Praxis II 5081 Economics Latest Update Graded A+

Praxis II 5081 Economics Latest Update Graded A+ Adam Smith Considered to be the founder of ecomonics Wealth of Nations published in 1776; analysis of a market economy Equity society wants distribution of goods and services to conform with the notion of "fairness". Classical, Keynesian,Monetary,and Neoclassical The four general view points about the workings of markets is? Microeconomics The study of the individual parts that make up the economy, includes households, business firms, and government agencies. Macroeconomics The study of the economy as a whole, considers inflation, unemployment, and economic growth. Scarcity Human wants and needs exceed the ability of the economy to satisfy those wants and needs. Rational Behavior That given a person's goals and knowledge, people take actions likely to achieve those goals and avoid actions likely to detract from those goals. Marginal Analysis Assume that people make choices by weighing the cost and benefits of particular actions. Division of Labor Different members of a team of producers are given responsibility for different aspects of a production plan. Specialization of Labor Producers become quite apt at those aspects of production they concentrate on. Allocative (Economic) Efficency Occurs when society produces the types and quantities of goods and services that most satisfies its people. Technical Efficiency When society is producing the greatest quantity of goods and services possible from its resources. Contributory Standard People are entitled to a share of goods and services based on what they contribute to society. Needs Standard A person's contributions are irrelevant. Goods and services are distributed based on the needs of different households. Equality Standard Every person is entitled to an equal share of goods and services, simply because they are a human being. Goods Tangible ex. food, cars, and clothing Services Intangible items, ex. education, health care, and lesiure. Resource Refers to anything that can be used to produce goods and services. Six categories of Resources Land, Labor, Capital, Entrepreneurship, Technology, and Scarcity. Law of Increasing Cost States that as more of a good or service is produced, its opportunity cost will rise. Demand The relationship between the price of a product and the amount consumers are willing and able to buy. Law of Demand There is an inverse relationship between price and quantity demand; people will be willing and able to buy more if the product gets cheaper. Ceteris Paribus Economic assumption which means all other factors held constant. Demand Schedule Shows the relationship between the price and the quantity demanded. Supply A schedule or graph showing the relationship between the price of a product and the amount producers are willing and able to supply. Market Equilibrium The intersection of the demand and supply curves. Traditional Systems Rely on custom to determine production and distribution questions. They are slow to change and found in poor Third World countries. Command Economy Rely on a central authority to make economic decesions. Capitalism The productive resources are owned by private individuals. Socialism The productive resources are owned collectively by society and are under control of the government. Circular Flow A model of economic relationships in a capitalistic market economy. Consumer Sovereignty Consumers determine what is produced in the economy. Public Sector The activities of the government. Transfer Payments Money or in-kind items given to individuals or businesses for which the government receives no equivalent good or service in return. Gross National Product A measure of the dollar value of final goods and services produced by the economy over a given period time. Buisness Cycle Alternating periods of prosperity and recession that seem to characterize all market based economies. Peak The high point of business activity. Contraction Period of declining business activity. Trough The low point of business activity. Expansion The period of growing business activity. Secular Trend The long run direction of movement of a variable. Money Anything that is generally acceptable in exchange for goods and services and in payment of debts. Barter Economy Goods and services exchange directly for other goods and services. Liquidity The ease with which an asset can be transformed into spendable form. Functions of Money Medium of Exchange, Unit of Value, Store of Value, and Standard of Deferred Payment. Currency Coins and paper money. Demand Deposits Checking accounts held in commercial banks. Funds are transferred by means of a check. Mutual Funds An investment fund managed by a private financial company. Deposit Accounts An investment fund that is managed by a commercial bank. Financial Intermediaries Organizations such as commercial banks, savings and loan institutions, credit unions, and insurance companies. Reserves A bank's monetary holdings. Required Reserves Rato The amount of reserves a bank must hold. Is a number from 0 to 1.00 that determines the level of reserve holdings in relation the the bank's deposits. Required Reserves The amount a bank is legally obligated to hold. Excess Reserves The difference between the amount of reserves a bank holds and what it is required to hold. Federal Reserve System To oversee the stability of the banking system and conduct monetary policy to the end of fighting inflation and unemployment and stimulating economic growth. Discount Rate The interest rate the Fed charges on loans.