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| study of how we allocate scarce resources |
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| based on profit, supply/demand, etc. |
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| based on politics & government |
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| when did shift to Keynesian economics occur |
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| land, labor, capital, entrepreneur |
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| the wealth underground (oil, natural gas, iron, aluminum, other metals) + wealth above ground |
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| rent + mortgage (borrow & pay back w/ interest) |
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| wages (hourly or per unit/commission) + salaries |
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increases the productivity of labor
physical & human |
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| cost for capital comes from... |
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| prior human knowledge (teachers, profs, etc.) |
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| brings together other 3 factors to create wealth & products |
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| payment for entrepreneurs |
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| tangible & intangible, then also consumer & capital |
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| any product that you can touch |
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| services -> doctors, lawyers, carpenters |
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| for personal satisfaction & enjoyment |
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| give up consumer goods to earn human capital to earn more consumer goods in the future |
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| something of marketable value |
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| who is marketable value determined by |
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| interaction of supply and demand for products |
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country's trade and industry are controlled by private owners, not by the state
right to own private property by individuals |
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| which more important in capitalism: individual or community? |
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| all property and major industries owned by government |
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| which more important in socialism: individual or community? |
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| right to have what job you want |
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| mixed but moving toward socialism |
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how we allocate scarce factors of production
sacrifice today for the expectation that by increasing your human capital, you will become more successful |
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government issued to help people out
causes our debt to increase by $1T/yr |
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| promise by US government to pay back money that they are borrowing |
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| when money for treasury bond is due (most pop. 10 yr.) |
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interest rate
annual payment divided by price |
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| initial amount being lent/borrowed |
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| cost vs. benefit when buying a product or service |
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difference between possible profit due to interest rate & possible risks
% profit of possible investment #1 - % profit of possible investment #2 |
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| function of checking out an investment opportunity |
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| purpose of borrowing money |
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| gross domestic product (GDP) |
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| total market value of all goods and services purchased & produced within a country in a given period of time |
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| accumulation of finished product |
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| excess inventory results in... |
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what you hope to sell
determines inventory |
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| too much inventory = lay off employees |
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| event that occurs completely unexpectedly due to external factors |
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| event that occurs within the economy (i.e. an increase in taxes) due to internal factors |
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| 6 characteristics of classical economics |
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1. minimal government intervention
2. 2 purposes of gov: national defense & encouraged exports
3. money backed by gold until Aug. 15, 1971
4. individual more important than state
5. government operates on a balanced budget |
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revenue > expenditure
helps economy by having money available to borrow |
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| basic factors of demand shock |
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change in taste & desire
change in income
change in wealth (value inc.)
change in taxes |
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| Federal Reserve Banking System |
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central bank
Congress passes 1913 law to minimize great depressions |
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| how did the economy start growing after WWII |
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| European governments devastated. tradesmen immigrate to US w/ specific skills. start their own business or hired. |
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| electricity introduced in 1920 = |
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new inventions that people are buying
people making more income
discovering stock market |
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| only pay marginal price, borrow the rest from broker |
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| when people sell stock what happens to the price of stock |
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| Smoot-Hawley Tariff & its effect |
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1930 - tariff on foreign goods -> raises their price
other countries did the same thing -> made depression worse |
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| 1932 presidential election |
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Herbert Hoover (Rep.) - current pres. - practiced deficit financing
vs. FDR
FDR criticizes Hoover's deficit fin. so Hoover raises taxes
FDR wins |
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| programs implemented by FDR |
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labor unions, unemployment compensation, social security, food & drug, security exchange
also continues Hoover Dam
electricity to small towns & cities |
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| FDR's role in WWII in Europe |
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| secretly shipped supplies to England |
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| Plato & Aristotle emphasized the importance of |
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| agriculture as the basis of wealth and degraded tradesmen and artisans |
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| when did money start being used as a medium of exchange |
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| after the roman empire disintegrated, feudalism grew. tradesmen and merchants organized into guilds (unions) |
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| St. Thomas Aquinas idea/theory |
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| charging of interest as "usury" |
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| Antonio Serra wrote a treatise in which he emphasized that |
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| gold was the source of wealth, not agriculture |
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| encouraged Spain to concentrate on the accumulation of gold and silver |
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| Thomas Munn said that a country should |
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| emphasize trade as the path to wealth and power |
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| Thomas Munn's philosophy which emphasized trade |
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| published The Wealth of Nations which is considered the best summation of economic theory of his time; explained how the wealth of a nation is created and how it is distributed; agriculture & labor as the source of wealth; division/specialization of labor will increase standard productivity |
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| father of the Classical School of Economics |
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| wages increased = more children = food shortages = mass starvation, labor shortage, increasing wages, increasingly more children. only hope is to have wars, pestilence, and famine. |
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| Malthus's writings caused economics to be referred to as |
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| further explained the payment of rent for land, the payment of wages for the services of labor, and how each is determined |
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| wrote the Communist Manifesto (later Das Kapital) -> labor was true source of wealth & it wasn't being paid its fair wages -> labor should unite, rise up, and overthrow the government |
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| wrote Progress and Poverty -> agreed with Marx that labor was exploited, but did not encourage revolution -> recognized that machinery and labor = productivity increases |
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| wrote Principles of Economics -> grand summation of all of the major and accepted theories in economics aka the Bible of the Classical School -> explained how an economy operates & how the payments to the factors of production should be determined |
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| if price is reduced, all of the supply in an inventory will be purchased, prices & wages will readjust, & the economy will reestablish equilibrium at the full empoloyment |
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| Classical Theory said that depressions would |
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| eventually disappear and prosperity would occur but only after dislocations, bankruptcies, and loss of savings, jobs, and businesses |
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| % of labor force unemployed during great depression |
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| professor of classical economics at cambridge; "short run that counts" |
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| "that government that rules the least, rules the best" |
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| Keynes said aggregate ____ more imporant than aggregate _____ |
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| aggregate demand & aggregate supply |
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| total market value of all goods & services purchased in an economy |
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| 4 sectors of aggregate demand |
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1. consumer 70%
2. business 12%
3. government 20%
4. foreign -2.0% |
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| total market value of all goods & services produced in an economy |
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| consumers purchase for... |
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| businesses purchase what? |
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| raw materials, labor, capital, & inventory |
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| purpose of Keynesian economics |
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| all the individuals in a country who want to work, have a job |
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| how to reach full employment |
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| shifts in aggregate demand |
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| what conditions will cause consumers to buy more? |
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| increase in income, lower taxes, change in taste & desires, change in wealth, increase in value of assets, change in interest rates, change in expectations (confidence) |
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| what conditions will cause businesses to buy more? |
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**increase in demand for their product**
higher expectations, lower interest rates, lower production cost, lower taxes, lower inventory |
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| fiscal policy & its what it determines |
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controlled by Congress -> determines the 20% of government spending
1. taxes
2. spending
3. borrowing |
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| monetary policy & what it determines |
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controlled by Federal Reserve Banking System
1. money supply
2. interest rates |
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| what causes foreign to increase/decrease? |
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lower value of dollar = more exports
higher value of dollar = more imports |
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