Term
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Definition
| Economics is the study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals. |
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Term
| What are two branches of economics? |
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Definition
| There are two major branches of economics: macroeconomics studies the operation of a nation's economy as a whole, and microeconomics studies the behavior of people and organizations in particular markets (e.g., why people buy smaller cars when gas prices go up). |
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Term
| How can we be assured of having enough resources? |
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Definition
| Resource development is the study of how to increase resources and create the conditions that will make better use of them. |
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Term
| How does capitalism create a climate for economic growth? |
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Definition
| Under capitalism, businesspeople don't often deliberately set out to help others; they work mostly for their own prosperity and growth. Yet people's efforts to improve their own situation in life act like an invisible hand to help the economy grow and prosper through the production of needed goods, services, and ideas. |
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Term
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Definition
| Capitalism is an economic system in which all or most of the means of production and distribution are privately owned and operated for profit. |
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Term
| Who decides what to produce under capitalism? |
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Definition
| In capitalist countries, businesspeople decide what to produce, how much to pay workers, and how much to charge for goods and services. They also decide whether to produce certain goods in their own countries, import those goods, or have them made in other countries. |
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Term
| What are the basic rights people have under capitalism? |
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Definition
1. The right to private property
2. The right to own a business and to keep all of that business's profits after taxes
3. The right to freedom of competition
4. The right to freedom of choice
President Franklin D. Roosevelt felt that other economic freedoms were also important: the right to freedom of speech and expression, the right to worship in your own way, and freedom from want and fear. |
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Term
| How does the free market work? |
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Definition
The free market is one in which buyers and sellers negotiating prices for goods and services influence the decisions about what gets produced and in what quantities.
Buyers' decisions in the marketplace tell sellers what to produce and in what quantity. When buyers demand more goods, the price goes up, signaling suppliers to produce more.
The higher the price, the more goods and services suppliers are willing to produce. Price is the mechanism that allows free markets to work. |
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Term
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Definition
Socialism intends to create more social equity. Workers in socialist countries usually receive more education, health care, and other benefits and also work fewer hours, with longer vacations.
The major disadvantage of socialism is that it lowers the incentive to start a business or to work hard.
Socialist economies tend to have a higher unemployment rate and a slower growth rate than capitalist economies. |
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Term
| How does socialism differ from communism? |
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Definition
| Under communism, the government owns almost all major production facilities and dictates what gets produced and by whom. Communism is also more restrictive when it comes to personal freedoms, such as religious freedom. |
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Term
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Definition
| A mixed economy is part capitalist and part socialist. Some businesses are privately owned, but taxes tend to be high to distribute income more evenly among the population. |
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Term
| What countries have mixed economies? |
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Definition
| The United States has a mixed economy, as do most other industrialized countries. |
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Term
| What are the benefits of mixed economies? |
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Definition
| A mixed economy has most of the benefits of wealth creation that free markets bring plus the benefits of greater social equality and concern for the environment that socialism promises. |
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Term
| What are the key economic indicators in the United States? |
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Definition
Gross Domestic Product (GDP) is the total value of final goods and services produced in a country in a given year.
The unemployment rate refers to the percentage of civiians at least 16 years old who are unemployed and tried to find a job within the most recent four weeks.
The consumer price index (CPI) measures changes in the prices of about 400 goods and services that consumers buy. |
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Term
| What are the four phases of business cycles? |
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Definition
In an economic boom, businesses do well.
A recession occurs when two or more quarters show declines in the GDP, prices fall, people purchase fewer products, and businesses fail.
A depression is a severe recession.
Recovery occurs when the economy stabilizes and starts to grow. |
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Term
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Definition
| Fiscal policy consists of government efforts to keep the economy stable by increasing or decreasing taxes or government spending. |
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Term
| What is the importance of monetary policy to the economy? |
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Definition
| Moentary policy is the management of the money supply and interest rates. When unemployment gets too high, the Federal Reserve Bank (the Fed) may put more money into the economy and lower interest rates. That is supposed to provide a boost to the economy as businesses borrow and spend more money and hire more people. |
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