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EOCT Review. The major concepts. Fundamental Economics. BRIGHT IDEAS MARKET ECONOMY.

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eoct review

EOCT Review

The major concepts

bright ideas market economy
BRIGHT IDEASMARKET ECONOMY
  • 1. The U.S. has a market economy which features private ownership of businesses and very little government interference. Voluntary Exchange is also a BIG component of a market economy. This means that buyers and sellers come together to exchange goods/services. One other important feature of a market economy is the price system. This means if you’ve got the $, someone has the good/service! The price system is based on income.
bright ideas transfer payments
BRIGHT IDEASTRANSFER PAYMENTS
  • 2. Payments given by the government to an individual with no service required in return. A good example of transfer payments are: Welfare, WIC, Social Security, disability benefits, TANF, Medicare, Medicaid
bright ideas capital
BRIGHT IDEASCAPITAL

Human Capital

Physical Capital

  • This involves investing in a PERSON. This could be training for an employee, college or school to make the employee more productive.
  • This is an investment in technology, equipment, machinery to improve PRODUCTION.
big ideas ppc
BIG IDEASPPC

A

B

C

5000

Illustrates Scarcity, Choice, and Trade-off’s

D

H

4000

E

Points A-G = Maximum Output

Point I = Lagging Production

Point H = Impossible

Military Goods

3000

I

2000

F

1000

G

0

1000

2000

3000

4000

5000

6000

Consumer Goods

microeconomics
Microeconomics

Supply and Demand, Decisions by Individuals or a Business

circular flow
Circular Flow

Product Market

Spend Money

Goods and Services

Profit - Revenue

Goods and Services

Businesses

Households

Factors of Production ( Resources)

Factors of Production ( Resources)

Resource Payments – Make More Stuff

Income

Factor Market

supply and demand
Supply and Demand

Surplus

30

25

Price Floor

Ex. Minimum wage

20

Price

Equilibrium Price

15

Supply

Demand

10

Price Ceiling

Ex. Apartment Rent Controls

5

Shortage

0

5

10

15

20

25

30

35

40

45

50

55

60

Quantity

macroeconomics
Macroeconomics

Use of resources in the entire nation – GDP, Unemployment, Inflation, Monetary Policy, Fiscal Policy

economic indicators
Economic Indicators
  • Why are they important? Economic Indicators tell us how the economy is performing. Is the economy in a recession, expansion, sick or healthy?
  • SICK = Stagflation means the economy is NOT growing (stagnant) and has high inflation. A.K.A. RECESSION or DEPRESSION
  • HEALTHY = low unemployment, low inflation, high GDP.

A.K.A. EXPANSION

economic indicators1
Economic Indicators
  • 3 types Unemployment

Structural (skills don’t match the job)

Frictional ( looking for a better job)

Cyclical (based on the business cycle)

    • CPI (Consumer Price Index) measures the rate of inflation which compares the price of goods/services each year
    • GDP measures economic growth
debt vs surplus
Debt vs. Surplus

DEBT

SURPLUS

  • Deficit means spending more money than you have
  • National Debt is all the years of government deficit added together
  • Surplus means taking in more than you spend
  • Budget Surplus is based on the year-to-year (fiscal year) Congressional budget
monetary vs fiscal policy
Monetary vs. Fiscal Policy

MONETARY POLICY

FISCAL POLICY

  • THE FED
  • The Federal Reserve either increases or decreases the amount of money available to the public
    • Reserve requirement
    • Discount rate
    • Open Market Operations (buy or sell)
  • CONGRESS
    • TAXES
    • SPENDING
international economics
International Economics

International Economics studies countries and their involvement with other countries with trade, imports and exports, and currencies.

comparative vs absolute advantage
Comparative vs. Absolute Advantage

Comparative Advantage

Absolute Advantage

  • ability to produce a good or service at a lower opportunity cost than another nation can
  • Individuals and businesses are using comparative advantage when they SPECIALIZE in producing what they are best at and trading for the rest
  • ability to produce more of a good or service than another nation can.
free trade
Free Trade

Arguments FOR Free Trade

Arguments AGAINST Free Trade

  • If all countries produced what they were best at – comparative advantage- and traded for the rest, everyone would benefit.
  • Production and GDP would increase for all countries. This would deliver the greatest goods to the greatest number of people.
  • Protection of national security
  • Protection of infant industries
  • Protection of jobs
  • PROTECTIONISM
trading blocs trade barriers
Trading Blocs/Trade Barriers
  • What do they do? Eliminates trade barriers with neighboring countries which leads to increases in GDP and productivity.
  • EXAMPLES: NAFTA, EU, ASEAN

Trade Barriers

  • Advantages: protect domestic industries – reduces foreign competition – protects jobs, Increase government revenue – can reduce budget deficit
  • Disadvantages: Fewer Choices and higher prices for consumers, encourages other nations to impose trade barriers against the U.S., hurting American exporters
  • EXAMPLES: NAFTA, EU, ASEAN
exchange rates
Exchange Rates
  • Price of one nation’s currency in terms of another nation’s currency.
  • Changes based on world demand for each country’s exports worldwide
  • When the dollar is WEAK (DEPRECIATION):

U.S. exports increase and the price of exports go up

Travel abroad is more expensive for American tourists

U.S. imports decline and the price of imports increases

Foreign investment in U.S. businesses increases.

  • When the dollar is STRONG (APPRECIATION):

Imports increase and are cheaper for consumers to buy

Travel abroad is cheaper for American tourists

U.S. exports decline

The U.S. trade deficit increases.

taxes
Taxes
  • 3 Types of Taxes
    • Proportional – everyone pays the same portion or percentage – flat tax – ex. Social Security 6.2%
    • Progressive – the more you make, the higher percentage you pay in taxes – ex. Income tax
    • Regressive - people with lower incomes pay a higher tax percentage than those with higher incomes – ex. Sales Tax.
insurance
Insurance
  • People buy insurance to protect themselves financially for unexpected events that could be very expensive
  • Examples – health, property, car, life, disability, life, accidental
  • Pay a PREMIUM (amount per month, quarter) to guarantee coverage
  • The insurance company takes the money people pay in premiums to pay claims.
budgeting
Budgeting
  • Fixed expenses – those that do not change from month to month – house payment, car payment
  • Variable expenses – exact dollar amount changes from month to month – power bill, water bill
  • Disposable income – amount a person has leftover after all bills and necessities have been paid
credit and interest
Credit and Interest
  • Credit Worthiness – to borrow money you must have good credit (good credit score)
    • Depends on your:
      • Credit History – how well you have managed your bills and credit in the past (Credit Score)
      • Collateral - property you have that the bank could take from you if you do not pay the loan
      • Creditworthy – are you able to pay the money back given your income and current expenses
  • Interest – money charged for borrowing money
    • Interest paid – you can get paid interest for investments
    • Interest charged – you will be charged interest if you borrow money

APR – Annual Percentage Rate – interest rate on a credit card