Mr. Hall's Class



Fundamentals of EconomicsDirections: On a separate sheet of paper, answer each question in complete thoughts. Define scarcity. Define and give examples of productive resources (aka the factors of production) What are the two types of “human resources?”What are the functions of money? What is a medium of exchange? What is opportunity cost? Give an example of opportunity cost. What is a production possibilities curve? Illustrate a production possibilities curve that shows the tradeoffs between two options and explain the opportunity costs involved with making each good. How does a production possibilities curve show efficiency? Growth? What is marginal cost? What do rational people do when the marginal benefit outweighs marginal cost? What is the division of labor? Give examples of how people and businesses specialize? What is voluntary exchange? How do people benefit from voluntary exchange?What are the characteristics of a command economy? What are the characteristics of a market economy?Why are almost all economic systems “mixed economies?” - explain the spectrum of mixed economies. Define each of the following characteristics and match the characteristic to the appropriate economic system (either market or command): private ownership, profit motive,consumer sovereignty, competition, government regulation. What are the three economic questions? Explain how well each of the following social goals are met in each economic system (market and command): freedom, security, equity, growth, efficiency stability What are the different ways to allocate scarce resources? How do the different economic systems allocate resources and goods differently? Explain why the government, in a market economy, provides public goods and services. Explain why the government, in a market economy, redistributes income. Explain why the government, in a market economy, resolves market failures. What social goals is the government, in a market economy, trying to achieve by addressing the issues in questions 22-24? Why does the government regulate monopolies? What social goal is the government trying to promote? What is a market failure? Define externality. Give an example of a public good and a positive or negative externality. Define productivity. How do you have to utilize input to maximize output? How does investment in equipment and technology lead to economic growth?How can investment in human capital lead to a higher standard of living? Explain this statement: profit motive and voluntary exchange are major driving forces in a market economy. Explain this statement: security, stability, and equity are key characteristics of a command economy. What does it mean when a country has absolute advantage? What is comparative advantage? How are trade and comparative advantage related? Know the meaning of the following terms: CumulativeAllocate Income InterestRevenue Corporate Trust Anti-Trust Laws Output Input Externality Consumer Goods vs. Capital goods ResolveMicroeconomics ReviewWhat is the exchange that takes place in the Factor (resource) Market? What is the exchange that takes place in the Product Market? Draw and label a circular flow graph. How are households and businesses interdependent? Explain how the flow of money and the flow of goods and services among businesses and households occur. How is money a medium of exchange? What are some of the functions of money? (include the three we discussed in class) What is Supply? What is the difference between Supply and Quantity Supplied? Define the Law of Supply.What is Demand?What is the difference between Demand and Quantity Demanded?Define the Law of Demand.What is the market clearing price? (aka the equilibrium price)How do buyers and sellers determine the equilibrium price? Illustrate on a graph how supply and demand determine equilibrium price and quantity. How do prices serve as incentives in a market economy? What do the determinants of demand do? List the determinants of demand. Show on a graph the effects of the determinants of demand. – give at least one positive and one negative scenario. What do the determinants of supply do? List the determinants of supply. Show on a graph the effects of the determinants of supply. – give at least one positive and one negative scenario.What are government price controls? How do prices floors create surpluses?What is an example of a real life price floor?How do price ceilings create shortages?What is an example of a real life price ceiling? Define price elasticity of demand. Define price elasticity of supply. Explain the relationship between price and quantity when a good is elastic or inelastic. List examples of elastic goods. List examples of inelastic goods.List the three forms of business organizations we discussed in class. What is liability? Describe which business organization has limited liability and which ones have unlimited liability. What is a sole proprietorship? What are the advantages and disadvantages of a sole proprietorship? What is a partnership? What are the advantages and disadvantages of a partnership?What is a corporation? What are the advantages of a corporation? Who are stockholders and what is a stock?How is profit an incentive for entrepreneurs?What is a monopoly?What is an oligopoly?What is monopolistic competition?What is pure (perfect) competition?In which market structure do firms have the most control over price? What is collusion? In which market structure are businesses most likely to collude? Why? What are barriers to entry in a market? Which has a higher barrier to entry, oligopoly or monopolistic competition? Why? In which market structure are firms more interdependent, monopolistic competition or oligopoly? Explain your answer. Terms to know: Interdependence Macroeconomics Review GuideWhat are the 3 economics goals? Define Gross Domestic Product (GDP)What are the individual components of GDP? List examples of spending in each category. Hint: C+I+G+(x-m) What isn’t included in GDP? Define economic growth. List and define the different types of unemployment. Give an example for each.Define Consumer Price Index (CPI). What is CPI used for? What is the market basket? How does CPI use the market basket to calculate price changes? Define inflation. What is cost-push inflation?What is demand-pull inflation? What is stagflation?How does unanticipated inflation affect the following groups? Banks who loaned money to peoplePeople who are saving money People on fixed incomesPeople who have taken out loans (borrowers from the bank)Define aggregate supply and aggregate demand. Draw an aggregate supply and aggregate demand graph. How do we calculate unemployment? Define the stages of the business cycle: Peak, contraction, trough, recovery/expansionWhat is a recession? What is the difference between a recession and a depression? Draw and label a business cycle. What is national debt?What is national deficit? What is the difference between national debt and national deficit? What is full employment?Describe the organization of the Federal Reserve System – include District Banks, FOMC, and Board of Governors What is the dual mandate of the Federal Reserve? Define the following functions of money: medium of exchange, store of value, unit of account/standard of value. What is monetary policy? What are the three goals of monetary policy? What are the tools of monetary policy? If the economy is in a recession, how would the Fed use monetary policy? (How would the Fed use the each tool?)If the economy was experiencing rapid inflation, how would the Fed use monetary policy? (How would the Fed use the each tool?)What is fiscal policy? What are the two tools of fiscal policy? What are the three goals of fiscal policy? If the economy was in a recession, what could the government do to help promote full employment? (Two tools)If the economy was experiencing rapid inflation, what could the government do to stabilize prices? (Two tools)When we use monetary or fiscal policy to correct inflation, what happens to the unemployment levels? When we use monetary or fiscal policy to correct unemployment, what happens to prices? So if 40 and 41 are the case, why is it difficult to correct for stagflation? What is the relationship between inflation and interest? How does inflation affect people who are saving money? Define the following terms: Aggregate Debt Deficit Domestic Foreign BoomBust International EconomicsDefine absolute advantage. Define comparative advantage. What is the difference between absolute and comparative advantage?What is the relationship between comparative advantage and trade? What is the law of comparative advantage? How does international trade make countries more interdependent? Economically speaking, what should countries produce: goods in which they have absolute advantage or goods in which they have the comparative advantage? Explain your answer. Define Balance of Trade.Define Balance of Payments.What makes up the capital account? What makes up the current account? How are Balance of Trade and Balance of Payments different? What are trade barriers? Define tariffs. Define quotas. Define embargo. Define standards. Define subsidies. Who do trade barriers benefit? Who is hurt by trade barriers?Define trading bloc (free trade agreement). What is NAFTA? What is the EU? What is ASEAN? What is free trade? What are arguments for free trade? What are arguments against free trade? Define exchange rate.How do exchange rates change if they are flexible exchange rates? What happens when a currency appreciates against another? What happens when a currency depreciates against each other? Who benefits from a strong currency? Who is hurt by a strong currency? Who benefits from a weak currency? Who is hurt by a weak currency? If the US dollar depreciates against the euro, what are the effects on the balance of trade for both countries? If the peso appreciates against the US dollar, what are the effects on the balance of trade for both countries? What is a trade deficit? Are trade deficits bad? If the Canadian dollar appreciates, will they have a positive or negative balance of trade? Be able to define the following terms: Appreciate Depreciate Strong currency Weak currency Trading bloc Free Trade Interdependence Personal FinanceDirection: Answer questions on a separate sheet of paper. What is interest? What is the difference between interest charged and interest earned? So using your answer to question 2, explain how banks make money. What is the relationship between risk and return when investing? Define each of the following investment options: stocks, bonds, mutual funds.Place the investment options from question 5 into order of least risky to most risky and briefly explain why.Define the following taxes: progressive tax, regressive tax, proportional tax. How does sales tax affect different income groups? What is the difference between simple and compound interest rates?Briefly explain the purpose of and differences between the following insurance types:automobile,health, life, disability, propertyWhat is the difference between collision, liability, and comprehensive auto insurance? Define deductible.Define premium.Define shared liability.Explain the relationship between deductible and premium. If you want more insurance coverage, what will happen to your premium? What are factors that affect credit worthiness? How does inflation affect the following groups: Banks who loaned money to peoplePeople who are saving money People on fixed incomesPeople who have taken out loans (borrowers from the bank)What is APR? If you are not going to pay your credit card balance in full each month, what would you want in a credit card? If someone values stability with their credit card, do they want a fixed interest rate or a variable interest rate? Explain your answer. Use this information to answer question 22: Credit Card 1: Low APR with High Annual FeeCredit Card 2: High APR with Low Annual FeeExplain which credit card you would choose if you were going to pay your balance in full each month. If you have a $1000 deductible on your car insurance and the bill is $5000, how much will you pay and how much will the insurance company pay? How is question 23 an example of shared liability? How are inflation and interest related? Why should someone saving be worried about inflation? If inflation rates are higher than interest rates, what is there an incentive to do? Explain why. ................
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