how credit worthy you are. Late payments, missed payments lower your credit score. Bad credit can stick
with you are years.
Good Credit- Pay all bills on time, establish a work record, open a store account, use your card wisely
Bad Credit- Late payments, overspend on your card, lending your card to others, not paying on your account
What is your credit score? Determines how credit worthy you are. Higher the score better credit you have. Low score affects the
ability to get loans.
You should always pay yourself _______First!!!______________!
***How do trade specialization and interdependence among countries affect standards of living and economic growth?
There are some products that we as a country do not produce. Because of that we need to trade with other countries. This has helped
the United States specialize in products that we can make the best with the natural land, and labor resources that we have. We have
rich farmland, a highly skilled work force, and advanced technology. Therefore, we sell many types of food, machines, tools, aircraft,
and office equipment to other countries. Trade between nations helps economies grow, and for some countries it helps their economies
and their people grow.
Practice Writing a Check and Balancing your Checkbook!!!!
Balance Cleveland Brown’s Trent Richardson’s checkbook: Starting Balance is $20,000,000 … Go Browns!
May 10
May 2
May 11
May 8
May 1
May 9
May 5
Num
Check #334 car payment $15000.00
Withdraw money for dinner $1200.00
Automatic deposit $1,250,000.00
Auto debit for utilities $4,257.53
Withdraw for a new football and helmet $978.54
Check #333 charity $425,000
Check #332 purchased a house $9,578,999.16
Date
Description
Debit
Credit
Balance
Economic Growth Work Packet/Globalization Notes/OPEC/WTO Notes
CPI: Consumer Price Index- a measure of the changes in the prices of goods and services from year to year
Unemployment Rate: The number of people without a job
Globalization: International trade is increasing. World’s economies are more closely tied together and businesses have branches in
other countries.
WTO: World Trade Organization:
***Explain why economic growth is important. How does the USA measure economic growth? Identify and explain the four parts of
the business cycle.
Economic growth is important. When economic growth occurs businesses grow and improve, people have jobs. Economic growth
provides jobs for people who become consumers with money to spend. The flow of money from consumers to businesses to
employees is necessary for a healthy working economy.
The USA measures economic growth by calculating the GNP or Gross National Product. The total value of all goods and services is
added up.
The business cycle is the series of changes in the American Economy.
1. Prosperity- people have jobs, spending is high, businesses sell what they are able to produce, businesses grow
2. Recession- gradual slowdown in business activity and consumer spending, jobs are harder to find, businesses are not growing, less
money to spend on goods and services
3. Depression- business activity slows down, more people lost jobs, a greater slowdown
4. Recovery- business starts to improve, employers are able to offer jobs to more people, people begin spending money, economy
improves
Remember Rule of 72- 72/ years= interest and 72/interest= years Be able to use a calculator and complete the math calculations!!!