Fbla Economics Study Guide

Great resource for FBLA economics competition.

1. FBLA ECONOMICS STUDY GUIDE By: Paras Nahar

2. 1. DIAGNOSTIC TEST The scores and results of Students A, B, C, and D ‹#› https://www.fbla-pbl.org/media/economics_online_ref_guide.p df

3. Student A B, A, C, B , A, C, B , D, A , A 7/10 ‹#›

4. Student B B, A, C, C , A, D , C , D, B , A 6/10 ‹#›

5. Student C B, A, C, C , A, D , D , D, C , A 6/10 ‹#›

6. Student D B, D , A , A , A, C, A, B , C , A 5/10 ‹#›

7. 2 . VOCABULARY 1 20 economic terms defined + student scores ‹#› https://www.economist.com/economics-a-to-z

8. VOCABULARY SET 1 1. Absolute Advantage The ability to produce more of a good than all other producers 2. Aggregate Expenditure (GDP) All spending for final goods and services in an economy: Consumption + Investment + Government + Net Exports 3. Nominal GDP The value of current production (GDP) at the current prices ‹#›

9. VOCABULARY SET 1 4 . Real GDP The value of current production (GDP) at inflation-adjusted prices 5 . Aggregate Demand Shows the total quantity of goods and services consumed at different price and output levels 6. Allocative efficiency Distribution of resources among firms and industries to obtain production quantities of the products most wanted by society; where marginal cost equals marginal benefit ‹#›

10. VOCABULARY SET 1 7 . Appreciation An increase in the value of the dollar relative to the currency of another nation, so that the dollar buys more of the foreign currency and thus foreign goods become cheaper 8 . Asset Items of monetary value owned by a firm or individual; opposite is liability 9 . Balance of Payments Account Summary of a nation’s current account, financial account, and capital account ‹#›

11. VOCABULARY SET 1 10. Barrier to Entry Artificial prevention of the entry of firms into an industry 11 . Bond Financial instrument through which a borrower (corporate or government) is contracted to pay the principal at a specified interest rate at a specific date (maturity) in the future. 12 . Balance of Trade The difference in value between a country’s imports and exports. ‹#›

12. VOCABULARY SET 1 13. Budget Deficit The amount by which spending of the government exceeds its tax revenues in any year 14 . Budget Surplus The amount by which the tax revenues of the government exceed its spending in any year. 15. Capital Resources (building, machinery, and equipment) used to produce goods and services; also called investment goods ‹#›

13. VOCABULARY SET 1 16. Circular Flow Model Flow of resource input from households to businesses and of goods and services from businesses to households. A flow in the opposite direction for money occurs simultaneously 17. Comparative Advantage the ability of an individual or group to carry out a particular economic activity (such as making a specific product) more efficiently than another activity (at a lower opportunity cost) 18 . Complementary goods Goods that are used together so the demand for one generates demand for the other ‹#›

14. VOCABULARY SET 1 19. Consumer Price Index (CPI) Index that measures the prices of a set “basket” of 300 goods and services bought by a typical consumer; used by government as an indicator of inflation 20. Change in Demand Change in a quantity demanded of a good or service at all prices; shift of the demand curve to the left (decrease) or right (increase) ‹#›

15. VOCABULARY SET 1 SCORES Student A 10/10 Student B 8/10 Student C 9/10 Student D 7/10 ‹#› https://play.kahoot.it/#/k/7bddbd43-73f7-4146-9b21-011fa264f908

16. 3 . VOCABULARY 2 20 more economic terms defined [40 total] + student scores ‹#› https://www.economist.com/economics-a-to-z

17. VOCABULARY SET 2 21 . Recession a phase of the business cycle in which the economy as a whole is in decline; two consecutive quarters of falling real GDP 22 . Marginal Propensity to Save the change in saving caused by a change in disposable income, or the slope of the saving function. 23. Marginal Propensity to Consume the change in consumption caused by a change in disposable income, or the slope of the consumption function. ‹#›

18. VOCABULARY SET 2 24. Market for Loanable Funds the market for dollars that are available to be borrowed for investment projects. Equilibrium in this market is determined at the real interest rate where the dollars saved (supply) is equal to the dollars borrowed (demand) 25. Demand for Loanable Funds a hypothetical curve that shows the willingness to borrow money to fund investment projects; as the interest rate decreases, the quantity of loans demanded will increase. 26. Disposable Income income that is left for consumption after taxes are paid; if your income is $100 and you pay $5 in taxes, your disposable income is $95. ‹#›

19. VOCABULARY SET 2 27. Private Saving what is left of disposable income after consumption is taken out; if your disposable income is $95 and you spend $70, you have $25 left in savings. 28. Public Saving the difference between taxes collected and government spending; when there is a budget surplus, public saving is positive, but when there is a budget deficit, public saving is negative. 29. National Savings the total amount of private saving and public saving ‹#›

20. VOCABULARY SET 2 30. Economics the study of how individuals and societies choose to allocate scarce resources. 31 . Economic Resources also called the factors of production ; these are the land (natural resources such as minerals and oil), labor (work contributed by humans), capital (tools, equipment, and facilities), and entrepreneurship (the capacity to organize, develop, and manage a business) that individuals and businesses use in the production of goods and services. 32 . Normative Analysis unlike positive analysis, normative analysis is subjective thinking about what we should value or a course of action that should be taken, such as the importance of environmental factors and the approach to managing them. ‹#›

21. VOCABULARY SET 2 33 . Macroeconomics the study of aggregates and the overall commercial output and health of nations; includes the analysis of factors such as unemployment, inflation, economic growth and interest rates. 34 . Positive Analysis analytical thinking about objective facts and cause-and-effect relationships that are testable, such as how much of a good will be sold when a price changes. 35 . Eff i ciency the full employment of resources in production; efficient combinations of output will always be on the PPC. ‹#›

22. VOCABULARY SET 2 36. Productivity (also called technology) the ability to combine economic resources; an increase in productivity causes economic growth even if economic resources have not changed, which would be represented by a shift out of the PPC. 37. Production Possibilities Curve (also called a production possibilities frontier) a graphical model that represents all of the different combinations of two goods that can be produced; the PPC captures scarcity of resources and opportunity costs. 38. Specialization when an individual or a country allocates most or all of its resources towards the production of a particular good or service. ‹#›

23. VOCABULARY SET 2 39. Inferior Good a good for which demand will decrease when buyers’ incomes increase. 40 . Normal Good a good for which demand will increase when buyers’ incomes increase. ‹#›

24. VOCABULARY SET 2 SCORES Student A 10/10 Student B 10/10 Student C 8/10 Student D 10/10 ‹#› https://play.kahoot.it/#/k/9f3efd3c-d790-4d58-a24c-2e05a5955ae7

25. 4 . VOCABULARY 3 20 more economic terms defined [60 total] + student scores ‹#› https://www.economist.com/economics-a-to-z

26. VOCABULARY SET 3 4 1. Equilibrium in a market setting, an equilibrium occurs when price has adjusted until quantity supplied is equal to quantity demanded 4 2. Disequilibrium in a market setting, disequilibrium occurs when quantity supplied is not equal to the quantity demanded; when a market is experiencing a disequilibrium, there will be either a shortage or a surplus. 4 3. Market an interaction of buyers and sellers where goods, services, or resources are exchanged ‹#›

27. VOCABULARY SET 3 44 . Determinants of Demand changes in conditions that cause the demand curve to shift; the mnemonic TONIE can help you remember the changes that can shift demand (T-tastes, O-other goods, N-number of buyers, I-income, E-expectations) 45 . Law of Demand all other factors being equal, there is an inverse relationship between a good’s price and the quantity consumers demand; in other words, the law of demand is why the demand curve is downward sloping; when price goes down, people respond by buying a larger quantity. 46 . Law of Supply all other factors being equal, there is a direct relationship between a good’s price and the quantity supplied; as the price of a good increases, the quantity supplied increases; similarly, as price decreases, the quantity supplied decreases, leading to a supply curve that is always upward sloping. ‹#›

28. VOCABULARY SET 3 47. Determinants of Supply changes in non-price factors that will cause an entire supply curve to shift (increasing or decreasing market supply); these include 1) the number of sellers in a market, 2) the level of technology used in a good’s production, 3) the prices of inputs used to produce a good, 4) the amount of government regulation, subsidies or taxes in a market, 5) the price of other goods sellers could produce, and 6) the expectations among producers of future prices. 48. Exports goods and services produced within a country that are purchased in other countries 49. Imports goods and services that are produced in other countries but are purchased in your country. ‹#›

29. VOCABULARY SET 3 50 . Labor Force the number of people in a population who are either employed or unemployed 51 . Unemployment Rate the percentage of the labor force that is unemployed 52 . Labor Force Participation Rate the percentage of the eligible population that is in the labor force ‹#›

30. VOCABULARY SET 3 53. Transfer Payment any payment by a government to a household that is not in exchange for a good or service; for example, if the government hires a contractor they are buying a service that is included in GDP, but if they send a retired person a pension check they are not buying a good or service and it is not counted in GDP. 54. Quality of Life (sometimes called “well-being”) the standard of health, happiness, security, and material comfort of an individual, a group of people, or a nation 55. Non-Market Transactions economic activity that takes place in the informal sector (from babysitting, to lawn mowing, to illegal drug sales), sometimes called the gray market or the black market economy; non-market transactions are not recorded, taxed, or officially monitored by the government. Because of this, the output and income generated is not included in the calculation of a nation’s GDP. ‹#›

31. VOCABULARY SET 3 56. Income Inequality when a disproportionate share of a nation’s income is earned by a small minority of households; for example, when the top 10% of households earn 80% of the total income in a country, there is a high degree of income inequality; GDP does not account for income distribution in any way. 57. Human Development Index a composite measure of nation’s social and economic development developed by the United Nations that includes measures of health, wealth, and education 58. Discouraged Workers people who do not have a job, but they will take a job if offered one. However, they have given up looking for work, so they are not counted in the labor force; for example, if Carol gives up looking for work because she is having trouble finding a job, she is no longer in the labor force and therefore is not counted as unemployed. ‹#›

32. VOCABULARY SET 3 59. Structural Unemployment unemployment that occurs as a result of a structural change in the economy, such as the development of a new technology or industry; this is a part of the natural rate of unemployment. For example, Negan finds a cure for all dental diseases, and as a result, Rosita loses her job as a dentist and is now structurally unemployed. 60 . Frictional Unemployment the component of the natural rate of unemployment that occurs because the job search process is not instantaneous; for example, after Rosita graduated from dental school, it took her a few weeks to find a job as a dentist. During this period she will be frictionally unemployed. ‹#›

33. VOCABULARY SET 3 SCORES Student A 10/10 Student B 9/10 Student C 8/10 Student D 9/10 ‹#› https://play.kahoot.it/#/k/87ee6a36-dd2f-4cac-899a-ecce3c64c663

34. 5 . Economic Concepts 1 5 key economic concepts + student scores ‹#› https://www.economist.com/economics-a-to-z

35. ECONOMIC CONCEPTS SET 1 1. Trade-Offs involves a sacrifice that must be made to get a certain product or experience. A person gives up the opportunity to buy 'good B,' because they want to buy 'good A' instead. This implies that nothing is “free”, even if there is no monetary cost. EX: Going out on Friday night could involve several economic trade-offs. Let's say you really want to go to the bar with your friends. You will likely get home at 1 AM. The trade-off is the four hours you are giving up that you could be spending studying. ‹#›

36. ECONOMIC CONCEPTS SET 1 2 . Supply describes the total amount of a specific good or service that is available to consumers. Supply can relate to the amount available at a specific price or the amount available across a range of prices if displayed on a graph. The supply provided by producers will rise if the price rises because all firms look to maximize profits. As the supply increases, the price will fall given the same level of demand. Ideally, markets will reach a point of equilibrium where the supply equals the demand (no excess supply and no shortages) for a given price point; at this point, consumer utility and producer profits are maximized. EX: If there is a sudden increase in the price of bubble gum, Trident will increase their production. Once the market is filled with bubble gum, the price will decrease and Trident will begin lowering production again. ‹#›

37. ECONOMIC CONCEPTS SET 1 3 . Demand a consumer's desire and willingness to pay a price for a specific good or service. Holding all other factors constant, an increase in the price of a good or service will decrease demand, and vice versa. If suppliers charge too much, demand drops and suppliers do not sell enough product to earn sufficient profits. If suppliers charge too little, demand increases but lower prices may not cover suppliers’ costs or allow for profits. Some factors affecting demand include the appeal of a good or service, the availability of competing goods, the availability of financing and the perceived availability of a good or service. EX: If bubble gum prices suddenly drop because there is a surplus of gums, demand will increase as consumers purchase more at lower prices. ‹#›

38. ECONOMIC CONCEPTS SET 1 4 . Interest Rates amount of interest due per period, as a proportion of the amount lent, deposited or borrowed. The central bank reduces interest rates when they wish to increase investment and consumption in the country's economy. However, a low interest rate as a macro-economic policy can be risky and may lead to the creation of an economic bubble, in which large amounts of investments are poured into the real-estate market and stock market. EX: If an individual was thinking about buying a home or a car, and the interest rates suddenly go down, he or she might decide to take out a loan and spend because it is now less expensive to do so. ‹#›

39. ECONOMIC CONCEPTS SET 1 5 . Open Market Operations involves the Federal Reserve buying or selling Treasury bonds in the open market. This practice is akin to directly manipulating interest rates in that OMO can increase or decrease the total supply of money and also affect interest rates. If the Fed buys bonds in the open market, it increases the money supply in the economy by swapping out bonds in exchange for cash to the general public. Conversely, if the Fed sells bonds, it decreases the money supply by removing cash from the economy in exchange for bonds. EX: The Federal Reserve notices that inflation is increasing at an alarming rate. They will follow contractionary policy by selling U.S. securities, thus, decreasing the amount of cash available. ‹#›

40. ECONOMIC CONCEPTS 1 SCORES Student A 5/5 Student B 4/5 Student C 5/5 Student D 4/5 ‹#› https://create.kahoot.it/k/a45e93a0-f000-43f7-b9fb-258f7cc2c428

41. 6 . Economic Concepts 2 5 key economic concepts + student scores ‹#› https://www.economist.com/economics-a-to-z

42. ECONOMIC CONCEPTS SET 2 1. Diamond Water Paradox This concept looks at the fact that water is more useful to humans considering the whole, you know, survival thing, but diamonds are worth more in the market. A diamond could be sold for a large amount of money, while water is given away for free. Economists thought for a while that this contradiction might come from the amount of labor put into each commodity, but it’s now generally accepted that the answer is in the products’ marginal utility, or how useful each unit of the product is. Because there is so much water in the world, we are able to easily cover our highest-priority uses and use water for minor things like washing our cars and watering our lawns. This makes us value it less, but if there were a water shortage, we would gladly pay large amounts to make sure we had enough for our survival. EX: You would pay thousands of dollars for a diamond ring, but no more than $2 for a bottle of water, which is something you need to live. ‹#›

43. ECONOMIC CONCEPTS SET 2 2. Incentives An incentive is kind of like a bribe, but we’ll call it a good bribe. It’s basically anything that motivates us to do a certain thing or buy a certain product. Economists will tell you that incentives are everything. They’re given to employees to encourage them to work hard (like bonuses and personal development) and given to consumers to give them a reason to buy (like discount cards). During hard economics times, they are particularly useful as they can keep businesses alive and give rewards to customers. As a consumer it’s important to understand how the incentives are benefiting you and also how they benefit the economy. EX: To attract customers, Macy’s implemented a rewards program that awarded points that could be used for Macy’s gift cards for every dollar spent at Macy’s. ‹#›

44. ECONOMIC CONCEPTS SET 2 3. Inflation When you think back on what you used to be able to buy for a dollar and what you can get now, you’re getting a glimpse of inflation. Inflation is the increase in the overall prices of products and services in the economy. Each dollar buys less and we all probably start to feel poorer. A low, stable rate of inflation is normal and economists consider it ideal, but high inflation can happen when the money supply expands too much and too quickly. It’s obviously not seen as a great thing by consumers who have to pay more for goods, and there are other negative effects including less investment and savings and possibly a shortage of goods if people start hoarding them. But there is a silver lining for the economy: central banks can make adjustments to nominal interest rates that help ease recessions. EX: 80 years ago, a newspaper costs 5 cents. Now, newspapers cost $1. ‹#›

45. ECONOMIC CONCEPTS SET 2 4. Unemployment It’s easy enough to tell you the basic definition: the number of people in the civilian labor force divided by the number of people who are unemployed. Simple. But knowing exactly what that means and how to interpret the data is much more complicated. You first have to know who counts as being unemployed. To be unemployed in the U.S., you have to not have a job, have actively looked for work in the last four weeks, and be available for work. This means that people who have given up looking for work don’t count toward the unemployment numbers anymore. You should keep that in mind when interpreting changes in the rate, since some drops could mean lots of jobless people have just stopped trying. You should also compare the latest numbers with the same month the previous year to avoid getting confused by seasonal differences. EX: If John got let go 6 months ago and has not looked for a job since, he is not officially unemployed, at least not according to the U.S. census. ‹#›

46. ECONOMIC CONCEPTS SET 2 5. Free It doesn’t exist. Even the brightest economists will tell you, “There’s no such thing as a free lunch,” meaning nothing is entirely free of cost. One speculation of where the phrase originated is when saloons would give free lunch to anyone who bought a beer. They’d serve the men the saltiest foods so they’d end up buying more beer, thus making the meal cost something. Today, the concept isn’t too much different. If you think you’re getting something for free, you’re probably paying for it through hidden costs or costs that are distributed to someone else or society. EX: If John is offered a free burger for signing up for Burger King’s app, it is not really a free burger as he paid with the time it took to create an account. ‹#›

47. ECONOMIC CONCEPTS 2 SCORES Student A 5/5 Student B 5/5 Student C 5/5 Student D 4/5 ‹#› https://create.kahoot.it/k/96cb159b-70a7-493b-b0cc-6aebc4bc5fe6

48. 7 . Economic Concepts 3 5 key economic concepts + student scores ‹#› https://www.economist.com/economics-a-to-z

49. ECONOMIC CONCEPTS SET 3 1. Factors of Production Land: Comprise of all exploitable resources found on earth such as crude oil. Capital: These are the physical apparatuses and equipment employed in the process of production. Labor: These are the people who work or the human skills applied to facilitate production. Entrepreneurs: These are the people who identify new opportunities or mobilize resources for business or bring products to markets to meet the needs of society An economy is said to be in full production when resources are used efficiently, at the lowest possible cost (productive efficiency) to address the particular needs of the society (allocative efficiency). Trade-offs are made to maximize the productive and allocative efficiency by the concept of marginal analysis of each choice. Below is more on what is marginal analysis. EX: A factory is classified as capital and trees are classified as land. Labor is the workers and entrepreneurs are the founders.. ‹#›

50. ECONOMIC CONCEPTS SET 3 2. International Trade When two countries trade, one country can have a comparative or an absolute advantage over the other. The concept of opportunity cost and production possibility graphs is used to establish this. Both countries can use this principle to identify the circumstances which mutually beneficial trade can occur. EX: if we have wheat and sugar on the production possibility curves of the U.S. and Brazil, and the U.S. needs 2 tons of sugar to make a ton of wheat while Brazil needs 1.5 tons. Brazil has a comparative advantage over the U.S. in the production of sugar. ‹#›

51. ECONOMIC CONCEPTS SET 3 3. Marginal Analysis This basic economic concept assumes that the additional benefit of a commodity diminishes with every extra unit consumed. EX: If you take a bottle of soda, the first one will give you the maximum benefit. However, a third, fourth or fifth bottle will not give you as much satisfaction as the first one did. Although you probably got some benefit from the fourth soda, the extra value diminishes with every additional unit consumed. ‹#›

52. ECONOMIC CONCEPTS SET 3 4. Scarcity Economics is described as the science of choice, centered on the principle that society has unlimited wants but depends on scarce resources. Therefore, decisions are made to maximize satisfaction. Scarcity causes people and firms to pick suitable alternatives at the cost of the less preferred options creating opportunity costs and trade-offs. EX: For example, many people would like to own a Ferrari, but most settle for cars which they can afford. ‹#›

53. ECONOMIC CONCEPTS SET 3 5. Microeconomics vs Macroeconomics The distinction between these two sub-fields of economics is somewhat arbitrary, but important. Macroeconomics concerns the aggregate choices of members of a society and things that affect whole populations, such as inflation and unemployment. Microeconomics concerns individual and small-group choices, such as firms attempting to maximize their business profits. EX: The U.S. government’s fiscal policy would be examined by a macroeconomist whereas Google’s business policies would be examined by a microeconomist. ‹#›

54. ECONOMIC CONCEPTS 3 SCORES Student A 5/5 Student B 5/5 Student C 5/5 Student D 5/5 ‹#› https://create.kahoot.it/share/economic-concepts-set-3/53ab5d6e-6b0f-4627-a1e4-7982bd33211a

55. 8 . Essential Graphs 1 3 key graphs + student scores ‹#› https://www.economist.com/economics-a-to-z

56. GRAPHS 1 1 . Production Possibility Frontier The production possibilities curve (PPC) illustrates trade-offs and opportunity costs when producing two goods. There is one curve, which shows all possible combinations that can be produced given the current stock of capital, labor, natural resources, and technology. A straight line represents constant opportunity costs, and a bowed out line represents increasing opportunity costs. each axis represents a good that a country produces, such as capital goods and consumer goods. ‹#›

57. GRAPHS 1 ‹#›

58. GRAPHS 1 2 . The Market Model The market model is used to illustrate how the forces of supply and demand interact to determine prices and the quantity that is sold. This model is important because many other models are variations of it, such as the market for loanable funds and the foreign exchange market. There are two axes: a vertical axis labeled “Price” or “P” and a horizontal axis labeled “Quantity” or “Q”. There are two curves: a downward sloping demand curve labeled “D” and an upward sloping supply curve labeled “S.” The intersection of the two curves is where the equilibrium lies. ‹#›

59. GRAPHS 1 ‹#›

60. GRAPHS 1 3 . Aggregate Demand/Aggregate Supply (AD/AS) Curve The AD-AS (aggregate demand-aggregate supply) model is a way of illustrating national income determination and changes in the price level. We can use this to illustrate phases of the business cycle and how different events can lead to changes in two of our key macroeconomic indicators: real GDP and inflation. There are two axes: a vertical axis labeled “Price level” or “PL” and a horizontal axis labeled “real GDP.” There is a downward sloping aggregate demand curve labeled “AD.” There is an upward sloping short-run aggregate supply curve labeled “SRAS.” ‹#›

61. GRAPHS 1 ‹#›

62. GRAPHS 1 SCORES Student A 5/5 Student B 4/5 Student C 3/5 Student D 4/5 ‹#› https://create.kahoot.it/share/economic-graphs/fef84776-5e32-484a-b4ea-94de27a19bac

63. 9 . Essential Graphs 2 2 key graphs + student scores ‹#› https://www.economist.com/economics-a-to-z

64. GRAPHS 2 Laffer Curve The Laffer Curve is a theory developed by supply-side economist Arthur Laffer to show the relationship between tax rates and the amount of tax revenue collected by governments. The curve is used to illustrate Laffer's main premise that the more an activity — such as production — is taxed, the less of it is generated. ‹#›

65. GRAPHS 2 ‹#›

66. GRAPHS 2 2 . Foreign Exchange Market Graph Exchange rates are determined by the interaction of people who want to trade in their currency (the supply of a currency) with other people who want to obtain that currency (the demand for a currency). The foreign exchange model is a variation on a market model. The y-axis represents the exchange rate and the x-axis represents the quantity of one currency. ‹#›

67. GRAPHS 2 ‹#›

68. GRAPHS 2 SCORES Student A 4/4 Student B 4/4 Student C 3/4 Student D 4/4 ‹#› https://create.kahoot.it/share/essential-graphs-2/ae1ea326-c6d6-402e-81ef-529d995a9763

69. 10 . 2006 Practice Test student scores ‹#› https://app.box.com/s/ckycn3u2gp

70. 2006 Practice Test Scores Student A 97/99 Student B 83/99 Student C 87/99 Student D 90/99 ‹#›

71. 11. PROGRESS student score progress ‹#›

72. ‹#›