Core economic principles
What does macroeconomics study?
Macroeconomics is the study of the entire economy as a whole rather than individual markets.
What are the characteristics of an oligopoly?
- high barrier to entry
- controlled by a few large companies
- products are similar, but not identical
- high interdependence
What is an import?
Goods that a country buys from another country. Countries rely on imports when they don't produce certain goods (e.g. Japan with natural resources like oil, natural gas, and minerals)
What is fiscal policy?
The use of government spending and taxation to influence the economy
What is the general increase in prices over time that reduces the purchasing power of money?
Inflation
What is the Law of Demand?
The law of demand states that a higher price leads to a lower quantity demanded and that a lower price leads to a higher quantity demanded.
What are price controls?
Government-mandated minimum or maximum prices set for specific goods and services (price ceiling and price floors)
What country is #1 in amount of exports?
China
What is a central bank?
A government institution that controls a country's money supply, manages interest rates, and helps keep the banking system stable
What is the total amount of money a government owes, typically as a result of borrowing?
Debt
What is specialization?
When a business, individual, or country focuses on a specific area of expertise or type of production
What is the definition of Game Theory?
The study of strategic decision making and how companies compete with each other in the real world
What are net exports?
The annual difference between a country's exports and imports
What is a progressive tax?
- The tax rate increases as income rises (Example: U.S. federal income tax – 10% on low income, up to 37% for high earners)
What term describes the condition where some people have significantly more income and wealth than others?
Income Inequality
What is the law of diminishing marginal utility?
As consumption of a good increases, the additional satisfaction (marginal utility) derived from each unit decreases
What is the framing effect?
Cognitive bias that explains why individuals make decisions based on how an issue is presented, or “framed,” rather than on the facts presented.
What are price signals?
Information that markets generate to guide the distribution of resources
What is the multiplier effect?
An initial change in government spending leads to a larger overall impact on the economy
What do we call a sudden and unsustainable rise in asset prices, often followed by a crash?
Bubble
What famous economist said "Government intervention is necessary to stabilize an unstable economy."?
John Keynes
What is the definition of externalities?
When the production or consumption of a specific good or service impacts a third party that is not directly related to the production or consumption of that good or service
What is a balance of payments?
A record of all financial transactions between a country and the rest of the world (records all money coming in and going out of a country)
What is crowding out?
A situation where increased government spending leads to reduced private sector investment
What is the term for when government spending exceeds its revenue in a given year?
Deficit