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Business Fundamentals
Chapter 2
24
Business
Undergraduate 1
07/16/2021

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Term
Economics
Definition
The study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals.
Term
Macroeconomics
Definition
The part of economics study that looks at the operation of a nation’s economy as a whole.
Term
Microeconomics
Definition
The part of economics study that looks at the behavior of people and organizations in particular markets.
Term

   Adam Smith and the Creation of Wealth

Definition
Freedom was vital to any economy’s survival.
Freedom to own land or property and the right to keep the profits of a business is essential.
People will work hard if they believe they will be rewarded.
Term
Capitalism
Definition

An economic system in which all or most of the factors of production and distribution are privately owned and operated for profit.

Term

Capitalism’s Four Basic Rights

 
Definition
1.The right to own private property
2.The right to own a business and keep all that business’s profits
3.The right to freedom of competition
4.The right to freedom of choice
Term
Free Market
Definition

Decisions about what and how much to produce are made by the market. Consumers send signals about what they like and how they like it. 

Term

Supply 

 

 

Definition

The quantity of products that manufacturers or owners are willing to sell at different prices at a specific time.

Term
Demand
Definition

The quantity of products that people are willing to buy at different prices at a specific time.

Term
Market price (equilibrium point)
Definition
The price determined by supply and demand.
Term
Socialism
Definition

An economic system based on the premise that some, if not most, basic businesses should be owned by the government so that profits can be more evenly distributed among the people.

Term
Positive and Negative consequences of Socialism
Definition

Positives

Social equality

Free education

Free health care

Free child care

Negatives

Brain Drain — The loss of the best and brightest people to other countries. 

Fewer inventions and less innovation because the reward is not as great as it would be in capitalistic countries.

Term
Communism
Definition

An economic and political system in which the government makes almost all economic decisions and owns almost all the major factors of production.

Term
Mixed Economies
Definition

Economic systems in which some allocation of resources is made by the market and some by the government.

Term
Gross Domestic Product GDP
Definition
The total value of final goods and services produced in a country in a given year.
Term
Unemployment Rate
Definition
The number of civilians at least 16 years old who are unemployed and have actively tried to find a job within the prior four weeks.
Term
Inflation  
Definition
A general rise in the prices of goods and services over time.
Term
Consumer Price Index CPI
Definition

Monthly statistics that measure the pace of inflation or deflation. (they use a market basket of key products purchased daily (milk, gas, bread) then compare the prices with those from a number of years ago

Term
Business Cycles
Definition

The periodic rises and falls that occur in economies over  a period of time (months, years, decades)

1.Economic Boom the economy is growing quickly and unemployment is low.
2.Recession — Two or more consecutive quarters of decline in the GDP.
3.Depression — A severe recession, usually accompanied by deflation.
4.Recovery — When the economy stabilizes and starts to grow, eventually leading to an economic boom.
Term
Fiscal Policy
Definition
The federal government’s efforts to keep the economy stable by increasing or decreasing taxes or government spending.
Tools of fiscal policy:
Taxation

Government spending

Term
National Deficit
Definition
The amount of money the federal government spends beyond what it collects in taxes for a given fiscal year.
Term
National Debt
Definition
The sum of government deficits over time.
Term
National Surplus
Definition
When the government takes in more revenue than it spends. (very rare indeed)
Term
Monetary Policy
Definition

The management of the money supply and interest rates by the Federal Reserve Bank.

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