PowerPoint Review Q & A Session BRING SOMETHING TO DO THE DAY OF THE FINAL No computers, no leaving the room! Economics.

• PowerPoint Review• Q & A Session

• BRING SOMETHING TO DO THE DAY OF THE FINAL• No computers,

no leaving the room!

EconomicsEconomics

The Study The Study of of

EconomicsEconomics

Economics Defined

Economics is the study of how people, firms, Economics is the study of how people, firms, and societies (nations) satisfy their wants and societies (nations) satisfy their wants

with scarce resourceswith scarce resources

It is the It is the STUDY OF CHOICE STUDY OF CHOICE due to the due to the fundamental economic problem of fundamental economic problem of

scarcityscarcity

Due to money being scarce, individuals will choose to spend their money or save their money.

Businesses have to decide if they should incorporate (offer stocks) because they may not have a lot of capital.Due to jobs being scarce,

the government must decide which firms to award contracts to.

Natural resources are scarce so nations must choose who to trade with.

Every decision made by households, businesses, and governments has a

cost, nothing is free!

Opportunity cost: the value of the next best alternative

The circular flow economic model is a “model" of an economy in action.

Economics is split Economics is split into two studies: into two studies:

Microeconomics Microeconomics and and

MacroeconomicsMacroeconomics

Consumer Behavior

Elasticity of Demand

Types of Businesses

The growth of productivity—output per unit of input—is the fundamental determinant of the growth of a country’s material standard of living. Innovation

is critical in this process!

The Production Possibilities Frontier graph shows the different rates of production of two goods and/or services that an economy can produce efficiently during a specified period of time with a limited quantity of productive resources. Innovation can shift the PPF outward.

Producer Behavior

Equilibrium: quantity demanded equals quantity supplied

Prices send signals!

PRICE CONTROLS

Macroeconomic Challenges

Economic Indicators• Defined: set of key economic variables (statistics) that

economists use to predict a new phase of the business cycle and identify trends in the economy.

Economic Indicator: GDP

What is included in GDP? What is not?

What is the difference between nominal and real?

Economic Indicator: The Stock Market

Economic Indicator: InflationEconomic Indicator: Inflation

Economic Indicator: Economic Indicator: UnemploymentUnemployment

Role of Government in the U.S. Economy

THREE TYPES OF TAXES

There are 3 macroeconomic goals that our nation strives to

meet:

Fiscal Policy

And/ORMonetary Policy

Decrease Taxes Decrease Taxes

Expansionary Fiscal Policy Expansionary Fiscal Policy

Producers and consumers have more money to spend b/c the gov’t collects less taxes and offers more tax credits

Increase Government Increase Government Spending Spending

Gov’t increases the number of contracts and/or subsidies with businesses. Producers sell more goods to the government and producers hire more workers, increase wages, etc.– spending increases

Also, more money on transfer payments (unemployment benefits)

More production

Decrease in Unemployment

Producers spend more on human and capital resources

Consumers spend more money

More spending- increase in aggregate demand

Intended Results: Economic Growth , High EmploymentPossible unintended results: budget deficit (higher national debt), inflation

Increase Taxes Increase Taxes

Contractionary Fiscal Contractionary Fiscal Policy Policy

Producers and consumers have less money to spend b/c the gov’t collects more taxes and offers less tax credits

Decrease Government Decrease Government Spending Spending

Gov’t decrease the number of contracts and/or subsidies with businesses. Producers sell fewer goods to the government and producers lay off workers, cut wages, etc.– spending decreases

Also, less money on transfer payments (unemployment benefits)

Lower production

Increase in Unemployment

Producers spend less on human and capital resources

Consumers spend less money

Less spending- decrease in aggregate demand

Intended Results: Stable Prices

Possible unintended results: Economy cools too quickly leading to higher than expected unemployment and even deflation. Possibly a recession occurs. The budget could also result

in a surplus.

The Federal Reserve System

Monetary Monetary PolicyPolicy

Contrasting Perspectives: the role of government in the economy

Friedrich von Hayek

John Maynard Keynes

•The absence of restrictions on trade.

•Tactics used to either promote or protect a sector of the domestic economy.

Trade BlocksTrade Blocks

Developing NationsDeveloping Nations

How do you differentiate between a developed and developing country?

Human development index (HDI)

Balance of Trade

Exchange Rates

Video Clips Viewed This SemesterOur Dear Friend, MJM Foodie1. Productive Resource

2. Shifting the PPF

3. Change in QD vs. Change in D

4. Price Controls

5. GDP

6. Unemployment: labor force

7. Comparative Advantage

Other Clips 1. Tour : NYSE Trading Floor

2. Tracking Inflation

3. Zimbabwe

4. Movie: Public Goods

5. Debt Clock

6. GLOBAL ECONOMIC COLLAPSE

7. Keynes v. Hayek

8. China’s Rising Economy

9. OPEC

10.200 Countries, 200 Years, 4 Minutes