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ECON 201 > Final Exam > Flashcards

Final Exam Flashcards

1
Q

elastic

A
  • degree that supply and demand respond to price change

- supply curve flatter

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2
Q

inelastic

A

-no matter the price consumers will continue to buy

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3
Q

burden of tax

A

-falls on the inelastic side of the market

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4
Q

which way does supply curve shift by the amount of tax?

A

supply curve shifts up by amount of tax

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5
Q

exercise tax

A
  • fixed dollar amount paid for each unit
  • on buyers (shift demand down)
  • on sellers (shifts supply up)
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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)
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7
Q

LDC

A

least/ less developed country

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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%
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9
Q

policies to address poverty

A
  • min wage law
  • welfare
  • negative income tax
  • transfers
  • give cash ex
  • give conditional can transfers ex
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10
Q

min wage law

A

-can create job shortages if min wage is binding (above set wage level)

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11
Q

welfare

A

-can discourage working

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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

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13
Q

transfers

A
  • only up to a certain point
  • “leaky bucket” too much bureaucracy to manage
  • redistribution of income and wealth
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14
Q

give cash example

A
  • universal basic income

- give directly

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15
Q

give conditional cash transfers (CCT) example

A
  • progress

- opportunities

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16
Q

labor force (LF)

A

employed + # unemployed + # neither

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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

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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
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19
Q

if Px decreases

A

budget constraint pivots out (on x axis)

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20
Q

if income increases

A

budget constraint shifts out (parallel)

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21
Q

how to find BC point on x axis

A

income / Px

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22
Q

how to find BC point on y axis

A

income / Py

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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
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24
Q

perfect compliments

A

two goods with right angle indifference curves (spooning right angles)

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25
Q

perfect substitutes

A

two goods with straight line indifference curves (look like demand curve)

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26
Q

optimal consumer choice

A
  • when IC is tangent to BC

- where MRS = slope of BC

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27
Q

MRS

A
  • marginal rate of substitution
  • rate at which consumer is willing to substitute two goods
  • dy / dx slope of indifference curve
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28
Q

normal good

A
  • any good for which demand increases when income increases

- ex. with positive income elasticity of demand

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29
Q

inferior good

A
  • type of good which demand declines as level of income or real GDP in the economy increases
  • ex. opposite of normal good
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30
Q

what happens to normal and inferior goods when income increases

A
  • normal good: demand rises when income rises

- inferior good: demand falls when income rises

31
Q

what happens to normal and inferior goods when price changes

A
  • normal good: Q demand increases price decreases

- inferior good: Q demand decreases price decreases

32
Q

price change

A

income effect + substitution effect

33
Q

income effect

A

change in consumption that results when price change moves the consumer to a higher or lower indifference curve

34
Q

substitution effect

A

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
Q

information asymmetry

A

when one agent in a market transaction (buyer/seller, worker/employer) has more information than the other

36
Q

moral hazard

A
  • hidden action (dishonest behavior)

- ex. worker at a job

37
Q

adverse selection

A
  • hidden type / characteristic

- ex. used cars

38
Q

George Akerlof

A
  • won Nobel prize in 2001
  • work on formalizing adverse selection
  • ex. used market for lemons in the used car industry
39
Q

lemon problem

A

how quality of good traded in a market can degrade in pretense of information asymmetry between buyers and sellers

40
Q

asymmetric information

A

sellers knowing more than they tell the buyers

41
Q

gross domestic product (GDP)

A

the total value of everything produced by all the people and companies in the country

42
Q

determinate of productivity

A
  • physical capital
  • human capital
  • natural capital
  • technical knowledge
43
Q

how to increase productivity

A
  • invest in capital rather than consumption goods

- invest when leans are cheap (low r)

44
Q

national saving

A
  • S
  • private saving + public saving
  • savings = investment
45
Q

private saving

A
  • amount households have left after paying taxes
  • (Y - C - T)
  • GDP - consumption - taxes
46
Q

public saving

A
  • amount of tax revenue gov has after paying for its spending
  • (T - G)
  • taxes - government purchases
47
Q

if (T - G) > 0 …

A

gov surplus

48
Q

if (T - G) < 0 …

A

gov deficit

49
Q

gov deficit

A
  • amount that something falls short (usually money)
  • gov must borrow money (from private lenders)
  • gov deficit since 1969
50
Q

what happens when the gov borrows

A
  • sell a bond
  • pulls money from the private sector
  • decreases money supply
  • aka open market sales
51
Q

what happens when the gov lends

A
  • buys bonds
  • injects money into private sector
  • increases MS marginal supply
  • aka open market purchases
52
Q

FOMC

A
  • committee inside the federal reserve bank

- gov in open market operation

53
Q

government bonds

A

treasury securities

54
Q

bills

A

less than 1 hr maturity

55
Q

notes

A

1-10 hrs maturity

56
Q

bonds

A

greater than 10 hrs maturity

57
Q

two types of bonds

A

with and without coupons

58
Q

without coupons

A
  • present value formula

- P = face value / (income + interest rate) ^maturity

59
Q

with coupons

A
  • 10% of FV

- P = longer equation

60
Q

n

A

maturity

61
Q

r

A

intrest rate

62
Q

FV

A

face value

63
Q

as interest rate increases…

A

demand for loans decreases

64
Q

when fed buy bonds

A
  • loans money to banks
  • money supply increases
  • reserves increase
65
Q

when fed issues / sells bonds

A
  • it borrows money

- money supply decreases

66
Q

fed funds rate

A

rate at which banks lend to each other

67
Q

mm

A
  • money multiplier

- when money gets re-loaned

68
Q

rr

A

reserve ratio

69
Q

deficits

A
  • increase demand for loans

- increase interest

70
Q

high interest

A
  • reduces borrowing demand for capital investing
  • income decrease
  • GDP decreases
71
Q

to get interest to decrease gov will:

A
  • buy bonds

- print money -> inflation

72
Q

CPI

A

price index of a given basket of goods for a given base year

73
Q

deflation

A
  • when cost of basket decreases

- negative inflation

74
Q

disinflation

A

inflation still pos, but falling over time

ECON 201 (2 decks)

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