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34 Cards in this Set
- Front
- Back
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3 LEVELS OF ECONOMY |
1. LOCAL (NEIGHBORHOODS, CITIES, OR STATES) 2. NATIONAL 3. GLOBAL |
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NEEDS VS WANTS |
ALL ECONOMIES OPERATE BASED ON THESE
NEEDS OFTEN CHANGE OVER TIME AS PERSONAL CIRCUMSTANCES CHANGE (EX: HAVING A KID)
WANTS ARE USUALLY LEARNED THROUGH PERSONAL EXPERIENCE AND TEND TO CHANGE OVER TIME
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ECONOMICS |
THE STUDY OF HOW SOCIETIES AND INDIVIDUALS ALLOCATE LIMITED RESOURCES AMONG COMPETING, UNLIMITED WANTS. |
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4 SECTORS OF THE ECONOMY |
1. RAW MATERIALS (PRIMARY) 2. MANUFACTURED GOODS (SECONDARY) 3. SERVICES (TERTIARY) 4.INTELLECTUAL PROPERTY |
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SECTOR 1 OF THE ECONOMY |
RAW MATERIALS (PRIMARY)
FOUNDATION FOR ALL ECONOMIES. SECURES RAW MATERIALS NEEDED FOR PRODUCTION, INCLUDING LAND, LUMBER, COAL, GAS, OIL, MINERALS, AND BASIC FOODS
AGRICULTURE, MINING, AND FORESTRY
THE MORE DEVELOPED THE COUNTRY, THE SMALLER THIS SECTOR IS
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SECTOR 2 OF THE ECONOMY |
MANUFACTURED GOODS (SECONDARY)
TURNS RAW MATERIALS INTO FINISHED PRODUCTS AND MAKES THEM AVAILABLE TO CONSUMERS
MAIN ACTIVITIES INCLUDE MANUFACTURING, FINISHED GOODS, AND CONSTRUCTION |
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SECTOR 3 OF THE ECONOMY |
SERVICES (TERTIARY)
INCLUDES RETAIL AND WHOLESALE SALES, TRANSPORTATION, AND DISTRIBUTION. PROVIDES SERVICES THAT FACILITATE THE TRANSFER OF FINISHED GOODS TO END USERS TO ENHANCE CONSUMERS' LIVES (EX: ENTERTAINMENT, MEDIA, FINANCIAL SERVICES, HEALTHCARE, AND LAW)
INSURANCE COMPANIES PLAY A BIG ROLE IN THIS SECTOR
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SECTOR 4 OF THE ECONOMY |
INTELLECTUAL PROPERTY (QUATERNARY)
INCLUDES INTELLECTUAL CONCERNS SUCH AS GOVERNMENT, CULTURE, EDUCATION, SCIENTIFIC RESEARCH, AND INFO TECH.
SERVICES PROVIDED BY THIS SECTOR ARE DESIGNED TO IMPROVE QUALITY OF LIFE |
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WHAT IS THE KEY ELEMENT OF ALL EXCHANGES? |
MONEY |
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WHAT DOES MONEY PROVIDE THAT HELPS FACILITATE EXCHANGES? |
1. STANDARDIZED MEDIUM OF EXCHANGE 2. STANDARDIZED WAY TO MEASURE VALUE 3. STORE OF VALUE |
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STANDARDIZED MEDIUM OF EXCHANGE |
A STANDARDIZED METHOD OF MAKING AND RECEIVING PAYMENTS FOR GOODS AND SERVICES |
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STANDARDIZED WAY TO MEASURE VALUE |
IN MOST ECONOMIES, VALUE IS EXPRESSED IN MONETARY UNITS CALLED UNITS OF ACCOUNT (EX: DOLLAR, EUROS)
MONEY PROVIDES A STANDARD MEASURE OF VALUE TO DETERMINE PRICES
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STORE OF VALUE |
VALUE IS BASED ON MORE THAN MONETARY AMOUNTS. NEED TO KNOW THAT MONEY WILL HAVE THE SAME VALUE LATER
MONEY RETAINS ITS VALUE OVER TIME
ALTHOUGH THE VALUE OF MONEY FLUCTUATES OVER THE LONG TERM, IT STAYS STABLE OVER THE SHORT TERM |
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4 BASIC GROUPS OF MARKET PARTICIPANTS |
1. HOUSEHOLDS 2. BUSINESSES 3. GOVERNMENTS- 4. FINANCIAL INTERMEDIARIES
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ROLE OF GOVERNMENT AS A MARKET PARTICIPANT |
MANAGE THE GENERAL OPERATIONS OF THE ECONOMY: 1. PURCHASE, PROVIDE AND PRODUCE GOODS AND SERVICES 2. SET LAWS AND REGULATIONS 3. IMPOSE TAXES 4. MAKE TRANSFER PAYMENTS TO INDIVIDUALS, BUSINESSES, AND OTHER MARKET PARTICIPANTS |
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TRANSFER PAYMENTS |
PAYMENTS MADE BY A GOVERNMENT FOR WHICH NO GOODS OR SERVICES ARE GIVEN IN RETURN
EX: SOCIAL SECURITY OR UNEMPLOYMENT |
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ROLE OF FINANCIAL INTERMEDIARIES AS A MARKET PARTICIPANT |
ORGANIZATIONS THAT FACILITATE THE MOVEMENT OF FUNDS FROM BUYERS TO SELLERS AND FROM HOUSEHOLDS, BUSINESSES, AND GOVERNMENTS THAT HAVE A SURPLUS OF FUNDS (SAVERS) TO THOSE THAT HAVE A SHORTAGE (BORROWERS). CALLED INTERMEDIATION
EX: THE INSURER WOULD BE THE INTERMEDIARY BETWEEN THE CUSTOMERS AND THE FINANCIAL MARKETS |
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TYPES OF MARKETPLACES |
1. PRODUCT (OUTPUT) MARKETS 2. LABOR MARKETS 3. FINANCIAL (CAPITAL) MARKETS |
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PRODUCT (OUTPUT) MARKETS |
BUSINESSES SUPPLY FINISHED GOODS AND SERVICES TO HOUSEHOLDS, OTHER BUSINESSES, AND GOVERNMENTS. IN EXCHANGE, BUYERS PAY THE PRICES SPECIFIED BY THE SELLER |
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LABOR MARKETS |
HOUSEHOLDS OFFER THEIR LABOR TO BUSINESSES AND GOVERNMENTS. IN EXCHANGE, THEY RECEIVE WAGES OR OTHER COMPENSATION |
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FINANCIAL (CAPITAL) MARKETS |
MONEY IS TRANSFERRED FROM SAVERS TO BORROWERS. EXCHANGES IN FINANCIAL MARKETS CAN BE EITHER DIRECT OR INDIRECT. IN A DIRECT EXCHANGE, SELLERS TRADE DIRECTLY WITH BUYERS. IN INDIRECT EXCHANGES, BUYERS AND SELLERS WORK THROUGH A FINANCIAL INTERMEDIARY |
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CIRCULAR FLOW DIAGRAM |
A DIAGRAM USED TO ILLUSTRATE THE FLOW OF FUNDS THROUGH ECONOMICS (SEE FIGURE 1.4 IN MODULE 1) |
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FINANCIAL INSTITUTION |
A BUSINESS THAT OWNS FINANCIAL ASSETS (STOCKS AND BONDS) RATHER THAN FIXED ASSETS (EQUIPMENT AND RAW MATERIALS). THEY HELP CONSUMERS, BUSINESSES, AND GOVERNMENTS SAVE, BORROW, INVEST, AND OTHERWISE MANAGE MONEY ALSO SERVE AS INTERMEDIARIES-CONSUMERS CAN REDUCE INVESTMENT COSTS BY INVESTING THROUGH THESE RATHER THAN BUYING SECURITIES DIRECTLY PROVIDE RISK MANAGEMENT AND INVESTMENT PLANNING |
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FIDUCIARY |
A FINANCIAL INSTITUTION THAT HOLDS A SPECIAL POSITION OF TRUST OR CONFIDENCE WHEN HANDLING THE AFFAIRS OF OTHERS AND WHO MUST PUT THE INTERESTS OF OTHERS AHEAD OF ITS OWN INTERESTS |
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3 PRIMARY TYPES OF FINANCIAL INSTITUTIONS |
1. DEPOSITORY INSTITUTIONS 2. CONTRACTUAL SAVINGS INSTITUTIONS 3. INVESTMENT INSTITUTIONS |
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DEPOSITORY INSTITUTION |
A FINANCIAL INSTITUTION THAT SPECIALIZES IN ACCEPTING DEPOSITS AND MAKING LOANS USES DEPOSITED FUNDS TO MAKE LOANS TO OTHER HOUSEHOLDS AND BUSINESSES. ALSO INVESTS FUNDS IN FINANCIAL MARKETS (EX: CHECKING/SAVINGS ACCTS, LOANS, CC, MORTGAGES, INVESTMENT SERVICES, FINANCIAL COUNSELING, AND TRUST SERVICES) TYPES: COMMERCIAL BANKS, SAVINGS AND LOAN ASSOC, MUTUAL SAVINGS BANKS, AND CREDIT UNIONS |
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CONTRACTUAL SAVINGS INSTITUTIONS |
A FINANCIAL INSTITUTION THAT ACQUIRES FUNDS AT PERIODIC INTERVALS ON A CONTRACTUAL BASIS.
PROVIDES FINANCIAL SECURITY AND PROTECTION FOR THEIR CUSTOMERS
EX: INSURANCE COMPANIES (LIFE, HEALTH, PROPERTY/CASUALTY) AND PENSION FUNDS |
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PENSION PLAN |
ARRANGEMENT UNDER WHICH A PLAN SPONSOR PROVIDES PLAN PARTICIPANTS W/A LIFETIME INCOME BENEFIT THAT BEGINS AT RETIREMENT CAN BE PRIVATE OR PUBLIC PRIVATE-FUNDED BY CONTRIBUTIONS FROM EMPLOYERS AND SOMETIMES EMPLOYEES AND MANAGED BY DEPOSITORY INSTITUTIONS. PUBLIC-SPONSORED BY A GOVERNMENT (SOCIAL SECURITY) |
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WHAT DO INVESTMENT INSTITUTIONS PRIMARILY IN AND TRADE? |
SECURITIES
INVESTMENT INSTITUTIONS, INCLUDE SECURITIES BROKER/DEALERS AND MUTUAL FUNDS ARE KEY PLAYERS IN THE FINANCIAL MARKERTS |
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SECURITIES |
DOCUMENTS OR CERTIFICATES THAT REPRESENT EITHER AN OWNERSHIP INTEREST IN A BUSINESS (STOCK) OR AN OBLIGATION OF INDEBTEDNESS OWNED BY A BUSINESS, GOVERNMENT, OR AGENCY (BOND). BONDS CAN BE ISSUED BY GOVERNMENTS OR BY CORPORATIONS |
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COMMERCIAL PAPER |
CONSISTS OF SHORT-TERM, UNSECURED PROMISSORY NOTES ISSUED TO BUSINESSES OR GOVERNMENTS BY CORPORATIONS AS AN ALTERNATIVE TO SHORT-TERM BANK LOANS OR OTHER FORMS OF BORROWING. TYPICALLY MATURES IN 5 TO 45 DAYS TYPICALLY IS ISSUED IN DENOMINATIONS OF 100K OR MORE TYPICALLY USED TO FUND CURRENT TRANSACTIONS
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2 PRIMARY FUNCTIONS OF SECURITIES BROKERS/DEALERS |
AS BROKERS, THEY MATCH BUYERS OF SECURITIES WITH SELLERS OF THOSE SECURITIES. AS DEALERS, THEY HOLD AN INVENTORY OF SECURITIES AND TYPICALLY BUY AND SELL SECURITIES FROM THEIR OWN ACCOUNTS DISCOUNT BROKER/DEALERS FOCUS ON EXECUTING CUSTOMER ORDERS TO BUY AND SELL SECURITIES. FULL SERVICE BROKER/DEALERS PROVIDE INVESTMENT ADVICE AND PLANNING SERVICES IN ADDITION TO HANDLING CUSTOMER TRANSACTIONS. |
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MUTUAL FUND |
AN INVESTMENT COMPANY THAT POOLS THE FUNDS OF CUSTOMERS AND USES THE FUNDS TO BUY STOCKS, BONDS, AND OTHER FINANCIAL INSTRUMENTS
HOUSEHOLDS AND BUSINESSES THAT INVEST IN THE FUNDS HOLD SHARES IN THOSE FUNDS |
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MAJOR BENEFITS OF MUTUAL FUNDS FOR CUSTOMERS |
1. PROFESSIONAL MANAGEMENT 2. DIVERSIFICATION OF INVESTMENTS-BC FUNDS ARE INVESTED IN A VARIETY OF SECURITIES, LOSSES INCURRED BY ONE SECURITY CAN BE OFFSET BY GAINS IN ANOTHER. 3. WIDE SELECTION OF FUNDS 4. CONVENIENCE 5. LIQUIDY |
