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Adam Smith wrote what book?
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The Wealth of Nations (1776)
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2 Capitalist Beliefs from Wealth of Nations.
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Society's interests are best served when the individuals within that society are allowed to pursue their own self interests. + When individuals act to improve their own fortunes, they indirectly promote the interests of their community and the people in their communities.
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invisible hand
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A term created by Adam Smith to describe how an individual's personal gain benefits others and a nation's economy
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US economy is a?
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mixed economy
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the 2 main tools of government?
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Monetary policy and Fiscal policy
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National Debt
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The sum of government deficits over time.
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(Government) Surplus happens when the Government
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Spend less money than it takes in taxes, in a single year
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(Government) A Deficit occurs when the Government
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spends more money than takes in taxes, in a single year
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The Government gets involved in what ways?
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Taxes, Regulation, Subsidies, Tariffs, Modification of the competitive landscape
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Government Subsidies
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Payments to businesses to reduce the cost of production
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Government Regulation
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Rule to participate in the market
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Tariffs
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Taxes on imported goods
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Monopoly
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A market in which there are many buyers but only one seller.
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Oligopoly
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A market with few competitors
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perfect competition
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a market structure in which a large number of firms all produce the same product
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free enterprise
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the system of business in which individuals are free to decide what to produce, how to produce it, and at what price to sell it
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business
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the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society's needs
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profit
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what remains after all business expenses have been deducted from sales revenue(Revenue - cost = PROFIT)
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economics
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the study of how wealth is created and distributed
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microeconomics
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the study of the decisions made by individuals and businesses
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macroeconomics
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the study of the national economy and the global economy
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economy(Ray Dalio)
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an economy consists of all its transactions in all of its markets(sum of all transaction in a geographical area)
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economy(MindTap)
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the way in which people deal with the creation and distribution of wealth
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Market
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The sum of transactions for a certain service or good
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mixed economy
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an economy that exhibits elements of both capitalism and socialism
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command economy
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an economic system in which the government decides what goods and services will be produced, how they will be produced, for whom available goods and services will be produced, and who owns and controls the major factors of production. (An Example: Communism or Socialism)
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productivity
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the average level of output per worker per hour
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gross domestic product (GDP)
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the total dollar value of all goods and services produced by all people within the boundaries of a country during a specified time period—usually a one-year period
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inflation
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a general rise in the level of prices
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deflation
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a general decrease in the level of prices
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consumer price index (CPI)
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a monthly index that measures the changes in prices of a fixed basket of goods purchased by a typical consumer in an urban area.
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producer price index (PPI)
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an index that measures prices that producers receive for their finished goods.
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Debt Cycle
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the recurrence of periods of growth and recession in a nation's economic activity
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recession
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two or more consecutive three-month periods of decline in a country's GDP
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depression
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a severe recession that lasts longer than a typical recession and has a larger decline in business activity when compared to a recession
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monetary policies
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Federal Reserve's decisions that determine the size of the supply of money in the nation and the level of interest rates
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fiscal policy
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government influence on the amount of savings and expenditures; accomplished by altering the tax structure and by changing the levels of government spending
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standard of living
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a loose, subjective measure of how well off an individual or a society is, mainly in terms of want satisfaction through goods and services
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market price
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the price at which the quantity demanded is exactly equal to the quantity supplied
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demand
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the quantity of a product that buyers are willing to purchase at each of various prices
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supply
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The amount of goods available
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domestic system
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a method of manufacturing in which an entrepreneur distributes raw materials to various homes, where families process them into finished goods to be offered for sale by the merchant entrepreneur
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factory system
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a system of manufacturing in which all the materials, machinery, and workers required to manufacture a product are assembled in one place
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specialization
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the separation of a manufacturing process into distinct tasks and the assignment of the different tasks to different individuals
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service economy
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an economy in which more effort is devoted to the production of services than to the production of goods
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sustainability
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the ability to maintain or improve standards of living without damaging or depleting natural resources for present and future generations
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The Three BIG goals for Government
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economic growth(2-3% real growth per year), full employment (95-96ish%), and stable prices(increasing by about 1.5-2% per year).
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3 types of businesses
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service, merchandising(marketing intermediaries), manufacturing
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4 questions that determine an economy's type(Capitalist, mixed, socialist, communist.)
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What good and services(and how much) will be produced.
How will goods and services be produced
For whom will these goods and services be produced
Who owns and who controls the factors of products.
How will goods and services be produced
For whom will these goods and services be produced
Who owns and who controls the factors of products.
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How do we measure economic growth?
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increases in real GDP, productivity
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How do we measure employment?
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unemployment rate, personal income
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What can we use to measure inflation/deflation
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Consumer Price Index(CPI), Producer Price Index(PPI)
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What are Credit's names
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Asset(for the lender), debt/liability(for the borrowers)
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What causes real growth in the economy?
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Productivity
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What are the four ways to handle a deleveraging
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Cut spending.
Reduce debts.
Redistribute wealth.
Print money.
(Only works if the previous step is in balance with the other three.)
Reduce debts.
Redistribute wealth.
Print money.
(Only works if the previous step is in balance with the other three.)
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Three rules for everyone from the Ray Dalio video.
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Don't have debt rise faster than income(debt crushes you).
Don't have productivity rise faster than productivity(because you will eventually become uncompetitive).
Do all you can to raise your productivity(that matters most in the long run).
Don't have productivity rise faster than productivity(because you will eventually become uncompetitive).
Do all you can to raise your productivity(that matters most in the long run).
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What does Expansion mean?
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Economy is growing, unemployment is down, and prices are rising.
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What does Peak mean?
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It's the end of the cycle, unemployment is at its lowest, and prices are at their highest.
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What does Recession mean
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The economy is shrinking, unemployment is up, and prices are falling.
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What does Trough mean
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It's the beginning of a cycle, unemployment is at its highest, and prices are at their lowest.
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Equilibrium
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When the quantity demanded is equal to the quantity supplied.
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Wealth
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"anything of value," including goods and services produced and sold by businesses.
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What 4 resources do Businesses have to organize?
answer
Materials
Human Resources
Financial
Informational
Human Resources
Financial
Informational
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