Fundamental Economic Concepts: Supply, Demand, Inflation, and GDP
Economics makes up ~15% of the Social Studies exam.
1. Supply, Demand, and Market Equilibrium
- Law of Demand: As price decreases, quantity demanded increases (inverse relationship).
- Law of Supply: As price increases, quantity supplied increases (direct relationship).
- Equilibrium Price: The point where the quantity supplied equals the quantity demanded.
2. Macroeconomic Indicators
- Gross Domestic Product (GDP): The total market value of all final goods and services produced within a country in a year. A growing GDP signals economic expansion; two consecutive quarters of negative GDP define a recession.
- Inflation: A general increase in prices and fall in the purchasing power of money over time (measured by the Consumer Price Index).
3. Fiscal vs. Monetary Policy
- Fiscal Policy: Federal government spending and taxation decisions set by Congress and the President.
- Monetary Policy: Central bank (Federal Reserve) decisions controlling interest rates and money supply to manage inflation and employment.