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Back to Subjects - Economics

Review

Review 1. Economics: study of how individuals & nations make choices about ways to use scarce resources to fulfill their needs & wants. 2. Scarcity: state in which people don’t & cannot have enough income, time, or other resources to satisfy. 3. Factors of production: resources of land, labor, capital, & entrepreneurship used to produce goods & services. 4. Entrepreneurship: ability to start new businesses, to introduce new products, & techniques. 1. Trade-off: exchanging one thing for the use of another, often making unavoidable choices because of the problem of scarcity. 2. Opportunity cost: value of the next best alternative given up for the alternative that was chosen. 1. Economy: all activity in a nation that affects the production, distribution, & use of goods & services. 2. Economic model: simplified representation of the real world which shows people’s reactions to changes in the economy; theory. 3. Values: beliefs or characteristics that an individual or group considers important. 1. Traditional economic system: economic systems are based on customs, beliefs, & ways of doing things that have been passed down from generation to generation. 2. Command economic system: the government controls the factors of production & makes all decisions about their use; also called controlled economy. 3. Market economic system: individuals own the factors of production & make economic decisions through free interaction – government doesn’t intervene. 4. Distribution of income: money payment for work, the amount of health care, education, food, & so on, that each person receives; distribution of goods & services among all members of an economic system. 1. Capitalism: private individuals own the factors of production and decide how to use them within the limits of the law; market economic system & free enterprise system. 2. Free enterprise system: individuals own the factors of production & decide how to use them within legal limits. 3. Profit: money left after all the costs of production – wages, rent, interest, & taxes have been paid. 4. Profit incentive: desire to make money that motivates people to produce & sell goods & services that others ant to buy. 5. Competition: rivalry among producers or sellers of similar goods to win more business by offering the lowest prices or better quality. 1. Standard of living: material well-being of an individual, group, or nation measured by the average value of goods & services used by the average citizen during a given period of time. 1. Disposable income: income remaining for people to spend or save after all taxes have been paid. 2. Discretionary income: money income a person has left to spend on extras after necessities have been bought. 1. Generic brand: general name or a product rather than a specific brand name given by the manufacturer. 1. Ethical behavior: acting in accordance with moral & ethical convictions about right & wrong. 1. Principle: amount of money originally borrowed in a loan. 2. Interest: amount of money the borrower must pay for the use of someone else’s money. 1. Commercial bank: bank offering wide range of services; main functions are to accept deposits, lend money, & transfer funds among banks, individuals, & businesses. 2. Credit union: depository institution owned & operated by its members to provide savings accounts & low-interest loans to its members only. 3. Debit card: credit device used to make cashless purchases of goods & services. 1. Credit rating: rating of the risk involved in lending money to a specific person or business. 2. Collateral: something of value that a borrower lets the lender claim if a loan is not repaid. 3. Unsecured loan: loan guaranteed only by a promise to repay it. 1. Usury: law restricting the amount of interest that can be charged for credit. 2. Bankruptcy: the inability to pay debts based on the income received; a condition in which debtors give up most of what they own for distribution to creditors. 1. Condominium: separately owned single unit in an apartment building or a series of townhouses. 2. Depreciate: decline in value over time; occurs as an item wears out or becomes outdated. 1. Closing costs: fees involved in arranging for a mortgage or in transferring ownership of property; can include fees for title search, legal costs, loan application, credit report, house inspections, & taxes. 2. Points: fee paid to a lender & computed as percentage points of a loan. 3. Equity: amount of money invested in a property minus the debt, such as the mortgage payments that are still owed. 1. Excise tax: tax on the manufacture, sale, or use within the country of specific products, such as liquor, gasoline, or automobiles. 2. Liability insurance: pays for bodily injury & property damage. 2. Time deposits: savings plans that require savers to leave their money on deposit for certain periods of time. 3. Certificates of deposit: time deposits that state the amount of the deposit, maturity, & rate of interest being paid. 1. Demand deposits: money deposited in a bank that can be withdrawn at any time; now called checkable deposits. 2. M1: narrowest definition of the money supply; consists of moneys that can be spent immediately and against which checks can be written; includes all the paper bills and coins in circulation including currency, travelers checks, and checkable deposits. 3. M2: broader definition of the money supply; includes all of M1, plus such near moneys as money market mutual fund balances and Eurodollars; includes all paper bills and coins in circulation. 1. The Fed: Federal Reserve System created by Congress in 1913 as the nation’s central banking organization; functions include processing checks, serving as the government’s banker, and controlling the rate of growth of the money supply. 2. Monetary policy : policy that involves changing the rate of growth of the supply of money in circulation to affect the amount of credit and, therefore, business activity in the economy. 3. Reserve requirements : regulations set by the Fed, requiring banks to keep a certain percentage of their deposits as cash in their own vaults or as deposits in their district Federal Reserve Bank. 1. Check clearing: method by which a check that has been deposited in one depository institution is transferred to the depository institution on which it was written. 1. Discount rate: interest rate the Fed charges on loans to banks. 2. Prime rate: rate of interest banks charge on loans to their best business customers. 3. Open-market operations: buying and selling of United States securities by the Fed to affect the money supply by changing depository institution reserves or by putting money into or taking it out of circulation in the economy. Bibliography:

Word Count: 1164