economics is lowkey not a science bffr this shi is just humanities that men fw Flashcards

1
Q

takes on the government

A
  • smith heads and & public choice heads → government hurts
  • mercantilists & keynesians → government helps
  • monetarists → believed that government can help but usually hurts
  • rational expectations economists → government does not have an effect
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2
Q

tenets of rational expectations theory

A
  • markets will clear up
  • people consider all available information in making economic decisions
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3
Q

why is the stock market considered evidence for rational expectations theorists

A

once information is public → instantly affects the market

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4
Q

efficient market hypothesis

A

the price of stocks already reflects expectations

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5
Q

why does government have little power over the stock market

A
  • if they bought stock to raise prices → investors will sense the stock is overpriced
  • if they sold stocks → the market will sense it is undervalued
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6
Q

Harry Markowitz’s 1952 “Portfolio Selection”

A
  • many smaller investments > one big investment
  • portfolio should not be diverse in one sector, rather across all sectors
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7
Q

William Sharpe

A

designed the Capital Asset Pricing Model → introduces concept of Beta (correlation between stocks movement with the market as a whole)

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8
Q

co-laureate Merton Miller & Franco Modigliani

A

companies would issue more bonds and sell fewer shares of stocks –> no matter how you split ownership, value is based on future earnings

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9
Q

robert lucas’ critique

A

says old behavior provides a poor basis for creating new policy
example: if government finds a stable, historic relationship between baseball games and GDP → attempts to raise GDP by increasing baseball games → economic actors will see this and change behavior

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9
Q

robert hall

A

argues mainstream models of consumption that rely on past income, wealth, interest rates

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9
Q

what was robert hall’s new model

A

two variables:
- last year’s consumption
- random variable → new information that can only be guessed

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9
Q

behavioral economics

A
  • people look for short term gratification
  • people do not always act rationally → typical behavior
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