Transcript Final Exam Review - Ector County ISD

Final Exam Review
Economics Fall 2015
Policy costs and benefits
Markets – characteristics of
Study: exports and imports
Trade barriers like tariffs and quotas impact
the cost of imports
• If Canada places a tariff on sports equipment from China that is 50%
of the cost that is 1000.00 what would the tariff do to the cost of the
equipment?
• The equipment would cost 1000.00 plus 50% so 500.00 for a total of
1500.00
• As the cost goes up Canada would not want to import as much so the
exports of equipment from China would go down.
Characteristics of free enterprise:
Voluntary exchange, competition, profit motive, private property rights, economic freedom.
Capital goods
• In factors of production, capital goods are those things used to make
other things: tools.
• For example, making a cake takes capital of mixing bowl, spoon,
measuring cups, pan, and oven.
Problems in economics
• All economies must answer these questions:
• What will we produce?
• How will we produce it?
• Who will get what we produce?
• Remember that it is all about the choices we make and that all
choices come with a cost!
Savings and high-risk investments
5 C’s of credit
• The five key elements a borrower should have to obtain credit:
• 1. Character (integrity),
• 2. Capacity (sufficient cash flow to service the obligation),
• 3. Capital (net worth),
• 4. Collateral (assets to secure the debt), and
• 5. Conditions (of the borrower and the overall economy).
Building good credit and eliminating debt
• Do not allow your monthly bills to exceed your monthly income
• Plan savings into your monthly payments.
• Pay off your purchases monthly- if not always make more than the
minimum payments
• Pay your bills on time
Bankruptcy: benefits and costs
Insurance benefits
• Insurance is like a life raft. You pay an insurance company monthly or
quarterly premiums, and if something bad happens, traffic accident,
illness, apartment fire, death, insurance pays to help get over the
expenses of those bad events.
• If nothing bad happens, the company just keeps the money.
• Common types of insurance: car, homeowners, life, health.
REMEMBER THAT SOME INSURANCES ARE REQUIRED BY LAW- CAR LIABILITY IS ONE OF THOSE
Bill Gates philosophy of giving- that it is a
responsibility
• Gates challenged businesses to go beyond giving cash or matching
employees' charitable contributions. Instead, he said, companies
should devote 5 percent of their innovative people resources to
solving the problems of the world's poor—who are their future
customers. Drug companies, cell-phone suppliers, banks, and food
companies all could do something by tapping their "innovation
power," and in so doing would become much more attractive to their
prospective young employees—an element in creative capitalism
from which everyone could gain.
Costs and benefits of home ownership.
Assets and net worth
• Define Assets
• Assets are items that are owned and have value. Assets would include cash, investments, money that is
owed to the person or entity (accounts receivable), inventory of items for sale, supplies, pre-paid expenses,
land, land improvements (buildings), equipment, etc.
• Define Liabilities
• Liabilities are obligations or items that are owed to others. Liabilities are the accounting opposite of assets.
Liabilities would include accounts payable, accrued interest and principle on bonds issued, accrued interest
and principal on mortgages outstanding, etc.
• Define Net Worth Calculation
• Assets – Liabilities = Net Worth
• Net worth is the total assets minus total liabilities of an individual or entity. Net worth may also be referred
to as book value or owner’s equity. In other words, net worth is the accounting value of an individual or
entity if all assets were sold and liabilities were paid in full on a specific date.
International trade allows nations to use resources more efficiently, to increase the standard of living and to shift
the PPC outward.
Characteristics of economic expansion
With expansion you
will see increase in:
GDP, demand,
inflation and
employment since
unemployment
would go down.
Technology and economic growth relationship
• Advances in technology have created:
• millions of good new jobs,
• better health and longer lives,
• new opportunities for individuals, and
• enrichment of our lives in ways we would not have been able to
imagine half a century ago.
With new technology people are able to produce more with less, this allows economic growth and shifts the PPC out.
International trade and economic growth
• International trade is beneficial for the countries involved in trade, if
practiced properly.
• International trade opens up the opportunities of global market to the
entrepreneurs of the developing nations.
• International trade also makes the latest technology readily available to
the businesses operating in these countries.
• It results in increased competition both in the domestic and global fronts.
• To compete with their global counterparts, the domestic entrepreneurs try
to be more efficient and this in turn ensures efficient utilization of
available resources.
Role of government in the free enterprise
system
• Protector: makes laws against bad products, false advertising, unsafe
working conditions, and fraud or truthful consumer information.
• Provider: provides goods and services, like highways, schools, justice
system, national defense.
• Regulator: preserves competition, zoning laws, interest rates,
preventing monopolies
• Consumer: buys factors and products to accomplish its role. Is now a
bigger consumer than all private businesses combined.
OSHA – define and understand
• Occupational Safety and Health Administration
• OSHA's mission is to assure safe and healthful workplaces:
• by setting and enforcing standards, and
• by providing training, outreach, education and assistance.
• Employers must comply with all applicable OSHA standards.
Employers must also comply with the General Duty Clause of the OSH
Act, which requires employers to keep their workplace free of
serious recognized hazards.
Federal, state, and local taxation policies
• Federal: income taxes, excise taxes, import taxes.
• Income taxes: individual and business.
• Excise taxes: charged on some goods and services.
• Import taxes: charged on items entering the country.
• State: income taxes, sales taxes
• Sales taxes: charged on some goods and services sold.
• Local: sales taxes, property taxes
• Property taxes: charged on the value of real property owned
Federal expenditures
Unemployment rate, GDP, CPI
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Unemployed persons are persons who:
Are aged 16 year or older,
Are not engaged in any employment (self or otherwise),
Were available for job in last four weeks, and
Have made specific efforts to find a job at any time during last four weeks.
GDP (Gross Domestic Product):
one of the primary indicators used to gauge the health of a country's economy. It
represents the total dollar value of all goods and services produced over a
specific time period; you can think of it as the size of the economy.
• CPI (Consumer Price Index):
• a measure of the average change over time in the prices paid by urban
consumers for a market basket of consumer goods and services.
Full Employment is 4-6% unemployed, never
0
• When unemployment goes above 6% the government would consider
using fiscal policy to help stimulate the economy.
• Fiscal policy is to either +/- government spending and to +/- taxes
• To stimulate the economy the government could increase spending and/or
decrease taxes enabling citizens to have more money to spend.
Business cycle
The business cycle or
economic cycle is the
downward and upward
movement of gross
domestic product (GDP)
around its long-term
growth trend.
Federal Reserve structure
The Federal Reserve is the nations central bank.
It is owned by the 12 member banks
The Chair Person and Board are appointed by the President
and confirmed by the Senate.
Federal Reserve System responsibilities
Maintaining the Currency
Today's currency is made up of Federal Reserve notes that are printed by the U.S. Bureau of
Engraving and Printing. This currency is issued in amounts of $1, $2, $5, $10, $20, $50, and $100.
The Bureau of the Mint produces coins as well.
Maintaining the Payments System
The payments system involves more than the money supply. It also covers the electronic transfer of
funds between businesses, state and local governments, financial institutions, and foreign central
banks. The Fed works with all of these agencies to ensure that the payments system operates
smoothly. The Fed also supervises online banking procedures.
Regulating and Supervising Banks
The Fed is responsible for establishing specific guidelines that govern banking behavior. It also has the
responsibility for monitoring, inspecting, and examining various banking agencies to verify that they
comply with existing banking laws. Banks that the Fed does not directly inspect and regulate are
examined by the Federal Deposit Insurance Corporation (FDIC), the Comptroller of the Currency, or
various state banking authorities.
Financial Literacy and Consumer Protection
Although some of the Fed's consumer protection activities have been transferred to the Consumer
Financial Protection Bureau (CFPB) in the department of the Treasury, the Fed still supplies a wealth of
information on almost everything financial.
Acting as the Government's Bank
The Fed conducts nationwide auctions of Treasury securities. It also issues, services, and redeems
these securities on behalf of the Treasury. In the process, it maintains numerous demand deposit
accounts for the Treasury.
Conducting Monetary Policy
Although all the above functions are an important part of the Fed's role in the economy, its most
important responsibility is conducting monetary policy.
Bank/financial accounts- all of these are
insured by FDIC up to $250,000
• Checking accounts:
• Deposit money in the bank and withdraw it by check or debit card. Fees apply.
• Types of Savings Accounts
• There are many different types of savings methods available to depositors. Each method has its own set of advantages and disadvantages.
• Certificate of Deposit (CD)
No risk
Higher interest
Longer, higher deposit requirements
• Money Market Mutual Fund (MMMF)
Minimal risk
Higher interest
Longer deposit requirements
• Money Market Deposit
No risk
Higher interest
Deposit requirements
• Savings Account
No risk
Low interest
Easily accessible
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Steps in solving the economic problem:
• Decide:
• What to produce.
• How to produce it.
• For whom to produce it.
• Remember Economics is a science and uses the same processidentify a problem, get information, think of options, predict, take
action
Importance of financial institutions
• Connect investors to borrowers, allowing for growth because they can
borrow for capital investment.
• Provides a safe way to store money
• A place to get/secure loans
• Provide a cushion during recessions, softening the effects.
Law of supply
• As prices rise, more of a good will be supplied.
Law of demand
• As prices rise, less of a good will be desired.
Equilibrium price
• The intersection of supply and demand curves designates the actual
selling price of the good.
Supply
Price
Graphing supply and demand
$35
$30
Equilibrium price and quantity
$25
$20
$15
$10
$5
Demand
100
200
300
400
500
600
800
700
Quantity
Like in science we use decision-making process to
solve economic problems or create theories.
• 1st identify a situation/problem
• 2nd gather information
• 3rd identify options
• 4th predict consequences
• 5th take actions to implement a decision