chapter 2

Question 1

define economics

Answer 1

study of how society uses its scarce resources to produce and distribute goods dns services

Question 2

What are the factors of production

Answer 2

• natural resources
• capital: factories, tools, money, machines
• knowledge: experience/wisdom of an organization
• human resources: people who work for an organization and talents they bring

Question 3

define scarcity

Answer 3

productive resource with finite supply
– creates resource competition–> forcing trade offs

Question 4

define economic indicators

Answer 4

statistics measuring the performance of the economy

Question 5

types of economic indicators

Answer 5

1. leading: economic changes happening in the future
2. lagging: economic changes in the past

Question 6

key economic indicators

Answer 6

• price index
• housing starts
• durable-goods offer
• unemployment rate
• gross domestic product

Question 7

define the consumer price index

Answer 7

changes in price in relation to changes in price of goods/services

Question 8

define producer price index

Answer 8

measure of price trends of producer/wholesaver
(what buisnesses are paying for the products they need)

Question 9

define gross domestic product (GDP)

Answer 9

final value of goods and services produces by businesses located in the same nation.

Question 10

define economic system

Answer 10

rules in which a society allocated economic resources

Question 11

The spectrum of economic systems

Answer 11

1. planned system: gov controls most factors of production
2. free-market: decisions are made by buyers or sellers
3. capitalism: economic freedom and competition.

Question 12

nationalization vs privatization

Answer 12

nationalization– >taking owenership of chosen companies (from private to public)
privatization–> businesses go from public to private

Question 13

Government role in a free market system

Answer 13

regulation–>rely more on laws +policies than market forces to govern economy
deregulation–> removal of regulations to allow market to correct itself over time.

Question 14

4 major areas in which goverment plays a role in the economy

Answer 14

1. protecting stakeholders
2. fostering competition: so it does not become too strong.
   - use antitust legislation so competitors have equal chance
   - merger and acquisition approval–> prohbit from combining to preserve comp
3. encourage innovation and economic development
4. stabilizing and stimulating economy
   - monetary policiy–> regulates nations money supply- amount of spendable money in economy
   - fiscal policiy–> use gov revenue collection to infuelnce buisness cycle.

Question 15

Define demand

Answer 15

• amount of goods/services that customer will buy at a given time

Question 16

describe the demand curve

Answer 16

• as price changes, the number of purchases change
• as price increases, demand decreases
• as price decreases, demand icncreases

Question 17

factors that affect demand

Answer 17

1. income of customers
2. customer preference
3. price of substitute products
4. price of complementary products

Question 18

define supply

Answer 18

quantities of goods/services producers will provide

Question 19

describe the supply curve

Answer 19

as price increases, the quantity suppliers are wiling to provide increases

Question 20

factors affecting supply

Answer 20

1. cost of inputs (wages, fuel)
2. number of competitors
3. tech advanacemnts

Question 21

what is the relationship between supply and demand

Answer 21

• equilibrium price: demand and supply intersect

Question 22

The 4 catergories of competiton

Answer 22

1. pure competition-> many suppliers, none of them dominate market
2. monopoly–> one company dominates and controls prices in market
3. monopolistic competition–> many sellers are different from competitors allowing new suppliers to enter market
4. oligopoly–> small number of suppliers provide a particular service or goods

Question 23

define recession

Answer 23

period of downward swing
if prolonged–> depression
period of recovery–> recession is over

Question 24

define buisness cycle

Answer 24

fluctuations in rate of growth that a business experience’s

Question 25

define unemployment

Answer 25

- percentage of people without a job

Question 26

define inflation and deflation

Answer 26

- inflation: price rise steadily - delfation: price drop steadily

Question 27

money definition

Answer 27

- the means of paying a good or service - medium of exchange - accounting unit - temporary store of value - standard of deffered payment

Question 28

define fiat money

Answer 28

currencies issued by goverement proclamation

Question 29

define cyptocurrency

Answer 29

digital tokens

Question 30

influences cryptocurrencies have

Answer 30

1. alternative to fiat currency 2. disruptive force in global economics 3. speculative investment 4. disruptive tech

Question 31

define non-fungible tokens (NFTs)

Answer 31

digital currencies that convey sole ownership

Question 32

How to measure money supply

Answer 32

1. M1--> money spendable now, cash held by public and money deposited in many accounts 2. M2-->adds money that will be spendable soon

Question 33

Role of the federal reserve system

Answer 33

responsible for regulating banks and implementing monetary policy

Question 34

define federal funds rate

Answer 34

- interest rate member banks charge to each other to borrow money overnight from funds they keep in federal resrve accounts.

Question 35

responsibilities of the federal reserve system

Answer 35

1. monetary policy--> maximise employment, stable prices 2. maintain stability of financial system by reducing risks. 3. supervise financial institutions 4. ensure secure and efficient payment systems

Question 36

define discount rate

Answer 36

interest rate members of bank pay when they borrow funds from fed

Question 37

define prime rate

Answer 37

interest rate bank charges best loan customers.

Question 37

investment banks role

Answer 37

- provide a variety of investing and advisory services to organizational customers. - facilitate mergers, sales - manage and advise on investments - risk management advice

Question 38

commercial banks role

Answer 38

- accept deposits - checking and savings accounts - provide loans types: 1.retail banks: checking and savings account 2. merchant banks:financial services to businesses and wealthy individuals 3. credit unions: not-for profit member-owned cooperatives that offer deposit accounts 4. private banking:wealthy individuals and families

Question 39

what are the three concerns

Answer 39

1. shadow banking--> bank-like activities (mainly lending) that take place outside the traditional banking secto 2. too-big-too fail dilemma--> fianncial institutions are so big that their failure would be disastrous to the economy. 3. reinsatte the wall serppating investment banking and commercial banking

Question 40

define fintech

Answer 40

wide-range of technological innovations that have the potential to improve financial services or disrupt them.

Question 41

the five major categories of fintech innovations

Answer 41

financial services more inclusive imrpove efficiency strengh security improve customer experience enhance financial decision making