Final Exam Flashcards
1
Q
elastic
A
- degree that supply and demand respond to price change
- supply curve flatter
2
Q
inelastic
A
-no matter the price consumers will continue to buy
3
Q
burden of tax
A
-falls on the inelastic side of the market
4
Q
which way does supply curve shift by the amount of tax?
A
supply curve shifts up by amount of tax
5
Q
exercise tax
A
- fixed dollar amount paid for each unit
- on buyers (shift demand down)
- on sellers (shifts supply up)
6
Q
inequality
A
- sometimes measured as ratio of richest quintile to poorest quintile
- can be hard to capture (and to track poorest)
- has been increasing in the US since 1970s (cheap labor from abroad creates decrease in wages, capital owned by increasingly small share)
7
Q
LDC
A
least/ less developed country
8
Q
poverty
A
- sometimes measured as living in less than $1.00 /day (LDC)
- US definition is living on less than 23K a yr for family of 4
- unemployment: 5%
9
Q
policies to address poverty
A
- min wage law
- welfare
- negative income tax
- transfers
- give cash ex
- give conditional can transfers ex
10
Q
min wage law
A
-can create job shortages if min wage is binding (above set wage level)
11
Q
welfare
A
-can discourage working
12
Q
negative income tax
A
- can encourage working but only up to a certain point
- gov collects tax revenue from high income households and gives substitutes to low
13
Q
transfers
A
- only up to a certain point
- “leaky bucket” too much bureaucracy to manage
- redistribution of income and wealth
14
Q
give cash example
A
- universal basic income
- give directly
15
Q
give conditional cash transfers (CCT) example
A
- progress
- opportunities
16
Q
labor force (LF)
A
employed + # unemployed + # neither
17
Q
how is unemployment estimated monthly
A
estimated by bureau of labor statistics (BLS) by conducting a census population survey (CPS) of 60 K households
18
Q
budget constraint
A
- represents all possible bundles (x,y) that a consumer can afford
- Income = (Px)(Qx) + (Py)(Qy)
- set equal to Qy for equation of budget constraint line
19
Q
if Px decreases
A
budget constraint pivots out (on x axis)
20
Q
if income increases
A
budget constraint shifts out (parallel)
21
Q
how to find BC point on x axis
A
income / Px
22
Q
how to find BC point on y axis
A
income / Py
23
Q
indifference curve (IC)
A
- represents consumer’s willingness to trade one good for another
- higher IC is better
- downward sloping
- IC’s don’t cross
- bowed inward
24
Q
perfect compliments
A
two goods with right angle indifference curves (spooning right angles)
25
perfect substitutes
two goods with straight line indifference curves (look like demand curve)
26
optimal consumer choice
- when IC is tangent to BC
| - where MRS = slope of BC
27
MRS
- marginal rate of substitution
- rate at which consumer is willing to substitute two goods
- dy / dx slope of indifference curve
28
normal good
- any good for which demand increases when income increases
| - ex. with positive income elasticity of demand
29
inferior good
- type of good which demand declines as level of income or real GDP in the economy increases
- ex. opposite of normal good
30
what happens to normal and inferior goods when income increases
- normal good: demand rises when income rises
| - inferior good: demand falls when income rises
31
what happens to normal and inferior goods when price changes
- normal good: Q demand increases price decreases
| - inferior good: Q demand decreases price decreases
32
price change
income effect + substitution effect
33
income effect
change in consumption that results when price change moves the consumer to a higher or lower indifference curve
34
substitution effect
change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new MRS
35
information asymmetry
when one agent in a market transaction (buyer/seller, worker/employer) has more information than the other
36
moral hazard
- hidden action (dishonest behavior)
| - ex. worker at a job
37
adverse selection
- hidden type / characteristic
| - ex. used cars
38
George Akerlof
- won Nobel prize in 2001
- work on formalizing adverse selection
- ex. used market for lemons in the used car industry
39
lemon problem
how quality of good traded in a market can degrade in pretense of information asymmetry between buyers and sellers
40
asymmetric information
sellers knowing more than they tell the buyers
41
gross domestic product (GDP)
the total value of everything produced by all the people and companies in the country
42
determinate of productivity
- physical capital
- human capital
- natural capital
- technical knowledge
43
how to increase productivity
- invest in capital rather than consumption goods
| - invest when leans are cheap (low r)
44
national saving
- S
- private saving + public saving
- savings = investment
45
private saving
- amount households have left after paying taxes
- (Y - C - T)
- GDP - consumption - taxes
46
public saving
- amount of tax revenue gov has after paying for its spending
- (T - G)
- taxes - government purchases
47
if (T - G) > 0 ...
gov surplus
48
if (T - G) < 0 ...
gov deficit
49
gov deficit
- amount that something falls short (usually money)
- gov must borrow money (from private lenders)
- gov deficit since 1969
50
what happens when the gov borrows
- sell a bond
- pulls money from the private sector
- decreases money supply
- aka open market sales
51
what happens when the gov lends
- buys bonds
- injects money into private sector
- increases MS marginal supply
- aka open market purchases
52
FOMC
- committee inside the federal reserve bank
| - gov in open market operation
53
government bonds
treasury securities
54
bills
less than 1 hr maturity
55
notes
1-10 hrs maturity
56
bonds
greater than 10 hrs maturity
57
two types of bonds
with and without coupons
58
without coupons
- present value formula
| - P = face value / (income + interest rate) ^maturity
59
with coupons
- 10% of FV
| - P = longer equation
60
n
maturity
61
r
intrest rate
62
FV
face value
63
as interest rate increases...
demand for loans decreases
64
when fed buy bonds
- loans money to banks
- money supply increases
- reserves increase
65
when fed issues / sells bonds
- it borrows money
| - money supply decreases
66
fed funds rate
rate at which banks lend to each other
67
mm
- money multiplier
| - when money gets re-loaned
68
rr
reserve ratio
69
deficits
- increase demand for loans
| - increase interest
70
high interest
- reduces borrowing demand for capital investing
- income decrease
- GDP decreases
71
to get interest to decrease gov will:
- buy bonds
| - print money -> inflation
72
CPI
price index of a given basket of goods for a given base year
73
deflation
- when cost of basket decreases
| - negative inflation
74
disinflation
inflation still pos, but falling over time
