Transcript Economics EOCT Review- Part 2 - "Education is the most powerful

Economics EOCT ReviewPart 2
Define macroeconomics.
• A branch of economics dealing with the
performance, structure, behavior, and
decision-making of an economy as a
whole, rather than individual markets.
• This includes national, regional, and
global economies.
What is proportional tax?
• The taxing authority charges the same rate
of tax from each taxpayer, irrespective of
income.
What is a progressive tax?
• A tax that takes a larger percentage from
the income of high-income earners than it
does from low-income individuals. The
United States income tax is considered
progressive
What is a regressive tax?
• A tax that takes a larger percentage from
low-income people than from high-income
people. A regressive tax is generally a tax
that is applied uniformly. This means that
it hits lower-income individuals harder.
What type of tax is a tax on the
manufacture or sale of items such as
gasoline and liquor?
• Luxury Tax- Gasoline
• Sin Tax- Tobacco and alcohol
What is the dollar amount of all final
goods and services and produced within
a country’s national borders?
• GDP
What is the formula used to
measure the inflation rate?
What type of inflation states that
labor groups cause inflation?
• Cost-push inflation
What is the dollar value of all final goods,
services, and structures produced in one year
with labor and property supplied by U.S.
residents?
• Gross Nation Product
How do economists define a
recession?
• A period of temporary economic decline
during which trade and industrial activity
are reduced, generally identified by a fall
in GDP in two successive quarters.
What type of unemployment is
caused by workers between jobs?
• Frictional unemployment
What type of inflation is caused by all
sectors in the economy trying to buy
more than the economy can produce?
• Demand-pull inflation
What is expansion?
• Period of growth of real GDP
• Recovery from recession
What type of unemployment is
caused by changes in the weather?
• Seasonal unemployment
What is technological
unemployment?
• Caused by workers with less skills, talent,
or education are replaced by machines and
other equipment that do their jobs
What is the wage-price spiral view
of inflation?
• Theory that explains the cause-and-effect
relationship between rising wages and rising
prices, or inflation.
• The wage-price spiral suggests that rising wages
increase disposable income. This raises the
demand for goods and causes prices to rise.
• Rising prices cause demand for higher wages,
which leads to higher production costs and further
upward pressure on prices.
How many districts are there in the
Federal Reserve System? Which district
is Atlanta found in?
• There are 12 districts in the Federal
Reserve System.
• Atlanta is found in the 6th district.
List two reasons for the structure of
the Fed.
1. The Fed is privately owned by its member banks.
These are commercial banks that are members of, and
hold stock in, the Fed. When member banks joined
the Fed, they were required to purchase some of its
shares, making them part owners of the Fed.
2. In 1935 Congress established a Board of Governors
for the Fed. This board sets general policies for the
Fed to follow, regulates certain operations of statechartered member banks, and conducts some aspects
of monetary policy.
List the three major tools of
monetary policy used by the Fed.
• Open market operations
• Discount rate
• Reserve requirements
List some of the tools of fiscal policy that
can be used by the federal government
• Taxing
• Spending
Who selects the Board of Governors
of the Fed?
• The President appoints the Board of
Governors and the Senate approves the
appointments.
What things does the Federal Open
Market Committee do for the FED?
• Makes decisions about the growth of the
money supply and the level of interest
rates.
• Reviews the country’s economy and makes
decisions about the cost and availability of
credit.
What are banks that belong to the
Federal Reserve System called?
• Member banks
What things does the Federal
Advisory Council do for the Fed?
• Provides advice on matters concerning the
overall health of the economy
List some things that affect
aggregate demand.
• Increase/decrease in total consumer
spending
• Government raising taxes or decreasing
spending- Fiscal Policy
• Net exports
• Real interest rate changes
• Inflation expectation changes
List some things that affect
aggregate supply.
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Supply shocks
Resource price changes
Changes in expectations for inflation
Productivity improvements
Institutional changes
Public goods at low cost
What happens to the money supply
when the reserve requirement is
increased? Decreased?
• When the reserve requirement is increased,
money supply is smaller because there is less
money available for the banks to loan.
• When the reserve requirement decreases,
money supply is larger because there is more
money is available for the banks to loan.
What happens to the money supply
when the discount rate is
increased? Decreased?
• When the discount rate is increased, fewer banks
will want to borrow from the Fed. This will decrease
the money supply banks have to loan customers
and interest rates will go increase.
• When the discount rate is decreased, more banks
will want to borrow from the Fed. This will increase
the money supply banks have to loan to customers.
What happens to the money supply
when the FED buys government
securities? Sells government securities?
• When the Fed buys government securities,
money supply increases, putting
downward pressure on interest rates.
• When the Fed, sells government securities,
money supply decreases, putting upward
pressure on interest rates.
What type of unemployment is the
most dangerous? Describe it.
• Structural unemployment
• Occurs when a fundamental change in the
operations of the economy reduces the
demand for workers and their skills
• Changes in technology and consumer taste
often lead to structural unemployment.
What type of unemployment is caused
by ups and downs in the economy?
• Cyclical unemployment
The buying and selling of government
securities is which tool of monetary
policy?
• Open market operations
If the Fed increases the reserve
requirement, what will happen to the
money supply?
• When the reserve requirement is
increased, money supply is smaller
because there is less money available for
the banks to loan.
If the economy is in a recession, what
fiscal policy could the government use to
strengthen the economy?
• The government might lower tax rates to try
to fuel economic growth.
• If people are paying less in taxes, they have
more money to spend or invest.
• Increased consumer spending or investment
could improve economic growth and bring
the economy out of a recession.
If the Fed sells government securities,
what will happen to the money supply?
• When the Fed, sells government securities,
money supply decreases, putting upward
pressure on interest rates.
If the Fed decreases the reserve
requirement, what will happen to the
money supply?
• When the reserve requirement decreases,
money supply is larger because there is
more money is available for the banks to
loan.
If the economy is experiencing deflation,
what could the Fed do to stop it?
• To stop deflation, the Fed could increase
money supply and raise prices to
intentionally cause inflation, using
monetary policy.
What is the difference between debt
and deficit?
• Deficit is spending in excess of revenues
collected.
• Debt is the total amount borrowed from
investors to finance the government’s
deficit spending.
Who makes fiscal policy decisions?
• Congress and the administration
• The Fed plays no role in determining fiscal
policy.
List some of the countries that
belong to OPEC.
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Qatar
Indonesia
Libya
the United Arab Emirates
Algeria
Nigeria
Ecuador
Gabon
Angola
List some of the countries that
belong to the European Union.
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Austria
Belgium
Denmark
France
Greece
Italy
Poland
Spain
What type of tariff is designed to
raise money?
• Revenue tariff
What are quotas?
• Limit on the amount of a good that can be
allowed into a country
Explain what a trade deficit is.
• Balance of payments outcome when
spending on imports exceeds revenues
received from exports
In what type of economic system are the
means of production privately owned?
• Capitalism
List some countries that belong to
ASEAN.
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Singapore
Indonesia
Malaysia
Thailand
Philippines
Viet Nam
Cambodia
List the three countries that are
part of NAFTA.
• Canada
• Mexico
• United States
What type of tariff is designed to protect
domestic industries?
• Protective tariff
What is the key to trade?
• Specialization
In what type of economic system are the
means of production collectively owned?
• Socialism
What is the difference between an
absolute and comparative advantage?
• Absolute advantage is when a country can
produce a product more efficiently than
another country.
• Comparative advantage is the ability for a
country to produce a product relatively more
efficiently or at a lower cost than another
country.
List the five reasons for protecting the
U.S. from foreign goods.
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National defense
Promoting infant industries
Protecting domestic jobs
Keeping the money at home
Helping the balance of payments
In what type of economic system are the
basic productive resources owned by the
government?
• Communism
What is collateral?
• Property or other security used to
guarantee repayment of a loan
Define junk bonds.
• High-yield or non-investment grade bond
• These bonds are called junk bonds because
of their higher default risk in relation to
investment-grade bonds.
Explain that people respond to positive
and negative incentives in predictable
ways.
• 1) Incentive - something that incites or tends
to incite to action or greater effort, as a
reward offered for increased productivity. 2)
Positive - an economic, legal or institutional
measure designed to encourage beneficial
activities. 3) Negative - measures or
disincentives are mechanisms designed to
discourage activities that are harmful to the
economy.
Use a rational decision making model to
select one option over another.
Create a savings or financial
investment plan for a future goal.
What services are offered by a
bank?
• House money in checkings or savings
deposits
• Store valuable possessions
• Offers loans- credit cards, mortgage, car,
personal business, etc.
What services are offered by a
credit union?
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Low cost
Employment for members
Share draft accounts
Interest-earning checking accounts
What services are offered by a
savings and loan?
• Invests the majority of its fund in home
mortagages
• Insure savings and loan deposits
Explain reasons for the spread between
interest charged and interest earned.
• 1) The goal of a financial intermediary, or a
business that loans money (bank, etc.), is to
make a profit. In order to make a profit one
method they use is to charge more to loan
money than they pay on deposits. Example a savings account might offer a 1% return,
while a loan on a mortgage might be 5%.
The difference between the interest charged
and interest earned is profit for the bank.
Give examples of the direct relationship
between risk and return.
• 1) Risk – the level of uncertainty of an
investment. 2) Risk and Return – the higher
the risk, the higher potential return. The lower
the risk, the lower the potential return.
Explain what a savings account is.
• Interest-bearing deposit not requiring
prior notice before making a withdrawal
Explain what a US Treasury Bond
is.
• Type of bond issued when the government
borrows money for periods longer than year
• Have maturities ranging from more than 10
to as many as 30 years
• Come in denominations of $1,000 so small
investors can afford to buy them
Explain a Stock Mutual fund.
• An investment fund that is made up of a pool of funds
collected from many investors for the purpose of investing in
securities (stocks, bonds, money market instruments and
similar assets).
• Operated by money managers, who invest the fund's capital
and attempt to produce capital gains and income for the
fund's investors.
• A mutual fund's portfolio is structured and maintained to
match the investment objectives stated in its prospectus.
Explain stock.
• Certificate of ownership in a corporation
Give examples of who benefits and
who loses from inflation.
• 1) Purchasing Power the number of
goods/services that can be purchased with a
unit of currency.
• 2) Unanticipated inflation – if someone is
living on a fixed income and prices rise, their
purchasing power diminishes
Define progressive tax.
• Tax where percentage of income paid in
tax rises as level of income rises
Define regressive tax.
• Tax where percentage of income paid in
tax goes down as income rises
Define proportional tax.
• Tax in which percentage of income paid in tax
is the same regardless of the level of income
Explain how an increase in sales tax
affects different income groups.
• The poor bear the burden of the regressive tax
List factors that affect credit
worthiness.
• 1) Capacity - Capacity refers to the ability of the individual to
generate revenues in order to pay back the loan.
• 2) Capital – borrowers accumulation of wealth measured in
net worth and assets.
• 3) Character - Character refers to the financial history of the
borrower; that is, whet kind of "financial citizen" is this
person or business? Character is most often determined by
looking at the credit history, particularly as it is stated in the
credit score (FICO score). -Factors that will affect your credit
score include: 1. Late payments 2. Delinquent accounts 3.
Available credit
• 4. Total debt 4) Collateral – something of value that the
borrower can give to the lender if they default on the
payment
Explain the difference between
simple and compound interest
rates.
• 1) Simple – interest is earned on principal
only.
• 2) Compound – interest that is earned on
principal and any accumulated interest
Simple Interest Formula
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Simple interest= P x I x N
P= loan amount
I= interest rate
N= duration of loan
Compound Interest Formula
= [P (1 + i)n] – P
= P [(1 + i)n – 1]
P= principal
i= nominal annual interest rate in percentage
terms
• n= number of compounding periods
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Continuous Compound Interest
Formula
Health Insurance
• A type of insurance coverage that pays for
medical and surgical expenses that are
incurred by the insured.
• Health insurance can either reimburse the
insured for expenses incurred from illness or
injury or pay the care provider directly.
Auto Insurance
• A policy purchased by vehicle owners to
mitigate costs associated with getting into an
auto accident.
• Instead of paying out of pocket for auto
accidents, people pay annual premiums to an
auto insurance company.
• The company then pays all or most of the
costs associated with an auto accident or
other vehicle damage.
Disability Insurance
• a form of insurance that insures the
beneficiary's earned income against the risk
that disability will make working (and
therefore earning) impossible.
Property Insurance
• homeowner's insurance, is the type of property
insurance that covers private homes. It is an
insurance policy that combines various personal
insurance protections, which can include losses
occurring to one's home, its contents, loss of its
use (additional living expenses), or loss of other
personal possessions of the homeowner, as well
as liability insurance for accidents that may
happen at the home or at the hands of the
homeowner within the policy territory.
Premium
• the amount that a consumer has to pay to the
insurance company for coverage
Asset Protection
• – refers to a protecting the assets of
individuals and business entities.
Deductible
• the amount that a consumer has to pay before
the insurance company pays their part.
Shared Liability
• where two or more persons are liable in
respect of the same liability, in most common
law legal systems Asset Protection.
Identify skills that are required to
be successful in the workplace.
• Communication Skills, leadership skills,
problem solving, ability to self-manage and be
self-motivated, etc.
Explain the significance of investment in
education, training, and skill
development.
• Human Capital – the skills, ability, training and
education of workers. As their human capital
increases, so too does the ability to become
more marketable in the workforce.