Fundamentals of Economics
The study of how people deal with the issue of scarcity
What is economics?
The desire and ability to purchase a product at a specific price and time.
What is demand?
Who controls monetary policy?
What is the Federal Reserve Bank?
List one required foundational documents that you need to know for the final exam
Declaration of Independence
Articles of Confederation
Brutus I
Federalist No. 10
Federalist No. 51
U.S. Constitution
The most important source of political socialization.
What is family?
You have an hour after school gets hour before basket practice starts. You are considering what to do with your time. Here are your options in order of preference: take a nap, get your homework done, chat with a friend, or grab a snack at a nearby restaurant. What is the opportunity cost of taking a nap?
Getting your homework done
This causes a change in quantity supplied of a product
What is a change in price?
What are the two tools used by the federal government within the realm of fiscal policy?
What are taxes and government spending?
Explain the difference between categorical grants and block grants.
Categorical grants = used only for a very specific purpose defined by the fed gov
Block grants = used for a broad purpose; gives states greater flexibility in how they use money
Identify two aspects of American political culture.
Individualism
Equality of Opportunity
Free Enterprise
Rule of Law
Limited Government
List and describe the four economic systems.
Market - buyers & sellers using the law of demand answers the three basic economic questions
Command - government determines how the society will answer the three basic economic questions
Traditional - tradition and culture determine how the three basic economic questions will be answered
Mixed - an economy that uses elements of market, command, and/or traditional economic systems
Minimum wage is an example of a price ceiling or floor? It will result in a shortage or surplus?
Minimum wage is an example of a price floor that will result in a surplus of laborers.
What are the two goals of the Federal Reserve?
Price stability (Inflation around 2%) and Full Employment (Unemployment around 5%)
Describe the debate over ratification of the U.S. Constitution. Why was the Bill of Rights eventually added to the document?
Debate over proper role of the federal government.
Federalists = supported new Constitution because it gave more power to the federal government
Anti-Federalists = did not support the new Constitution because it gave too much power to the federal gov at the expense of the states
BOR needed as compromise to ratify Constitution. Anti-Federalists feared strong central gov would trample rights of people. Could only get at least nine states to ratify if they promised a BOR.
Identify three components of a scientific poll
Appropriate Sample
Random Sample
Representative Sample
Margin of Error
Neutral Language
Explain the flow of economic activity using the circular flow diagram.
The circular flow diagram shows how goods and services are exchanged between households and businesses. In the factor market, the household sells factors of production to the businesses and the businesses give the households money in exchange. In the product market, the businesses sell goods & services to the households in exchange for money.
Is the demand for a Caribbean cruise elastic or inelastic? Why?
Demand for the cruise is elastic because it is a large portion of income, a luxury, and has many substitutes.
How would the government use the tools of fiscal policy if the inflation rate was 0.2%?
The federal government would decrease taxes and increase government spending.
Compare and contrast the McCulloch v Maryland and U.S. v Lopez cases.
Both cases are concerned with federalism.
McCulloch v Maryland = fed gov wins with necessary & proper clause and the supremacy clause; gives fed gov more power
U.S. v Lopez = states win (rare) with commerce clause; limits commerce power of the fed gov & upholds states reserved power over public education
Identify and describe the three party ideologies.
Conservatism - less gov in economy, more gov in social issues
Liberalism - more gov in economy, less gov in social issues
Libertarianism - less gov
Draw and label a PPF curve. How does it illustrate the concept of opportunity cost?
Compares the production of two goods or services that an economy can produce. Anything on the curve illustrates maximum efficiency. Points inside the curve represent inefficiency. Points outside of the curve are not possible given current resources. When an economy is producing at maximum efficiency, it must give up some of one good to increase production of another good because resources are scarce.
In an effort to protect the environment, Congress requires restaurants to only use organic products. How will this affect the equilibrium price and quantity of restaurant meals and what is the shifter?
Supply will decrease due to government regulations. As a result, prices of restaurant meals will increase and quantity demand & supplied will decrease.
Explain how the four tools of monetary policy will be used if unemployment is really high.
Decrease the reserve requirement, decrease the discount rate, and buy government securities in the open market, decrease the fed funds rate
Define Federalism. Identify one clause of the Constitution used to expand power of the federal government and explain how this clause has been used to give the federal government more power.
Federalism is a system of government in which the federal government and smaller regional governments share power.
Clauses: necessary & proper clause (allows the fed gov to create laws that are necessary to execute duties assigned by the Constitution, used in McCulloch v Maryland to create national bank); commerce clause (the fed gov regulates interstate commerce, used in Gonzales v Raich to uphold Congress' authority to make marijuana illegal); supremacy clause (fed gov is supreme over states, used in McCulloch v Maryland denying states the ability to tax the fed gov)
Explain the difference between a conservative approach to economics and a liberal approach to economics.
Conservative - less gov (lassiez-faire), supply-side economics, deregulation
Liberal - more gov (Keynesian economics), demand-side economics