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Economics

Study Guide

QuestionAnswer
Inflation Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over a period of time
Branch of the U.S. Treasury Dept. in charge of collecting taxes The U.S. Department of the Treasury is the executive branch of the federal government that manages national finances. Treasury collects taxes through the Internal Revenue Service.
Microeconomics markets of goods and services and deals with individual and economic issues. study of individuals, households and firms' behavior in decision making and allocation of resources
conglomerate A conglomerate is a combination of multiple business entities operating in entirely different industries under one corporate group, usually involving a parent company and many subsidiaries.
substitution effect the substitution effect is the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises.
goods goods are materials that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product.
market economy economic decisions and the pricing of goods and services are guided by the interactions of a country's individual citizens and businesses.
disposable personal income is the amount of money that households have available for spending and saving after income taxes have been accounted for.
a cooperative private business organization that is owned and controlled by the people who use its products, supplies or services.
expenditures The action of spending funds.
financial/capital account financial account measures the increases or decreases in international ownership assets that a country is associated with, while the capital account measures the capital expenditures and overall income of a country.
Human Capital economic value of a worker's experience and skills. This includes assets like education, training, intelligence, skills, health, and other things employers value such as loyalty and punctuality
Consumer Price Index (know how it works) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. formula: CPI = (Cost of basket in current period/Cost of basket in base period) × 100.
supply & demand (be able to read and understand a supply & demand chart) A demand curve shows the relationship between quantity demanded and price in a given market on a graph. A supply schedule is a table that shows the quantity supplied at different prices in the market.
elasticity elasticity is the measurement of the proportional change of an economic variable in response to a change in another. It shows how easy it is for the supplier and consumer to change their behavior and substitute another good,
liability the state of being responsible for something, especially by law.- Liabilities are defined as a company's legal financial debts or obligations that arise during the course of business operations.
specialization and exchange Modern economies, whether capitalistic or socialistic, whether fully developed or not, are characterized by specialization of the means of production and by exchange of goods and services. common form of specialization is that of labor.
comparative advantages Comparative advantage is when a country produces a good or service for a lower opportunity cost than other countries.
theory of rational expectations when making decisions, individual agents will base their decisions on the best information available and learn from past trends.
Which capital markets are the stock market associated with Capital markets consist of the primary market, where new securities are issued and sold, and the secondary market, where already-issued securities are traded between investors. The most common capital markets are the stock market and the bond market.
What will decreasing personal tax rates do? With lower income tax rates, they would keep more of their gross income, so effectively they have more money to spend. Higher economic growth.
demand curve a demand curve is a graph depicting the relationship between the price of a certain commodity (the y-axis) and the quantity of that commodity that is demanded at that price (the x-axis).
When is equilibrium present in a market? When the supply and demand curves intersect, the market is in equilibrium. This is where the quantity demanded and quantity supplied are equal.
Losses and business failures Loss of revenue; lost income and a declining customer base may be due to circumstances beyond a businesses control, such as the current economic climate
the law of comparative advantage The law or principle of comparative advantage holds that under free trade, an agent will produce more of and consume less of a good for which they have a comparative advantage.
When will income and living standards of a nation increase? jobs are protected and total employment expands.. One of the most important factors that will affect that is the availability of income resources (JOBS), and of course the continuity of this source.
How does the government fund a project that creates jobs Tax cuts create jobs by giving money to consumers and businesses. Discretionary spending creates jobs by directly hiring workers, sending contracts to businesses to hire workers, or increasing subsidies so that they don't have to lay off workers.
secondary effect Secondary economic activities involve the processing of raw materials (primary products). Examples would include turning timber into furniture and turning iron-ore into steel.
free market economy The free market is an economic system based on supply and demand with little or no government control. Based on its political and legal rules, a country's free market economy may range between very large or entirely black market.
Why do banks choose to borrow directly from the Federal Government? Commercial banks borrow from the Federal Reserve primarily to meet reserve requirements when their cash on hand is low before the close of the business day. To put itself back over the minimum reserve threshold.
economics economics is the study of how society uses its limited resources. Economics is a social science that deals with the production, distribution, and consumption of goods and services
scarcity scarce – resources and theoretically limitless wants. This situation requires people to make decisions about how to allocate resources efficiently, in order to satisfy basic needs and as many additional wants as possible.
partnership A legal form of business operation between two or more individuals who share management and profits.
needs something of necessity
conglomerate goods A conglomerate is a company that owns a controlling stake in smaller ... more by purchasing other companies that make different food products.
trade-offs trade off is an exchange where you give up one thing in order to get something else that you also desire. An example of a trade off is when you have to put up with a half hour commute in order to make more money.
microeconomics Microeconomics is the study of individuals, households and firms' behavior in decision making and allocation of resources. It generally applies to markets of goods and services and deals with individual and economic issues.
market equilibrium a market state where the supply in the market is equal to the demand in the market. The equilibrium price is the price of a good or service when the supply of it is equal to the demand for it in the market.
marginal utility quantifies the added satisfaction that a consumer garners from consuming additional units of goods or services. The concept of marginal utility is used by economists to determine how much of an item consumers are willing to purchase.
laissez-faire Laissez faire is the belief that economies and businesses function best when there is no interference by the government.
fixed cost A fixed cost is a cost that does not change with an increase or decrease in the amount of goods or services produced or sold. Fixed costs are expenses that have to be paid by a company, independent of any specific business activities.
industrial union Industrial union, trade union that combines all workers, both skilled and unskilled, who are employed in a particular industry. At the heart of industrial unionism is the slogan “one shop, one union.” Industrial union. Organized labour.
central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency, money supply, and interest rates of a state or formal monetary.
federal budget The federal budget is the government's estimate of revenue and spending for each fiscal year. Like a family budget, the federal budget itemizes the expenditure of public funds for the upcoming fiscal year.
trust funds A trust fund is an estate planning tool that is legally established to hold property or assets for a person or organization, managed by a trustee, who is a neutral third party
municipal bond Municipal bonds are loans to city or state governments. They're tax-free.
modified union shop A company that has made an agreement with a labor union stating that current employees may choose to join the union or not, but all new employees will be required to become members.
Lorenz Curve the Lorenz curve is a graphical representation of the distribution of income or of wealth. It was developed by Max O. Lorenz in 1905 for representing inequality of the wealth distribution.
commodity money Commodity money is money that has intrinsic value, meaning that it has value even if it is not used as money. Examples of commodity money include precious metals, foodstuffs, and even cigarettes.
macroeconomics Macroeconomics is the branch of economics that studies the behavior and performance of an economy as a whole. It focuses on the aggregate changes in the economy such as unemployment, growth rate, gross domestic product and inflation.
theory of negotiated wages The theory of negotiated wages states that organized labor's bargaining strength is a factor that helps determines wages. A strong union, for example, may have the power to force higher wages on some firms.
Perfect Competition the situation prevailing in a market in which buyers and sellers are so numerous and well informed that all elements of monopoly are absent and the market price of a commodity is beyond the control of individual buyers and sellers.
Internal Revenue Service is a bureau of the Department of Treasury that is tasked with the enforcement of income tax laws and oversees the collection of federal income taxes.
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