History
Briefly describe the Industrial Revolution
The Industrial Revolution was a period of major economic and technological change that began in the mid-18th century in Britain and later spread to other parts of the world. It marked the shift from handmade production to machine-based manufacturing, leading to the rise of factories, the use of steam engines, and significant advances in transportation such as railways and steamships.
This revolution greatly increased productivity, encouraged urbanization, and transformed societies. However, it also brought new challenges, including labor exploitation, poor working conditions, and environmental pollution.
State the law of supply.
All else being equal. As the price of a good or service increases, the quantity supplied also increases, and as the price decreases, the quantity supplied decreases.
What is inflation?
A sustained increase in the general price level of goods and services over time, eroding purchasing power.
What is the role of a central bank?
Control money supply and interest rates
Act as a lender of last resort to banks during crises.
Oversee commercial banks to ensure compliance with financial laws.
Maintain foreign reserves and stabilize exchange rates.
Who is the richest man in the world now?
Elon Musk
When did the Great Depression occur?
1929-1939
What is marginal utility?
Marginal utility refers to the additional satisfaction or benefit a person gets from consuming one more unit of a good or service.
The component of GDP?
GDP = C + I + G + (X – M)
C: Consumption (household spending).
I: Investment (business spending on capital goods).
G: Government spending.
X – M: Net exports (exports minus imports).
Name the three functions of money.
Medium of Exchange: Accepted for goods/services (eliminates barter inefficiency).
Store of Value: Retains purchasing power over time (e.g., saving money).
Unit of Account: Provides a standard measure for pricing and debt (e.g., $, €).
What is WTO?
WTO is a global trade organization that sets rules and agreements for international trade.
Who introduce the "invisible hand"?
Adam Smith
How does price elasticity affect pricing?
Elastic Demand (|PED| > 1):
Small price increases lead to large drops in quantity demanded.
Firms often lower prices to boost total revenue (e.g., luxury goods).
Inelastic Demand (|PED| < 1):
Price changes have minimal impact on quantity demanded.
Firms can raise prices to increase revenue (e.g., gasoline, medicines).
Unitary Elasticity (|PED| = 1):
Revenue remains unchanged with price adjustments.
What does CPI measure?
The Consumer Price Index (CPI) tracks price changes for a fixed basket of goods and services (e.g., food, housing, transportation) to measure cost-of-living changes for typical households.
How do banks “create” money?
Banks lend out a portion of deposits while keeping a fraction as reserves.
What are NGOs?
An NGO is a non-profit organization that operates independently from any government. NGOs typically work on various social, political, environmental, and humanitarian issues. They often aim to address global or local problems through advocacy, direct services, or research.
NGOs are typically funded by donations, grants, and fundraising activities. They operate independently of governmental control.
What was the New Deal?
The New Deal redefined the role of the federal government in American life, increasing its responsibility in economic and social welfare.
What are the features of a monopoly?
Only one firm dominates the entire market.
Unique product/service with no close alternatives.
Price Maker: Sets prices above marginal cost to maximize profits.
Profit Maximization: Earns long-term supernormal profits due to lack of competition.
What is the Phillips curve?
A macroeconomic concept showing a short-term inverse relationship between unemployment and inflation.
Why set a reserve requirement ratio?
Ensures banks can meet withdrawal demands.
Limits excessive lending to prevent inflation.
Reduces risk of bank runs and systemic collapse.
Central banks adjust ratios to influence economic activity.
Pros and cons of trade protectionism?
Pros:
Protects domestic industries and jobs from foreign competition.
Encourages development of emerging industries (e.g., via tariffs or subsidies).
Prevents dumping (selling goods below cost to undercut local producers).
Cons:
Raises consumer prices due to reduced competition.
Risks trade wars (retaliatory tariffs from other countries).
Reduces economic efficiency by shielding inefficient industries.
What was the Bretton Woods system?
The Bretton Woods system was a monetary order established in 1944, near the end of World War II, during a conference held in Bretton Woods, New Hampshire. It was created to foster international economic stability and prevent the kind of turmoil that led to the Great Depression and the war.
Established the U.S. dollar as the world’s primary reserve currency, linked to gold at $35 per ounce.
The system worked fairly well for about 25 years but collapsed in the early 1970s when the U.S. ended the gold standard (under President Nixon), leading to today's floating exchange rate system.
How does marginal cost affect pricing?
If MC rises (e.g., due to higher raw material costs), firms may raise prices to maintain profit margins.
If MC falls (e.g., due to efficiency gains), firms might lower prices to gain market share.
What is the output gap?
The difference between actual GDP and potential GDP (the economy’s maximum sustainable output).
What does interest rate liberalization mean?
Transition from government-controlled interest rates to market-driven rates determined by supply and demand.
What’s driving global inflation today?
Supply chain disruptions (post-pandemic recovery, geopolitical conflicts like Ukraine war).
Energy price volatility (oil and gas shortages, sanctions on Russia).
Expansionary monetary policies (low interest rates and quantitative easing during COVID-19).
Labor shortages and wage pressures.
Strong consumer demand outpacing supply in sectors like housing and commodities.