Key Vocabulary #1
Define the "law of diminishing returns?"
The principle that in adding factors of production, a firm eventually reaches a point where productivity begins to decline
1. Define an income tax.
2. TRUE or FALSE: Only the Federal Government taxes people's incomes.
1. A tax on a person’s or company’s income after certain items have been deducted
2. False, both the State and the Federal Government tax people's income.
1. Define Demand.
2. Define Supply.
1. Consumer willingness and ability to buy products
2. The amounts of goods available
1. Who is John M. Keynes?
2. What did he propose as a solution to economic inflation/stagnation/deflation?
1. English Economist
2. Massive Federal Government intervention (spending and taxing at appropriate times)
1. What BRANCH of the Federal Government is responsible for establishing FISCAL Policy?
2. What ARTICLE of the Constitution allows for the "expressed power" of the FISCAL POWER?
3. FILL IN THE BLANK: The ________ House of the _______ Branch is responsible for FISCAL POLICY.
1. Legislative and Congress Branch
2. ARTICLE #1
3.
Blank #1: House of Representative
Blank #2: Legislative
1. Define a Traditional Economy.
2. True or False: A Traditional Economy relies heavily on the FOUR FACTORS OF PRODUCTION.
1. An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.
2. FALSE: a Traditional Economy lacks the four factors of production and relies instead on tradition/custom (no major innovations).
1. Define the term "Monopoly."
2. What monopoly exists and is protected in San Diego County (it has to do with Energy)?
1. A market situation in which there is only one seller of a particular good or service
2. San Diego Gas & Electric (SDG&E)
1. Define Gross Domestic Product.
2. What three things make up Gross Domestic Product?
1. The total value of all the Goods and Services produced by a national economy in a year.
2. Consumer Spending, Government Spending, and Business Spending.
1. What makes Demand Elastic?
2. What makes Demand Inelastic?
1. A situation in which consumer demand is sensitive to changes in price (Pizza, luxury items, etc.)
2. A situation in which an increase or a decrease in price will not significantly affect demand for the product (insulin, medication, etc.)
1. Name the three tools that the FED uses to carry out Monetary Policy.
2. Which Tool lowers the percent of interest charged to District Banks that borrow money from the FED?
3. Which Tool requires banks to maintain a certain amount of M0 money on hand?
1. Reserve Ratio, Discount Rate, and Open Market Operation.
2. Discount Rate
3. Reserve Ratio
1. Identify the two key tools that the Federal Government uses to carry out FISCAL POLICY.
2. What is the Federal Government's key source of INCOME?
1. Spending and Taxing
2. Federal Income Tax
1. Define the Four Factors of Production.
2. True or False: In a Mixed Economy, both individual people and the Government own the means of production
3. True or False: In a Command Economy, individual people own the mean of production
1. Land, Labor, Capital, Entrepreneurship/Management
2. TRUE
3. FALSE
1. Define a Fixed Cost.
2. Define a Variable Cost.
1. Those that remain unchanged regardless of the number of units a business produces.
2. One that increases or decreases with the level of production.
1. Define Demand-Pull Inflation.
2. Provide a real-world example of this type of inflation.
1. A rise in the level of prices caused by an increase in demand OR People have the money, but there is no product to buy...
2. Toilet Paper Crisis of 2020
1. What institution is responsible for establishing FISCAL POLICY?
2. What institution is responsible for establishing MONETARY POLICY?
3. FILL IN THE BLANK: The ________ branch of the Federal Government is responsible for establishing _________ policy (based on the ____ Article of the Constitution).
1. The Federal Government
2. The Federal Reserve System (the FED - central bank)
3.
Blank #1 = Legislative Branch (Congress)
Blank #2 = FISCAL
Blank #3 = 1
1. Define Monetary Policy.
2. What is the name of the institution that carries Monetary Policy?
3. True or False: Article 1 of the Constitution is where you will find the EXPRESSED POWER for the institution that carries out.
1. The actions taken by the Federal Reserve System to regulate the economy
2. The Federal Reserve System (the central bank).
3.FALSE - Article 2 and there is no EXPRESSED POWER.
1. List the Six "supposed" Functions of the Federal Government.
2. Define a Beneficial Externality.
EXTRA CREDIT: Provide one Example of a Beneficial Externality (+1)
1. (a) Safeguarding competition and the market system, (b) providing public goods and services, (c) correcting for harmful externalities (Such as Pollution), (d) maintaining Economic Stability, (e) Redistributing Income and Wealth, and (d) Redistributing Resources
2. a side effect of an economic activity that provides a source of enjoyment for the public
EXTRA CREDIT: Example: Scientific/Technological Discovery, Immunizations/Vaccinations, and Restoring Historic Buildings
1. Define a Command Economy.
2. True or False: Communism is an example of both a Political and Economic System.
3. Which of the following countries listed below has or had a "successful/thriving" command economy?
a. USSR - Soviet Russia
b. Cuba
c. North Korea
d. Denmark
e. None of the Above
1. An economy in which the Four Factors of Production are owned by the Government (centralized power - nationalizing industries)
2. TRUE
3. E. None of the Above (Denmark practices socialism)
1. Define "Production Differentiation."
2. Provide an example of this in "real life."
1. The creation by sellers of the appearance that their products are different from those of their competitors, while, in fact, they are similar
2. Example => Hamburgers (In & Out, McDonald's, Carls Jr., Burger King, Habit Burger...)
1. Give an example M0 Cash.
2. Give an example M1 Cash.
3. Give an example M2 Cash.
4. Give an example M3 Cash.
1. Cash in Pocket.
2. Debit Card/ Checking Account
3. Savings Account
4. Trump Level Off-Shore Accounts (Monaco Formula I Racing Status)
1. Define a Regressive Tax system
2. Define a Flat or Proportional Tax System
3. Define a Progressive Tax System
1. People with the lowest income get taxed the most
2. Everyone essentially taxed the same percent on their income no matter how much they make.
3. People with the highest income get taxed the most
1. True or False: The FED combats INFLATION by INCREASING the Reserve Ratio.
1A. Be able to explain why as well.
2. True or False: The FED combats DEFLATION by DECREASING the Reserve Ratio.
2A. Be able to explain why as well.
1. True
1A. Increasing the Reserve Ratio forces banks to hold on to more money. This limits how much money a bank can loan out, which helps to limit the amount of money in circulation
2. True
2A. Decreasing the Reserve Ratio allows banks to keep less money on site. This allows banks to loan money out more freely; thereby, increasing the potential money in circulation.
1. List the top three sectors that receive the most funding in the Federal Government's Budget.
2. List the 4 Reasons Why the Federal Government has increased in size (based on your textbook).
1. (A) Medicare, Medicaid, CHIP, (B) Social Security, and (C) Military/Defense
2. (A) Increase Military Spending, (B) Population Growth [Baby Boom Posted WWII], (C) Rising Expectations for Government Subsidies, and (D) Inflation
1. What are some of the key characteristics of a Free Market (List at least three).
2. TRUE OR FASLE: Private Individuals/Companies and the Government own the Factors of Production in a Free Market Economy.
1. [EXAMPLES] (A) Motivated by Profit, (B) Limited Government Intervention, (C) Competition, and (D) Adaptability - Market Driven by Supply and Demand
2. False - Private Individuals and Companies own the Factors of Production
1. Describe a Bull Market.
2. Describe a Bear Market.
3. Explain why each market is described by the particular animal assigned to it.
1. Rise in Stock Prices
2. Fall or drop in Stock Prices
3. Bulls gore upwards with their Horns and Bears swipe down with their claws.
1. Define a Beneficial Externality.
2. Define a Negative Externality.
3. Provide an example of a Positive Externality
4. Provide an example of a Negative Externality
1. A side effect of an economic activity that provides a source of enjoyment for the public
2. A side effect of economic activity, one that imposes costs on the public
3. Examples: Immunizations, Restored Historic Buildings, Research new Tech (NASA)
4. Examples: Vehicle pollution, Household waste, Noise Pollution from neighbours, Air pollution
1. Define Expansionary Fiscal Policies.
2. Define Contractionary Fiscal Policies.
3. True or False: The Government uses EXPANSIONARY FISCAL POLICIES to combat INFLATION.
4. EXTRA POINT: Be able to explain what fiscal policy the Government would use to combat inflation and why would they use it.
1. When the federal government INCREASES taxing and spending
2. When the federal government DECREASES taxing and spending
3. False
4. Inflation = rise in prices/too much $$ in circulation. Uses contractionary fiscal policies to pull money out of the economy/lower amount in circulation)
1. True or False: The FED increases the DISCOUNT RATE in order to combat DEFLATION.
1A. Be able to explain why.
2. True or False: The FED increases the DISCOUNT RATE in order to combat INFLATION.
2A. Be able to explain why.
1. FALSE
1A. Reducing the Discount Rate increases the ability of banks to borrow money from the FED and make a profit. Therefore, it increases banks' desire to loan money out to private individuals and businesses (INCREASE MONEY SUPPLY)
2. TRUE
2A. Increasing the Discount Rate reduce the ability of banks to borrow money from the FED and make a profit. Therefore, it decreases banks' desire to loan money out to private individuals and businesses (DECREASE MONEY SUPPLY)
1. Define a Progressive Tax System, Flat/Proportional Tax System, and Regressive Tax System
2. True & False: ONLY the Federal Government implements an INCOME TAX
1. Progressive =
2. False, States have an income tax too (lucky you).
1. Define "Managed Capitalism."
2. TRUE or FALSE: Managed Capitalism is really just another name for a Free Market Economy.
1. [General Definition] the party-state commands the economy by controlling personnel, organizations, and capital in both political and economic arenas.
2. False, it reflects the practices of Socialism/Communism & therefore would fall into the category of either Mixed Economy at best and a Command Economy at worst.
1. Define the Four Factors of Production.
2. True or False: Entrepreneurship flourishes in a COMMAND ECONOMY.
3. True or False: The Federal/State/Local Government owns all Four Factors of Production in a Free Market Economy,
1. Land, Labor, Capital (not $$$), and Entrepreneurship.
2. FALSE
3. FALSE
1. Define Progressive Tax
2. Define Regressive Tax
3. Define Flat/Proportional Tax.
1. A tax that increases in the percentage paid as the taxpayer’s income increases
2. A tax that takes a larger portion of the earnings of people with low incomes than those with higher incomes
3. A tax with a single rate that is applied to all incomes above a certain level
1. Define Frictional Unemployment.
2. Define Structural Unemployment.
3. Define Cyclical Unemployment.
4. Define Seasonal Unemployment.
5. Define Tecnnological Unemployment.
Frictional: unemployment is caused by workers who are “between jobs” for one reason or another
Structural: unemployment occurs when fundamental changes in operations of the economy reduce the demand for workers and their skills
Cyclical: unemployment directly related to swings in the business cycle
Seasonal: unemployment resulting from changes in the weather or changes in the demand for certain products (ex. Field Workers)
Technological: unemployment is caused when workers with fewer skills, talent, or education are replaced by machines (Automation => bank tellers, check out clerks)
1. Define Open Market Operation (OMO).
2. True or False: The FED uses O.M.O to combat INFLATION by selling bonds/securities.
3. True or False: The FED uses O.M.O to combat DEFLATION by selling bonds/securities.
1. The FED buying and selling short-term government securities through the Federal Open Market Committee.
2. TRUE - they "pump" money into the economy by making it more available for District Banks to loan out.
3. FALSE - they buy bonds to pull money out of the economy (limit the amount in circulation)
1. List the Five Key Functions of Taxes.
2. FILL IN THE BLANK: A ______ Tax is an example of a Tax that "discourages certain behaviors" deemed morally and/or Fiscally unacceptable.
3. FILL IN THE BLANK: A ________ (word starts with a "T") is an example of a "protective tax" sometimes used by the Federal Government to protect domestic industry against foreign competition.
1. Pay for the Cost of the Government (Running things like DMV, Postal Services, & Congress),
(B) Redistribute Wealth
(C) Promote Certain Industries
(D) Influence Consumer and Business Spending
(E) To Discourage Certain Behavior
2. Sin
3. Tariff
1. Who was Adam Smith and what theories did he propose/endorse?
2. Who was David Ricardo and what theory did he propose?
2A. Define David Ricardo's key theory.
3. Who is Fredrick Hayek and what economic system did he endorse?
3A. What role did Hayek believe the government should take in regards to interfering with the economy?
1. Scottish Economist & Capitalism/Laissez-Faire (Hands Off - Limited Government Regulation)
2. English Economist & Comparative Advantage
2A. Under certain circumstances it is cheaper for a country to import the goods and services from another country then attempt to produce them
3. Austrian Economist and Free Market Capitalism.
3A. The government should have a limited role in the economy of a nation and allow the natural business cycle/market driven by supply and demand correct itself.