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19 Cards in this Set

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microeconomics
- examines the behavior of INDIVIDUAL consumers, workers, firms, and industries
macroeconomics
- examines the behavior of the OVERALL US economy
ex) stock market, inflation, unemployment
employment act of 1946
- it is the governments responsibility to promote maximum EMPLOYMENT, PRODUCTION, PURCHASING POWER
major macroeconomic policy goals
promote maximum:
- Production (economic growth)
- Purchasing power (stable prices)
- Employment
- Smooth out business cycle fluctuations
economic policy: Fiscal policy- determined by? change?
(government actions to influence the economy)
- determined by: congress and the president
- change tax laws
- change government spending
economic policy: monetary policy- conducted by? influence?
- (government actions to influence the economy)
- conducted by: the Federal Reserve System
- influence the money supply
- influence interest rates
descriptive statements
- economic FACTS or DATA
positive statements
- statements or THEORIES about how the economy works
ex) lower the price of automobiles, people will buy more of them
normative statements
- value JUDGEMENTS about what is good or bad
- policy statements about what courses of action should or ought to be taken
ex) we should raise the minimum wage
common error in economic reasoning: Fallacy of false cause- "Post hoc, ergo propter hoc"
- "After this, therefore because of this"
- ex) Reagan lowered taxes during the 1980s and the economy grew rapidly. AKA decreasing taxes caused economic growth
- ex) Clinton raised taxes during the 1990s and the economy grew rapidly. AKA raising taxes caused economic growth
-* that one thing that happened is not the sole cause, other factors influence economic growth
common errors in economic reasoning: Fallacy of composition, what is the paradox of thrift?
- what holds for one person does not necessarily hold for everybody
- the paradox of thrift- what is good for one is not necessarily good for everyone
- ex) saving- if 1 person cuts their spending by 30%, they save. but if everyone cuts their spending by 30% the economy is hurt
common errors in economic reasoning: Ceteris Paribus Fallacy (the other things being equal fallacy)
- theory: an increase in interest rates will lead to a decrease in borrowing
- theory: if gasoline prices increased, people would buy smaller cars
- but when situations change factors dont remain equal
ex) Penguins tickets are cheap because they suck, but no one buys them. But when they improve ticket prices go up, and people buy them. BUT things arent equal- they have new better players
economic decision makers: households- goal? act?
- goal: maximize their UTILITY
-- utility= level of satisfaction, sense of well-being, overall happiness
- Act- in their own RATIONAL SELF INTEREST so they choose actions that benefit them most
-- maximize benefits (for a given cost), minimize cost (for a given benefit)
economic decision makers: firms- goal? types of business firms?
- goal- MAXIMIZE PROFITS
- 3 types: sole proprietors (ex. bartenders), partnerships (2 people), corporations (big company)
economic decision makers: government- why we need government interference?
- protect private property (police)
- enforce contracts (judicial system, courts of law)
- promote competition
- regulate natural monopolies (electricity, water)
- provide PUBLIC GOODS (national defense)
- deal with EXTERNALITIES
- promote MACROECONOMIC GOALS
- provide for the disadvantaged and disabled
externality
- a cost of benefit that AFFECTS PEOPLE NOT INVOLVED in an activity or transaction and is therefore IGNORED BY THE INDIVIDUALS INVOLVED IN THE ACTIVITY or market transaction
negative externalities. ex? what does the gov do?
- impose costs on third parties
- ex) noise, polluted air, litter, auto emissions, polluted water, unkempt yards
- government used laws, regulations, fines, and taxes to limit
positive externalities. ex? what does the gov do?
- confer benefits on third parties
- ex) good schools, educated citizens, medical improvements
- governments promote through subsidies and tax reductions. ex) social security
major macroeconomic goals: employment act of 1946
- full employment
- price stability
- economic growth
- provide for the disadvantaged
- redistribute income via taxes and transfer payments