Unit 1: Economic Summary Economics is the study of how people choose to use resources to improve their well-being. Economics is the study of the production and consumption of good and the transfer of wealth to produce and obtain those goods. There are two main types of economics: macroeconomic and microeconomic. Microeconomics focuses on the action of individuals and industries,like the dynamic between buyers and sellers,borrowers and lenders. Macroeconomics,on the other hand,take a more broader view by analyzing the economic activity of an entire country or the international marketplace. There 3 economics theory: Adam Smith, Marxism and Keynesian School. Studying economics can help one understand human thought and behavior. Comprehension questions 1. What do resources include? → Resources include the time and talent people have available,the land,building,equipment and the other tools on hand,and the knowledge of how to combine them to create usefull products and services. 2. What can be considered as important choose? → Important choose can be considered as how much time to devote to work,to school,and to leisure,how many dollars to spend,how many to save,how to combine resources to produce goods and services,and how to vote and shape the level of taxes and the role of government. 3. What does the term “well-being” main? → Well-being includes the satisfaction people gain from the products and services they choose to cunsume,from their time spent in leisure and with family,and community as well as in jobs,and the security and services provided by effective governments. 4. Why does economics reveal the way people and government behave? →Because economics is a driving force of human interaction. It explains how people interact within markets to get what they want or accomplish certain goals. Unit 3 : Microeconomics Summary Much of microeconomics is about limits-the limited incomes that consumers can spend on goods and services. It is about the allocation of scarce resources. In a planned economy,these allocation of mostly by the govornment. In modern market economies, consumers,workers and firms have much more flexibility and choice when it comes to allocating scarce resources. Microeconomics describes the trade-off that consumers,workers and firms face,and show how these trade-off are best made. Consumer theory describes how consumes, based on their preferences,maximize their well-being by trading off the purchase of more of some goods with purchase of less of other. Workers theory,first,people must decide whether and when to enter the workforce; second, workers face trade-offs in their choice of employment; finally,workers must sometimes decide how many hours per week they wish to work thereby trading off labor for leisure. Firms also face limits in terms of the kinds of products that they can produce and the resources available to produce them. The theory of the firm describes how these trade-offs can be best made. Microeconomics also describes how price are determined. The central role of markets is the third important theme of microeconomics. Comprehension questions: 1. In a planned economy, who makes decisiions on the allocation of scarce resources? → The government 2. Why are many microeconomic tools and concepts of limited relevance in Cuba and North Korea? → Because: Firms are told what and how much to produce,and how to produce it,workers have little flexibility in choice of jobs,hours worked or even where they live,and consumers typically have a very limited set of goods to choose from. 3. What does the term “trade-off” mean? → Unit 4 : Macroeconomics Summary Macroeconomics provides us with a bird’s eye view of country’economic landscape. The goal of macroeconomics is to look at overall economic trends such as employment levels, economic growth, balance of payments, inflation and so on. Macroeconomics including monetary policy and fiscal policy. The basic objective of these two main macroeconomic policies are to promote economic growth and to keep inflation under control. Central banks use monetary policy by increaseing or decreasing the money supply to keep the economy from overheating or slowing down too quickly. Fiscal policy is used by the government. Taxation and government spending greatly influence a country’economic growth. Microeconomics different with macroeconomics. Microeconomic is generally the study of individuals and business decisions, Macroeconomic looks at higher up country and government decisions. However,they are actually interdependent and complement one another since there are overlapping issues between 2 fields. Comprehension questions: 1. What are two major macroeconomic policies? → Two major macroeconomic policies are moneraty policy and fiscal policy. 2. What are the main tools of monetary policy? → Monetary policy which controls a nation’s money supply is supervised 3. What are the main tools of fiscal policy? → Fiscal policy which controls a government’s revenue and spending. Unit 5: Demand and supply Summary Demand describes how price influences buyer behavior. If the price of a specific good or service increases,the quantity demand will decrease. If the price decreases,the quantity will increase. So,we must hold all the other possible influences contant. The shift factors of demand are society’s income,price of other good,expectation and tastes. Demand curve shows the prices influense on buyers. On our demand model,we illustrate a change in one of the shift factors of demand curve to the left or to the right. The seller,just like the buyer will be influenced by prices when deciding how much to provide or produce. The shift factors of supply include: change in prices of input,technology,taxes,and supplies expectations. If one of the shift factors of supply change, supply curve will change. Equilibrium is a situation in which there is no tendency for change. A market will be in equilibrium when there is no reason for the market price of the product to rise or to fall. Demand and supply curve simply graphs of demand and supply schedules. Comprehension questions: 1. What is the definition of “demand”? → Demand is the quantity of goods and services buyers are willing and able to buy more at various prices. 2. What is the difference between “demand” and “quantity demand” ? → Demand is the quantity of goods and services buyers are willing and able to buy more at various prices. Quantity denmand is the quantity of goods and services buyers are willing and able to buy at a certain price in a period of time. 3. What is the definition of “supply”? → Supply is the quantity of goods and services sellers are willing and able to sell more at various prices. 4. What is the difference between “supply” and “quantity supply” ? → Supply is the quantity of goods and services sellers are willing and able to sell more at various prices. Quantity supply is the quantity of goods and services sellers are willing and able to sell at a certain price in a period of time. 5. Will the supply curve of beer shift to the right or to the left if there is an increase in its production costs? → If beer’s production costs increase, supply curve of beer shift to the left Unit 6 : Public finance Summary The federal government raises trillions of dollars in tax renenue each year,though there are many different kinds of taxes as: individuals income taxes,payroll taxes,corporate income taxes,customs duties and excise taxes. Income taxes and corporate are designated as federal funds,while payroll taxes become trust funds. If the federal government spends more than revenues,the Treasury borrows money by issuing bonds. To finance the debt,the U.S Treasury sells bonds and other types securities. The federal debt is the sum of the debt held by the public,this is “debt held by federal accounts” . So,the government owes to all its creditors in the general public and foreign investors and central banks of other countries. Comprehension questions: 1. What does the U.S Treasury do when revenue from taxes is not enough to cover all of the government’s expenditures? → When revenue from taxes is not enough to cover all of the government’s expenditures,the U.S Treasury borrows money to make up the difference. 2. How much is the Federal government going to collect in tax revenues in fiscal year 2014? → The Federal government going to collect in tax revenues in fiscal year 2014 are projected to be $3 trillion. 3. What type of taxes contributes the largest proportion of tax revenues? →Taxes contributes the largest proportion of tax revenues is individual income. 4. What are federal funds? → Federal funds are income taxes and corporate taxes. 5. For what purpose are these funds used? →Congress and the president conduct and the annual appropriations process. 6. What are the trust funds? → Trust funds are payroll taxes. 7. For what purpose are these funds used ? → Trust funds can be used only to pay for very specific programs. 8. By that way does the Treasury borrow money? → The Treasury borrow money by issuing bonds. 9. Who does the Federal Government owe money to? → The money borrowed from regular people like you and from foreign countries. Unit 7 : Fiscal policy Summary Government spending and taxation directly effect the overall performance of the economy. If the government increases spending, will create fob,create income,so the economy tend to grow. If the government increases taxes, the economy tend to shrink. When the government spends more than it receives,it runs deficit. Government spending deficits by borrowing money. Deficit spending obtained by borrowing and printing instead of taxation-can be helpful for the economy. However,it also can harm the economy. Fiscal policy is expansionary when taxation is reduced or public spending is increased. Fiscal policy is contractionary when taxation is increased or public spending is reduced. A government must make judments about a number of factors including the level of economic growth of unemplyment likely in the future,and whether or not torun a budget deficit by spending more money than the government raises,by political considerations,by fiscal policies of other countries and by the requirements of IMF. Comprehension questions: 1. In what way do government spending and taxation affect the ecnomy? Give example ? →Government spending and taxation directly affect the overall performance of the economy. For example, if the government increases spending to build a new highway, construction of the highway will create jobs and people spend more money on purchases, thus, the economy tends to grow 2. What is deficit spending? Is it useful or harmful for the economy? Why? → Deficit spending obtained by borrowing and printing instead of taxation-can be helpful for the economy. 3. What are the government’s major economic policies mentioned above? → The government’s major economic policies mentioned above are Fiscal policy and Monetary policy. 4. What are they aimed at? → They are aimed at maintaining economic growth,high employment and slow inflation. 5. Under what circumstances can fiscal policy be expansionary? Why? → F.P is expansionary when a government fells its economy is not growing fast enough or unemployment is too high. Because, when increasing spending or cutting taxes,the government leaves individuals and businesses with more money to purchase good or invest in new equipment,so raise demand,which requires additional production,creating jobs,generating more spending. The result is higher employment and a growing economy. 6. Under what circumstances can fiscal policy be contractionary? Why? → F.P is contractionary when inflation is high Because, a contractionary F.P reduce the amount of money in the economic available for puchasing,goods. 7. What factors should be considered in making decisions on the F.P? → Factors should be considered in making decisions on the F.P include: the level of economic growth of unemplyment likely in the future; whether or not to run a budget deficit by spending more money than the government raises;political considerations;fiscal policies of other countries and by the requirements of IMF. Unit 8 : Taxation Summary: Most of the money to run the government comes from taxes of all sorts- on personal and corporate incomes,on sales of goods,on imports and on inheritance. The ultimate source of all tax money is the same-people. The primary function of taxation is,to raise revenue to finance government expenditure,and other purposes. There is always a lot of debate as to the fairness of tax system,as business profits are generally taxed tivice:companies pay tax on their profits and the shareholders pay income tax on dividends. The higher the tax rate,the more people are tempted to cheat. To reduce income tax liability,some employers give highly-paid employees lots of “perks” instead of taxable money. Unit 10 : Insurance Summary Insurance is a financial arrangement that redistributes the costs of unexpected losses. The insurance arrangement involves the transfer of many different exposures to loss to one insurance pool. An insurance system accomplishes the redistribution of the costs of losses by collecting a premium payment from every participant in the system. The insured receives a promise from the insurance system to be compensated in the event of a loss. Contracts of insurance form a special class of contract in that the law requires parties to them,to exercise the utmost good faith towards each other. Comprehension questions: 1. In what way,losses can be predicted before they occur? → Losses can be predicted before they occur through the operation of insurance system. 2. Why is the predictability of losses in advance is basic to an insurance system’s operation? → Because it allows the cost of losses to be financed and redistributed in advance. 3. Why are people willing to pay an insurance premium? → Because they find the possibility of suffering a large loss unpleasant to contemplate. Unit 11 : Money and its functions Summary Money is a commodity accepted by general consent as a medium of exchange, which serves as a medium of exchange, a measure of or an unit of account, a store of value and a standard of deferred payments. Money has 2 main types: commodity money (Its value is equal to the value of contained materials) and token money (its value exceeds the cost of production or value in uses other than as money). Comprehension questions : 1. What is the concept of “money”? → Money is a commodity accepted by general consent as a medium of exchange. 2. What are the functions of money? → The functions of money are medium of exchange, measure of value, store of value, and standard of deferred payments. 3. What is a medium of exchange? → A medium of exchange is anything that is widely accepted in payment for goods and services and in settlement of debts. 4. How is money used as a medium of exchange? → Money is used as a medium of exchange which exchange goods & services? 5. How is money used as a unit of account?/a store of value and as a standard of deferred payment? → Money is used as a unit of account as we need measurements for distances,weights,& energy,so we need measurements for the value of things offered at the market. →Money is used as a store of value as it can be used to make purchases in the future. →Money is used as a standard of deferred payment as is expressed in terms of money to be paid in the futuer. Unit 12 :Monetary policy Summary Monetary policy is the process by which monetary authority of a country controls the supply of money. By law, the Fed controls the percentage of deposits banks keep in reserve by controlling the reserve requirement of all US banks. The reserve requirement is the minimum amount of reserves as bank must have and it decides how much money banks have to lend out. Other tools of monetary policy are changing the discount rate,so can expand or contract the money supply. A third tool:open market operations,this are the primary tool of monetary policy. Monetary policy contains 2 types: expansionary which may be used to shift aggregate demand and restrictive which may be used to cool an overheating economy. Comprehension questions: 1. What is the moneary policy? → Monetary policy which controls a nation’s money supply is supervised by each country’s central bank. 2. How does the Fed control the percentage of deposits banks keep in reserve? → The Fed control the percentage of deposits banks keep in reserve by controlling the reserve requirement of all US Banks. 3. What is the called reserve requirement? → The percentage the Fed sets as the minimum amount of reserves as bank must have is called the reserve requirement. 4. What determines the amount banks hold as reserves? → The Fed’s reserve requirements determines the amount they hold as reserves. 5. What is the central role of the reserve requirement? → The reserve requirement play a central role in how much money banks have to lend out. 6. What is the second tool of monetary policy? → The second tool of monetary policy is Discount rate. 7. What is the discount rate? →The discount rate is the rate of interest the Fed charges for those loans. 8. How can the central bank shift aggregate demand? → The central bank can shift aggregate demand by making more or less money available. 9. How can the banks encourage people to borrow and spend more money? [...]... interest rates or easier approvals 10 When will prices begin rising? → As market participants bid against each other for increasingly scarce goods, prices will start rising 11 What can the central bank do to reduce aggregate demand? → The central bank can reduce the money supply by: raising reserve requirements, increasing the discount rate,or selling bonds in the open market 12 .When might the central bank... Markets 10 What are differences between Exchanges and OTC markets? →Differences between Exchanges and OTC markets are: Location Form Competitiveness Changes Examples Exchanges Markets meet in ONE central location Direct low Wheat, corn, silver, and other raw materials Over-the-Counter Markets different locations, or in computer contact Indirect High (most common) Many common stocks are traded Bonds 11 .On... foreign currencies in large amounts Foreign exchange trading is divided into spost and forward business There are 3 types of participants in the market: customers,banks and brokers Comprehension questions: 1 What is the foreign exchange market? → The foreign exchange market is the market in which such national currencies dollars,pesos,deutschemarks,yen,trancs,and others are exchanged 2 Why is it considered... their cross border trade or investment business 7 How do brokers participate in the foreign exchange market? → Brokers participate in the foreign exchange market as intermediaries between the banks Unit 15 : Functions of financial markets Summary The main function of financial markets is to provide capital from surplus funds to shortage funds There are several categorizations of financial markets A firm... secondary markets Secondary markets can be organized in 2 ways: exchanges market and over – the – counter – market Finally, on basis of the maturity of the securities, they are money market and capital market 1 2 3 4 5 6 7 Comprehension questions: What is the main function of financial markets? →The main function of financial markets is channeling funds from households, firms, and governments that have saved... discount rate,or selling bonds in the open market 12 .When might the central bank want to reduce the money supply? → The central bank might want to reduce the money supply when an overheating economy Unit 14 : The foreign exchange market Summary The foreign exchange market is an over-the-counter market,the primary communication instruments being the telephone and the computer The foreign exchange market . rates or easier approvals. 10 . When will prices begin rising? → As market participants bid against each other for increasingly scarce goods, prices will start rising. 11 . What can the central bank. government going to collect in tax revenues in fiscal year 2 014 ? → The Federal government going to collect in tax revenues in fiscal year 2 014 are projected to be $3 trillion. 3. What type of taxes. premium? → Because they find the possibility of suffering a large loss unpleasant to contemplate. Unit 11 : Money and its functions Summary Money is a commodity accepted by general consent as a medium