Free Economics Flashcards about SALTBJUEcon2


Study Helps for Econ Test 2

Question Answer
Economic model a simplification of how factors in the environment affect choices
tabular model table or chart explaining the relationships between pairs of variables; also called a schedule
schedule table or chart explaining the relationships between pairs of variables; also called a tabular model
line graph graph formed by the plotting of data involving two variables and the connecting of the resulting points to form a line of infinite information from the data
circular flow model model depicting the flow of economic goods and services between households, business firms, government, and financial markets
consumption expenditures the total expenditures made by all households
factors of production the resources used in producing the nation's GNP; labor, land, financial capital, and entrepreneurship
land factor of production denoting all the natural resources that go into the production of goods
labor factor of production denoting all human effort that goes into the creation of goods and services
financial capital factor of production denoting all money loaned directly to business firms from the household sector
real capital tools business firms use to produce goods and services
entrepreneurship factor of production denoting the activity of creatively combining national resources, human labor, and financial capital in unique ways to develop new and useful products and services
rent factor costs involving all payments for the use of an owner's property
wages factor costs involving all payments for labor used to produce goods or services
interest additional charge that a creditor demands from a borrower to cover the expense of the loan and to provide a profit; also the factor costs involving the payments made on borrowed money
profits factor costs involving the rewards entrepreneurs receive for successful risk taking
transfer payments payments of money or goods from the government to individuals for which no specific economic repayment is expected
budget deficit situation in which a government, business firm, or individual receives less income than is paid out in expenses
budget surplus situation in which a government, business firm, or individual receives more income than is paid out in expenses
financial market vast collection of financial institutions that receive deposits of excess funds from households and that lend to business firms
dissaving action of withdrawing money from an account or borrowing money
crowding out situation in which the government borrowing reduces the financial capital available to business firms
What advantage does the line graph have over the tabular model? provides more data
What is the most important factor of production? entrepreneurship
What economic functions does the government perform as illustrated by the circular flow model? Government purchases goods and services; transfer payments of money or goods are made to households; taxes are levied for these payments and purchases
Why is the financial market necessary for the effective functioning of a developed society? savings are taken from households and channeled into business or government for financing
extensive growth ability to produce more goods and services because business firms are using more land, labor, or financial capital
intensive growth ability of business firms to produce more goods or services by using existing factors of production with greater efficiency
consumer goods goods that are purchased for personal use
capital goods goods that are used to produce consumer goods; also called real capital
consumer goods/capital goods tradeoff allocation of limited resources to produce either consumer goods or capital goods
labor intensive description of a business firm that uses a great deal of human labor relative to real capital
capital intensive description of a business firm that uses more automated equipment than human labor
egalitarian fairness viewpoint maintaining that each person in the nation has a right to a part of the nation's wealth simply because he is a part of the human race
economic leveling equal distribution of the nation's income regardless of each person's ability to contribute to its pool of wealth
libertarian fairness viewpoint maintaining that the only economic right to which citizens are entitled is the right to own and use property free of government interference and that the accumulation of wealth is the sole responsibility of each individual
economic Darwinism another name for the libertarian view of economic fairness allowing for a "survival of the fittest" in the accumulation of wealth
What are the four economic goals of most societies? 1) Low level of unemployment; 2) stable price level; 3) healthy rate of economic growth; 4) fair distribution of income
How does the market solve the consumer goods-capital goods production dilemma? free market senses need for more or less capital and adjusts without force to consumer spending
How does the command system attempt to solve the consumer goods-capital goods production dilemma? central committee decides proportion of consumer goods to capital goods to produce
mercantilism economic philosophy commonly held in Europe from the 16th to 18th centuries that advocated the accumulation of gold and silver as national wealth
favorable balance of trade condition experienced when a nation sells more goods abroad than it purchases from foreign nations
laissez faire idea that government should generally leave the economy of a nation alone and allow the people to seek their own profit
capitalism economic system in which private individuals own most of the factors of production and make most economic decisions
socialism economic system in which a central authority, committee, or the people in common generally own the factors of production and make economic decisions
radical capitalism most extreme form of capitalism in which private citizens own all factors of production and make all economic decisions
classic liberal capitalism form of capitalism allowing government only minimal ownership of resources and decision-making power
public goods needed goods and services which private firms cannot create at a profit
state capitalism form of capitalism in which the vast majority of the factors of production are owned by private citizens, but the government intervenes widely in economic intervenes widely in economic decisions to ensure that egalitarian goals are carried out
welfare state nation under extreme state capitalism in which high taxes are used to provide wide social programs
European social democracy form of socialism in which the state takes possession of the economy's major industries but allows some private enterprise and decision making
nationalization government acquisition of the ownership of major industries
privatization government's selling of nationalized businesses back to private owners
worker management socialism form of socialism in which the government owns all business firms but allows the workers to make many major economic decisions collectively
centralized socialism form of socialism in which the government is both the central owner and the decision maker in all economic affairs of the state
manifesto public declaration of one's political or social beliefs and intentions
communism most extreme form of socialism in which all individuals voluntarily contribute their labor for the good of society while taking from the economy only the goods and services that they truly need
What two characteristics did Adam Smith point out as being the keys to economic prosperity in a nation? 1) people free to specialize in jobs for which they are suited; 2) people should be able to exchange products with others
What is liberalism according to its classical meaning? freedom of individual and limiting of government
Why is radical capitalism unscriptural? Scripture stresses government is a divine institution created by God and placed over us for our good
Socialism occurs when the government nationalizes which key industries? transportation, communication, energy, finance and health care

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