Economics Basics

 

• Economics = Dismal science

• Winners and Losers

• If… the gov’t provides assistance ($$$) to people in need (welfare, farm subsidies)

• Then… The gov’t must raise taxes on others

• Winners - get $$$

• Losers - pay high taxes

• If… you decide to spend the night studying

• Then… you can’t hang out with your friends

• Economics = Dismal science — 

• People are never satisfied and there’s never enough resources

• Money, goods, time, etc.

• You can’t always get what you want

• Scarcity = Goods and resources are limited

• Choices must be made

• Who makes the choices

• Free Market (Capitalism)

• People (Firms/Businesses) choose

• Socialism/Communism

• Government chooses

• Households

• People, workers - spending

• Firms

• Businesses

• Producing, Selling, Spending

• Government

• Regulation

• Taxes (take $)

• Subsidies (give $)

• Welfare for firms & households

• Interest Rates (Federal Reserve)

Money Basics

• More money = more spending ► Firms Grow = Economy Grows

• Low Interest = more borrowing ► More Spending 

• Firms Grow ► Economy Grows

• Borrowing

• Interest = $ paid on top of loan

• Borrow $100 from bank at 6% interest

• Pay back the loan — $100 + $6 (6% of 100)

• Households/Firms - take loans w/ Banks

• Banks — take loans from The Federal Reserve (Gov’t)

• The Fed sets interest rates

• Banks then set their rates based on The Fed rate

• Scenario 1

• $100 loan at 9% interest — Pay back $109

• Scenario 2

• The Fed lowers interest rates

• $100 loan at 6% interest — Pay back $106

• It’s cheaper to borrow ► more borrowing