FSOT Master 11 Flashcards
Deadweight loss
The deadweight loss caused by a policy is the reduction in economic surplus that results from adoption of that policy.
Debt
Accumulated deficits minus accumulated surpluses.
Debt Service
The interest rate on debt times the total debt.
debt utilization ratio?
Debt utilization ratios measure how well the firm is utilizing debt and XYZ company’s ability to repay the debt. Many novice investors believe that a company with no debt is superior. Having little debt on the balance sheet is generally very safe. But most companies assume debt to finance operations so the company can grow. General finance textbooks state that the ideal ratios is around 30%, due to leveraged buyouts the ratio of debt to assets or equity has been increasing.
Decision tree (or game tree)
A diagram that describes the possible moves in a game in sequence and lists the payoffs that correspond to each possible combination of moves.
Deficit
A shortfall of revenues under payments.
Deflating (a nominal quantity)
The process of dividing a nominal quantity by a price index (such as the CPI) to express the quantity in real terms.
Deflation
A sustained decrease in the average price level of all the goods and services produced in the economy.
Degree of economies of scope
Percentage of cost savings resulting when two or more products are produced jointly rather than individually
Demand
A schedule of quantites of a good that will be bought per unit of time at various prices, other things constant.
Demand Conditions” in Porter’s Theory?
ERROR!
Demand for money
The amount of wealth an individual or firm chooses to hold in the form of money.
Demand is unit elastic where on the demand curve?
Demand is unit elastic at the MIDPOINT of the demand curve.
Demand tends to become more or less elastic over time?
More Elastic, because consumers have more time to adjust to a price change.
Demand-Pull Inflation
Inflation that o curs when the economy is at or above potential output.
Dependent variable
A variable in an equation whose value is determined by the value taken by another variable in the equation.
Deposit insurance
A system under which the government guarantees that depositors will not lose any money even if their bank goes bankrupt.
depository institutions
financial institutions that accept deposits from savers and lend funds from those deposits out at interest
Depreciation (asset)
A measure of the decline in value of an asset that occurs over time through use.
Depreciation (currency)
A decrease in the value of a currency relative to other currencies.
Depression
A particularly severe or protracted recession.
Despository Institution
A financila institution whose primary financial liability is deposits in checking or savings accounts.
Devaluation
A reduction in the official value of a currency (in a fixed-exchange-rate system).
development banks?
There are a few multilateral development banks throughout the world. Their purpose is to assist nations in economic development though loans etc.
difference between the current and capital accounts?
The current account deals with the balance of imports and exports, while the capital account deals with the balance of monetary flows. The two have an inverse relationship.
Diminishing returns to capital
If the amount of labor and other inputs employed is held constant, then the greater the amount of capital already in use, the less an additional unit of capital adds to production.
Diminishing returns to labor
If the amount of capital and other inputs in use is held constant, then the greater the quantity of labor already employed, the less each additional worker adds to production.
direct effect of an increase in the money supply
aggregate demand rises because with an increase in the money supply, at any given price level people now want to purchase more output of real goods and services
direct expenditure offsets
actions on the part of the private sector in spending income that offset government fiscal policy actions; any increase in government in an area that competes with the private sector will have some direct expenditure offset
Direct Regulation
A kprogram in which the amount of a good people are allowed to use is directly limited by the government.
Direct Relationship
A relationship in which when one variable goes up, the other goes up too.
dirty float in economics?
It is when a country tries to manipulate the value of its floating currency.
Disappearing political discourse
The theory that people who support a position may remain silent, because speaking out would create a risk of being misunderstood.
Discount rate
The interest rate that the Fed charges commercial banks to borrow reserves.
Discount window lending
The lending of reserves by the Federal Reserve to commercial banks.
Discouraged workers
People who say they would like to have a job but have not made an effort to find one in the past four weeks.
Diseconomies of Scale
A doubling of output requires more than a doubling of cost.
Diseconomies of scope
means that there can be gains from trade, even when
production possibilities frontier are identical
Disinflation
A substantial reduction in the rate of inflation.
dissaving
a negative saving: a situation in which spending exceeds income; can occur when a household is able to borrow or use up existing assets
Distorted assett allocation, black markets, and shortages can result from what economic regulation?
Price controls.
Distribution
The allocation or dividing up of the goods and services a society produces
Diversification
The practice of spreading one’s wealth over a variety of different financial investments to reduce overall risk.
Dividend
A regular payment received by stockholders for each share that they own.
Division of Labor
The splitting up of a task to allow for specialization of production.
Do LLCs, partnerships, and sole proprietorshops pay higher or lower taxes than corporations?
Corporations pay higher taxes.
Does the demand curve determine the price of a product?
No, it only provides the answer to a series of hypothetical questions.
domestic firm?
A firm that has little or no international business activity.
Dominant Firm
irm with a large share of total sales that sets price to maximize profits, taking into account the supply response of smaller firms
Dominant strategy
One that yields a higher payoff no matter what the other players in a game choose.
Downsizing
A reduction in the workforce.
Dual Economy
The existence of two sectors: a traditional sector and an internationally oriented modern market sector.
dumping?
A standard technical definition of dumping is the act of charging a extraordinarily lower price for a good in a foreign market than one charges for the same good in a domestic market. True dumping (by a technical definition) is actually very difficult under free trade, and is also made illegal by the WTO. In the United States, domestic firms can file an antidumping suit under the regulations determined by the Department of Commerce and the International Trade Commission. These proceedings operate on a timetable governed by U.S. law. The Department of Commerce has regularly found that dumping occurs in U.S. markets.
Dunnings Eclectic theory?
Monopolistic/Ownership Specific Advantage (OSA) explained why firms invested overseas, Internalization explained Which form of entry the firm should take and explained Where the firm should invest through Location Specific Advantage (LSA).
Duopoly
Market in which two firms compete with each other
Duration
The length of an unemployment spell.
duration gap?
The duration gap is an accounting term for the difference between the duration of assets and liabilites. The duration gap measures how well cash flows for assets and liabilities are matched. When the duration of assets exceeds the duration of liabilities the duration gap is positive. A positive duration gap means greater exposure to rising interest rates; if interest rates go up then the price of assets fall more than the price of liabilities. Conversely, when the duration of assets is less than the duration of liabilities the duration gap is negative; if interest rates fall then the price of assets goes up less than the price of liabilities. Duration has a double-facet view. While a positive duration gap means greater risk, it also means that, on average, payables became due before receivables.
Earned-income tax credit (EITC)
A policy under which low-income workers receive credits on their federal income tax.
E-commerce
Buying and selling over the Internet.
Economic Cost
Cost to a firm of utilizing economic resources in production, including opportunity cost
Economic Decision Rule
If the marginal benefits of doing something exceed the marginal costs, do it. If the marginal costs of doing something exceed the marginal benefits, don’t do it.
Economic Efficiency
Maximization of aggregate consumer and producer surplus
Economic Force
The necessary reaction to scarcity.
Economic Functions of Government
In a market economy, government agencies establish and maintain a legal system to regulate both commercial and social behavior, promote competition, respond to market failures by providing public goods and adjusting for externalities, redistribute income, and establish macroeconomic stabilization policies. To perform these functions, governments must shift resources from private uses by taxing and/or borrowing.
Economic Growth
An increase in real output as measured by real GDP or per capita real GDP.
economic incentive
the increase in personal satisfaction that may result fro some economic activity
Economic Incentives
Factors that motivate and influence the behavior of individuals and organizations, including firms and government agencies. Prices, profits, and losses are important economic incentives in a market economy.
Economic loss
An economic profit that is less than zero.
Economic Policy
an action (or inaction) taken by government to influence economic actions.
Economic Principle
A commonly held economic insight stated as a law or general assumption.
Economic profit
The difference between a firm’s total revenue and the sum of its explicit and implicit costs; also called excess profit.
Economic Profit
Explicit and implicit revenue minus explicit and implicit cost.
Economic rent
That part of the payment for a factor of production that exceeds the owner’s reservation price, the price below which the owner would not supply the factor.
Economic surplus
The economic surplus from taking any action is the benefit of taking the action minus its cost.
Economic System
the combination of social and individual decision making a society uses to answer the 3 economic questions
Economic Takeoff
A stage when the development process becomes self-sustaining.
Economic Union
characterized by harmonization of economic policies of member nations, including introducing a common currency.
Economically Efficient
A method of production that produces a fiven level or output at the lowest possible cost.
Economics
The study of how people make choices under conditions of scarcity and of the results of those choices for society.
Economies of scale
A production process is said to have economies of scale if, when all inputs are changed by a given proportion, output changes by more than that proportion; also called increasing returns to scale.
Economies of Scope
Joint outuput of a single firm is greater than output that could e achieved by two different firms when each produces a single product
effect time lag
the time that elapses between the implementation of a policy and the results of that policy
Efficiency
Achieving a goal as cheaply as possible. Also: using as few inputs as possible.
Efficiency Seeking?”
Seeking to minimizing unit delivered cost to market, for both production and delivery (transportation, insurance, marketing, tariffs etc), to establish a portfolio of production sources reducing risk, obtaining knowledge including technology and skills.
Efficiency wages
above-equilibrium wages paid by firms in order to increase
worker productivity
Efficient (or Pareto-efficient)
A situation is efficient if no change is possible that will help some people without harming others.
Efficient Market
A market where the quantity supplied=quantity demanded & the price of goods is set at the equilibrium price.
Efficient markets hypothesis
The theory that the current price of stock in a corporation reflects all relevant information about its current and future earnings prospects.
Efficient point
Any combination of goods for which currently available resources do not allow an increase in the production of one good without a reduction in the production of the other.
Efficient quantity
The efficient quantity of any good is the quantity that maximizes the economic surplus that results from producing and consuming the good.
Effluent Fees
Charges imposed by government on the level of pollution created.
Elastic
The percentage change in quantity is greater than the percentage change in price.
Elasticity
measure of the responsiveness of supply and demand to
changes in the price; AKA the slope of the supply or demand curve
Embargo
A total restriction on the import or export of a good.
Employer discrimination
An arbitrary preference by an employer for one group of workers over another.
entitlements
guarenteed benefits under a government program such as social security, medicare, or medicaid (often called noncontrollable expenditures)
Entrepreneur
an individual who sees an opportunity to sell an item at a price higher than the average cost of producing it.
Equation
A mathematical expression that describes the relationship between two or more variables.
equation of exchange
the formula indicating that the number of monetary units (Ms) times the number of times each unit is spent on final goods and services (V) is identical to the price level (P) times real GDP (Y)
Equilibrate
Describes the movement of the factors of a market set at the equilibrium price.
Equilibrium
refers to a situation in which the price has reached the level
where quantity supplied equals quantity demanded
Equilibrium Income
The level of income toward which the economy gravitates in the short run.
Equilibrium Price
The price where quantity demanded equals the quantity supplied
Equilibrium quantity
The quantity of a good at the intersection of the supply and demand curves for the good.
Equilibrium Wage
The wage in the labor market where labor supply=labor demand & the market clears.
Euribor?
Euribor (Euro Interbank Offered Rate) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the euro wholesale (or “interbank”) money market. The Euro reference rates are based on this.
Excess Demand
Situation when quantity demanded is greated than quantity supplied.
Excess Reserves
Reserves held by banks in excess of what banks are required to hold.
excess reserves leakages
depository institutions may wish to maintain excess reserves greater than zero (greater the excess reserves, the smaller the money multiplier)
Excess Supply
Situation when quantity supplied is greater than quanitity demanded.
Exchange Rate
The price of one country’s currency in terms of another currency.
Excise Tax
A tax that is levied on a specific goos.
excise taxes?
Excise duties usually have one of two purposes: to raise revenue or to discourage particular behaviour. Taxes such as those on sales of fuel, alcohol and tobacco are often justified on both grounds.
Expansion
A period in which the economy is growing at a rate significantly above normal.
Expansion Path
Curve passing through points of tangency between a firm’s isocost lines and its isquants
Expansionary gap
A negative output gap, which occurs when actual output is higher than potential output (y > y*).
Expansionary monetary policy
A reduction in interest rates by the Fed, made with the intention of reducing a recessionary gap.
Expansionary policies
Government policy actions intended to increase planned spending and output.
Expected value of a gamble
The sum of the possible outcomes of the gamble multiplied by their respective probabilities.
Explicit costs
The actual payments a firm makes to its factors of production and other suppliers.
Exports
Goods and services produced in one nation and sold to consumers in other nations.
External benefit (or positive externality)
A benefit of an activity received by people other than those who pursue the activity.
External cost (or negative externality)
A cost of an activity that falls on people other than those who pursue the activity.
External Debt
Government debt owed to individuals in foreign countries.
Externality
Action taken by either a producer or a consumer which affects other produceters or consumers but is not accounted for by the market price
Factor Endowments” in Porter’s Theory?
- Basic factors ie: natural advantages such as climate, location, natural resource availability, demographics.
- Advanced factors ie: acquired advantages such as r. & d capability, skills, technology and know-how).
Factor of production
An input used in the production of a good or service.
FACTOR PROPORTIONS THEORY?
HECKSCHER & OHLIN
the pattern of international trade is based on differences in factor endowments rather than differences in productivity.
Fair gamble
A gamble whose expected value is zero.
FDI?
FDI takes place when a firm (MNE) invests in another country ie: obtains a controlling interest by either building (aka a greenfield investment), or acquiring that asset. KEY IS CONTROL???
FDIC
A government agency that insures the deposits held in banks and most other depository institutions; all U.S. banks are insured this way
Fed Funds
Loans of excess reserves banks make to one another.
Federal Funds Interest Rate
The discount interest rate at which the branch banks of the Fed loan money to other banks.
Federal Funds Market
a private market (made up mostly of banks) in which banks can borrow reserves from other banks that want to lend them (usually lent for overnight use)
Federal funds rate
The interest rate that commercial banks charge each other for very short-term (usually overnight) loans; because the Fed frequently sets its policy in terms of the federal funds rate, this rate is closely watched in financial markets.
Federal Open Market Committee (FOMC)
The Fed’s cheif body that decides monetary policy.
Federal Reserve
The central bank of the United States. Its main function is controlling the money supply through monetary policy.
Federal Reserves notes
largest component of U.S. currency (paper bills); distributed by the Fed
fedwire
electronic payments transfer system operated by the Federal Reserve System (about 2,000 U.S. depository institutions use to process interbank payments)
Feudalism
An economic system in which traditions rule.
Fiat Money
Money that has no intrinsic value, that is, its only value comes from the fact that a governing body backs & regulates the currency. This system only works if a gov’t backs the money & regulates its production.
fiduciary
comes from the latin fiducia, which means “trust” or “confidence”
fiduciary monetary system
a system in which money is issued by the government and its value is based uniquely on the public’s faith that the currency represents command over goods and services
Final goods or services
Goods or services consumed by the ultimate user; because they are the end products of the production process, they are counted as part of GDP.
Final Output
Good and services purchased for their final use.
Financial Assets
Assets such as stocks or bonds, whose benefit to the owner depends on the issuer of the asset meeting certain obligations.
Financial Institution
A business whose primary activity is buying, selling, or holding financial assets.
Financial Intermediary
An entity, like a bank, that works between savers and borrowers by accepting deposits and making loans.
financial intermediation
the process by which financial institutions accept savigns from businesses, households, and governments and lend the savings to other businesses, households, and governments
Financial Liabilities
Liabilites incurred by the issuer of a financial asset to stand behind the issued asset.
Firm
An economic institution that transforms factors fo production into goods and services.
Firm’s structure, strategy, and rivalry” imply in Porter’s Theory?
Different nations are characterized by different management ideologies help or hinder the evolution of national competitiveness.
Competition in an industry also tends to breeds rivalry and innovation, improved quality, cost reduction and investment in upgrading same.
First degree price discrimination
Practice of charging each customer her reservation price
First-dollar insurance coverage
Insurance that pays all expenses generated by the insured activity.
Fiscal Policy
Changes in the expenditures or tax revenues of the federal government, undertaken to promote full employment, price stability, and reasonable rates of economic growth.
Fisher effect
The tendency for nominal interest rates to be high when inflation is high and low when inflation is low.
Fitch Ratings?
An international credit rating agency dual-headquartered in New York City and London. It is one of the three Nationally Recognized Statistical Rating Organizations (NRSRO) designated by the U.S. Securities and Exchange Commission in 1975, together with Moody’s and Standard & Poor’s.
five levels of integration of a Trading Group?
a. Free Trade Area
b. Customs Union
c. Common Market
d. Economic Union
e. Political Union
Fixed basket
A group of g & s use to calculate the CPI
Fixed Cost
cost that does not vary with the level of ouptut and that can be eliminated only by shutting down.
Fixed exchange rate
An exchange rate whose value is set by official government policy.
Fixed factor of production
An input whose quantity cannot be altered in the short run.
fixed investment
expenditures by firms on new machines and buildings (capital goods) that are expected to yield a future stream of income
Flexible exchange rate
An exchange rate whose value is not officially fixed but varies according to the supply and demand for the currency in the foreign exchange market.
Flow
A measure that is defined per unit of time.
Flow of FDI?”
value of FDI undertaken during a specified time period
For COMPLEMENTS, the cross-price elasticity of demand is - or +?
For COMPLEMENTS, the cross-price elasticity of demand is NEGATIVE?
For INFERIOR GOOD, the income elasticity of demand is - or +?
NEGATIVE
For NORMAL GOODS, the income elasticity of demand is - or +?
POSITIVE
For Substitutes, the cross-price elasticity of demand is - or +?
For substitutes, the cross-price elasticity of demand is POSITIVE
Foreign Aid
Funds that developed countries lend or give to developing countries.
Foreign Business?
domestic business operating in foreign countries
Foreign Exchange Market
Market where demand for and supply of foreign currencies determines exchange rates.
Forex Market
The foreigh exchange market.
Formula for Total Earnings
Total Earnings =
Wage x Quantity of Labor Demanded
Forward Vertical FDI?”
choosing to invest in economic activity downstream from the core business activity of the business unit.
four primary motives for engaging in FDI?
a. Resource seeking
b. Market Seeking
c. Efficiency Seeking
d. Responding to Competitive dynamics
fractional reserve banking
a system in women depository institutions hold reserves that are less than the amount of total deposits
Fractional-reserve banking system
A banking system in which bank reserves are less than deposits so that the reserve-deposit ratio is less than 100 percent.
Free Trade Area
characterized by elimination of trade barriers between member nations.
Free Trade Association
A group of countries that have reduced or eliminated trade barriers among themselves.
Free-rider problem
An incentive problem in which too little of a good or service is produced because nonpayers cannot be excluded from using it.
Frictional Unemployment
A type of unemployment in which an individual is between jobs.
Full Capacity
When the economy is producing at an output level to the natural rate of unemployment, or about 6%.
Full Convertibility
An exchange rate system in which individuals may change dollars into any currency they want for whatever legal purpose they want.
Full Output
The level of output that occurs when the labor force is at full employment.
Function of the Federal Reserve System #1
supplies the economy with fiduciary currency (paper currency known as Federal Reserve notes); changes throughout the yr (ex. demands for paper currency are largers during the holiday seasons)
Function of the Federal Reserve System #2
provides payment-clearing systems: long operated systems for transmitting and clearing payments
Function of the Federal Reserve System #3
holds depository institutions’ reserves
Function of the Federal Reserve System #4
acts as the government’s fiscal agent (helps the government collect certain tax revenues and aids in the purchase and sale of government securities)
Function of the Federal Reserve System #5
supervises depository institutions: Fed periodically and without warning examine depository institutions to see what kinds of loans have been made, what has been used as security for the loans, and who has recieved them
Function of the Federal Reserve System #6
acts as the “lender of last resort” (the Federal Rserve’s role as an institutions that is willing and able to lend to a temporarily illiquid bank that is otherwise in good financial condition to prevent the bank’s illiquid position from lending to a general loss of confidence in that banks or in others)
Function of the Federal Reserve System #7
regulates the money supply
Function of the Federal Reserve System #8
intervenes in foreign currency markets (attempts to keep the value of the dollar from changing by buying and selling U.S. dollars in foreign exchange markets)
GAAT?
General Agreement on Tarrifs and Trade. This is a multilateral (many nations) agreement whose objective is to minimize government intervention in trade
Gains from specialization and trade are always possible as long as ……………..
Gains from specialization and trade are always possible as long as OPPORTUNITY COSTS DIVERGE
Galton’s Fallacy
higher growth rates imply eventual `convergence’ i.e. While the poor countries might have higher percentage growth rates, this
does not mean that they are closing the absolute output gap with rich
countries
Game tree
See Decision tree.
GDP Deflator
measures the changes in the prices of all the goods that together constitute GDP
generic definition for globalization?
the trend towards a more integrated and interdependent global Economic systems
Global Corporation
Corporation with substantial operations on bothe the production and sales sides in more than one country.
Global firm?
A globally integrated company that tries to achieve and experience curve economies. Products tend to be largely undifferentiated and location of production is chosen to achieve “Minimized unit delivered cost to Market” with largely centralized operations.
Globalization
The intergation of world economies.
Globalization results in a greater degree of __________ across markets than would be present otherwise.
homogeneity
Gold Specie Flow Mechanism
The long-run adjustment mechanism that maintained the gold standard.
Gold Standard
The system of fixed exchange rates in which the value of currencies was fixed relative to the value of gold and gold was used as the primary reserve asset.
Goods
Tangible objects that satisfy economic wants
Government Action” in Porter’s Theory?
actions by government that could have a positive or negative effect of foreign business…
Government Bonds
Bonds issued by the gov’t & bought & sold by the Fed as a form of monetary policy to manipulate the money supply.
Government budget deficit
The excess of government spending over tax collections (G − T).
Government budget surplus
The excess of government tax collections over government spending (T − G); the government budget surplus equals public saving.
Government purchases
Purchases by federal, state, and local governments of final goods and services; government purchases do not include transfer payments, which are payments made by the government in return for which no current goods or services are received, nor do they include interest paid on the government debt.
Government Spending
Goods and services that fovernment buys.
graduated income tax?
An income tax that takes proportionately more from higher wage earners
Grandfather
To pass alaw affecting a specific group but providing that those in the group before the law was passed are exempt fromn some provisions of the law.
Graphically, does a good with elastic demand have a relatively flat or relatively steep demand curve?
FLAT, because the quantity demanded is dramatically affected by price.
Graphically, where is the total consumer surplus located?
Under the demand curve, but above the price.
greenfield investment?
This is foreign direct investment that builds new factories or infastructure. It is the type of FDI most sought by host countries because it leads to infastructure and knowledge transfers.
Gross domestic product (GDP)
the total market value of all final goods and services produced within a country in a given period of time.
Y = C + I + G + X or = C + I + G + NX
Gross domestic product deflator (GDP deflator)
Shows how much of the change in the GDP from a base year is reliant on changes in the price level.
Gross domestic product per capita (GDP per capita)
GDP is divided among the people in the population.
Gross national product (GNP)
An alternative measure of economic activity to GDP. GNP is the sum of the market values of all goods and services produced by the citizens of a country regardless of their physical location.
gross public debt
all federal government debt irrespective of who owns it
Head tax
A tax that collects the same amount from every taxpayer.
Health maintenance organization (HMO)
A group of physicians that provides health services to individuals and families for a fixed annual fee.
holding co mpany?
Business owning a majority of stock in member companies and therefore able to dictate common policy. Warren Buffett’s Berkshire Hathaway is one of the largest publicly traded holding companies; it owns numerous insurance companies, manufacturing businesses, retailers, and other companies.
Horizontal FDI?”
Investing in the same economic activity abroad as one does at home.
Horizontal Merger
The combining of two companies in the same industry.
horizontal short-run aggregate supply curve
there is excessive unemployment and unused capacity in the economy (classical assumptino of everlasting full employment no longer holds)
Hostile Takeover
A merger in which the firm being taken over doesn’t want to be taken over.
How can firms acheive “first mover advantage?”
Investing in becoming a first mover requires a large allocation of cash.
How does a firm maximize profit?
By producing at a level where marginal revenue equals marginal cost.
How does the Bureau of Labor Statistics calculate unemployment?
egularly gathers data from 60,000 households to compute the unemployment rate.
How is GDP measured?
Consumption + Investments + Government Spending + Exports - Imports. (C+I+G + Net Exports) It is a portion of the expenditure method of measuring GDP.
How often do treasury bills pay interest?
Never. Only T-notes and T-bonds pay interest twice a year. T-bills are simply sold at a discounted price.
How to calculate total consumer surplus?
(1/2 Base) x Height
How to calculate Total Revenue?
Total Revenue= Price X Quantity Demanded
how to decrease aggregate demand
cut government spending or raise taxes (note: this reduces inflationary gaps)
How to determine % change in price?
(Change in price/Average Price) X100
How to determine % change in quantity demanded?
(Change in Quantity Demanded/Average Quantity Demanded) X 100
how to increase aggregate demand
reduce taxes or increase goverment spending (note: this reduces a recessionary gap)
Human capital
An amalgam of factors such as education, training, experience, intelligence, energy, work habits, trustworthiness, initiative, and others that affect the value of a worker’s marginal product.
Human capital theory
A theory of pay determination that says a worker’s wage will be proportional to his or her stock of human capital.
Hurdle method of price discrimination
The practice by which a seller offers a discount to all buyers who overcome some obstacle.
Hyperinflation
A very rapid rise in the overall price level.
If a 1% change in price causes the quantity demanded to change by less than 1% then the quantity demanded is ______ sensitive to price.
Not very sensitive to price.
If a 1% change in price causes the quantity demanded to change by more than 1% then the quantity demanded is ______ sensitive to price.
Very sensitive to price.
If Demand is ELASTIC…..
P Rises 1% and Q Drops >1%
PxQ Falls
If demand is INELASTIC?
P Rises 1% and Q Falls <1%
PxQ RISES
If demand is PERFECTLY INELASTIC?
P rises 1% and Q unchanged
PxQ definitely rises
If demand is UNIT ELASTIC
P Rises 1% and Q drops 1%
PxQ Constant
If General Electric, a U.S. based corporation, purchased a 50% interest in a company in Italy, that purchase would be an example of
foreign direct investment.
If quantity and price move in OPPOSITE directions, the probable cause is a shift in the ________ curve
If quantity and price move in OPPOSITE directions, the probable cause is a shift in the SUPPLY curve
If quantity demanded is NOT very sensitive to price, what is the price elasticity of demand?
Price elasticity of demand is less than 1 (in absolute value)
If quantity demanded is very sensitive to price, what is the price elasticity of demand?
Price elasticity of demand is greater than 1 (in absolute value)
IF quantity supplied is not very sensitive to price (elasticity<1), supply is _________
IF quantity supplied is not very sensitive to price (elasticity<1), supply is INELASTIC
IF quantity supplied is very sensitive to price (elasticity>1), supply is _________
IF quantity supplied is very sensitive to price (elasticity>1), supply is ELASTIC
If the quantity sold changes in the same direction as the price, the ______ curve has probably shifted
If the quantity sold changes in the same direction as the price, the DEMAND curve has probably shifted
If there is a 1% change in price which results in a 1% change in quantity demanded, the good or service is ________ elastic
Unit Elastic
If Westvaco decided to produce paper in Spain, and the Spanish government stipulated that 50% of the component parts that went into Westvaco’s paper must be produced locally, that requirement would be an example of a(n)
local content requirement.
illiquid’ assets
bonds or stocks, or savings accounts at bank
{ not accepted in exchange for goods and services (bad)
{ but they earn a return
Imperfectly competitive firm
A firm that has at least some control over the market price of its product.
Implicit Collusion
A typd of collusion in which multiple firms make the same pricing decisions even though they have not explicitly consulted with one another.
Implicit costs
All the firm’s opportunity costs of the resources supplied by the firm’s owners.
Import Quota
Limit on the quanity of a good that can be imported
Imports
Purchases of foreign goods and services; the opposite of Exports.
In accounting, what is used for inventory: FIFO or LIFO?
LIFO in the United States.
In his study dealing with the competitive advantage of nations, Porter argued that in regard to demand conditions, a nation’s firms’ gain competitive advantage if their domestic consumers are __________ and __________.
sophisticated, demanding
Incentive
Any reward or benefit, such as money or good feeling, that motivates choices and behaviors.
Incentive Effect
How much a person will change his or her hours worked in response to ta change in the wage rate.
Income
Payments earned by households for selling or renting their productive resources. For example, workers receive wage or salary payments in exchange for their labor.
Income effect
The change in the quantity demanded of a good that results because a change in the price of a good changes the buyer’s purchasing power.
Income elasticity of demand
The percentage by which a good’s quantity demanded changes in response to a 1 percent change in income.
income velocity of money (V)
the number of times per year a dollar is spent on final goods and services; identically equal to nominal GDP divided by the money supply
Income-expenditure multiplier
The effect of a one-unit increase in autonomous expenditure on short-run equilibrium output.
Increasing returns to scale
A production process is said to have increasing returns to scale if, when all inputs are changed by a given proportion, output changes by more than that proportion; also called economies of scale.
Independent variable
A variable in an equation whose value determines the value taken by another variable in the equation.
Indexing
The practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specified price index. Indexing prevents the purchasing power of the nominal quantity from being eroded by inflation.
indirect effect of an increase in the money supply
banks lower interest rates that they charge on loans–>encourages people to take out those loans–>businesses engage in new investment with the funds loaned–>individuals will engage in more consumption of durable goods (housing, autos, and home entertainment centers)–>generates a rise in aggregate demand—>more people involved in more spending
INDIVIDUAL CONSUMER SURPLUS
The consumer’s willingness to pay minus the price paid.
Induced aggregate demand
The portion of aggregate demand that is determined within the model.
Induced Expenditures
Expenditures that change a s income changes.
Inefficient point
Any combination of goods for which currently available resources enable an increase in the production of one good without a reduction in the production of the other.
Inelastic
The demand for a good is inelastic with respect to price if its price elasticity of demand is less than 1.
Inferior Good
Good whose consumption decreases whn income increases.
Infinitely Elastic Demand
Consumers will buy as much of a good as they can get at a single price, but for any higher price the quantity demanded drops to zero, while for any lower price the quantity demanded increases without limit.
Inflation
A rise in the general or average price level of all the goods and services produced in an economy.
Inflation dove
Someone who is not strongly committed to achieving and maintaining low inflation.
Inflation hawk
Someone who is committed to achieving and maintaining low inflation, even at some short-run cost in reduced output and employment.
Inflation shock
A sudden change in the normal behavior of inflation, unrelated to the nation’s output gap.
Inflation Tax
An implicit tax on the holders of cash and the holder of any obligations specified in nominal terms.
Inflation-protected bonds
Bonds whose holders receive a nominal interest rate each year equal to the fixed real rate plus the actual rate of inflation during that year.
inflow of FDI?”
flow of FDI into a country
In-kind transfer
A payment made not in the form of cash but in the form of a good or service.
Inside lag (of macroeconomic policy)
The delay between the date a policy change is needed and the date it is implemented.
Interest
Payments for the use of real or financial capital over some period of time; paid by those who use the resources to those who own them, as in mortgage payments paid by a borrower to a lender.
Interest Rate
The price paid for the use of a financial asset.
Intermediate goods or services
Goods or services used up in the production of final goods and services and therefore not counted as part of GDP.
Intermediate Products
Products used as inputs in the production of some other product.
Internal Debt
Government debt owed to other fovernmental agencies or to its own citizens.
International Business:
private or governmental business that involves activities crossing national boundaries
International capital flows
Purchases or sales of real and financial assets across international borders.
International reserves
Foreign currency assets held by a government for the purpose of purchasing the domestic currency in the foreign exchange market.
Intertemporal price discrimination
Practice of separating consumers with different demand functions into different groups by charging different prices at different points in time.
inventory investment
changes in business inventories
Investment
Spending by firms on final goods and services, primarily capital goods. (also a flow concept): expenditures on new machines and buildings (capital goods) that are expected to yield a future stream of income
investment companies
institutions that manage portfolios of financial instruments called mutual funds on behalf of shareholders; exist largely because of cost savings from their greater scale of operations
investment function
represented bas an inverse relationship between the rate of interest and the value of planned real investment (as interest rates fall planned investment spending increases)
Invisible Hand
The price mechanism; the rise and fall of prices that guides our actions in a market.
Invisible hand theory
Adam Smith’s theory stating that the actions of independent, self-interested buyers and sellers will often result in the most efficient allocation of resources.
Is goodwill a basis for the theory of Monopolistic Advantage?
NO
Is it possible for an individual or country to have a comparative advantage in all products or services?
No, not as long opportunity costs diverge.
Is it possible for an individual or country to have an absolute advantage in all products or services?
YES!
Is the U.S. and other Industrialized nations share of the global output increasing or decreasing?
Decreasing
Isocost line
Graph showing all possible combinations of labor and capital that can be purchased for a given total cost
junk” bonds?
Companies with less-than-investment-grade (Ba and below) ratings issue bonds. These securities, known as high-yield, or “junk,” bonds, are generally too speculative for the average investor, but they can provide spectacular returns.
keynes and followers
argued that prices were inflexible downward due to the existance of unions and long-term contracts; believed that there was no guarantee that a capitalist economy would reach a full employment
Keynesian Theory
The macroeconomic theory holding that business cycles are caused by changes in aggregate demand and that such cycles can and should be influenced by fiscal and monetary policy undertaken to promote economic stability.
Labor
The quantity and quality of human effort available to produce goods and services.
Labor Equilibrium
In equilibrium, the quantity of labor demanded equals the quantity of labor supplied.
Labor Force
The people in a nation who are aged 16 or over and are employed or actively looking for work.
Labor Market
The factor market in which in dividuals supply labor services for wages to other individuals and to firms that need labor services.
Labor Productivity
The average output per worker.
Labor union
A group of workers who bargain collectively with employers for better wages and working conditions.
labor-force participation rate
the percentage of the adult population that is in the labor force
Laffer curve
explains relationship between tax rates and tax revenues (total tax revenues initially rise but then eventually fall as the tax rate continues to increase after reaching some unspecified tax-revenue-maximizing rate at the top of the curve)
Laissez-Faire
An economic policy of leaving coordination of individuals actions to the market.
Land Bank Program
A program in which government supports prices by fiving farmers economic incentives to reduce supply.
Laspeyres Index
An index where the basket of goods is fixed.
Law of Demand
Quantity demanded rises as price falls, other things constant.
Law of Diminishing Marginal Returns
Describes a phenomenon observed in all short-run production processes, when at least one input (usually capital)is fixed. As more and more units of a variable input (usually labor) are added to the fixed input, the additional (marginal) output associated with each increase in units of the variable input will eventually decline. In other words, successive increases in a variable factor of production added to fixed factors of production will result in smaller increases in output.
Law of diminishing marginal utility
The tendency for the additional utility gained from consuming an additional unit of a good to diminish as consumption increases beyond some point.
Law of one price
If transportation costs are relatively small, the price of an internationally traded commodity must be the same in all locations.
Law of Supply
Quanitity supplied rises as price rises, other things constant.
leakages
the entire loan from one bank is not always desposited in another bank (two types)
Lemons model
George Akerlof’s explanation of how asymmetric information tends to reduce the average quality of goods offered for sale.
lender of last resort
the federal reserve’s role as an institution that is willing and able to lend to a temporarily illiquid bank that is otherwise in good financial condition to prevent the bank’s illiquid position from leading to a general loss of confidence in that bank or in others
Lerner Index of Monopoly Power
Measure of monopoly power calculated as excess of price over marginal cost as a fraction of price
liabilities
amounts owed; the legal claims against a business or household by nonowners
LIBOR?
LIBOR stands for the London Interbank Offered Rate and is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale (or “interbank”) money market.
Life-cycle saving
Saving to meet long-term objectives, such as retirement, college attendance, or the purchase of a home.
Limited Liability
The liability of a stockholder in a corporation; it is limited to the amount the stoackholder has iinvested in the company.
liquid’ assets
cash or something close to it (e.g. balance in checking
account)
Liquidity
The ease with which something of value can be exchanged for the currency of an economy.
liquidity approach
a method of measuring the money supply by looking at money as a tempory store of value
Liquidity Preference of Interest?
It was originally Keynes’ idea. The hypothesis is that people prefer to have their money be liquid, and must have a reason for it not to be liquid. So, lowering interest rates on low liquidity investment items (30 year bonds, etc…) will make them less attractive to invest in. So, when long term interest rates drop, the demand for money rises.
liquidity ratio?
A measure of how quickly a firm can convert its assets into cash to settle debts.
Local standards and laws?”
administrative instruments or trade policies
Logrolling
The practice whereby legislators support one another’s legislative proposals.
Long run
A period of time of sufficient length that all the firm’s factors of production are variable.
Long Run Competitive Equilibrium
All firms in an industry are maximizing profit, no firm has an incentive to enter or exit, and price is such that quantity supplied equals quantity demanded.
Long-run aggregate supply (LRAS) line
A vertical line showing the economy’s potential output Y*.
Long-run equilibrium
A situation in which actual output equals potential output and the inflation rate is stable; graphically, long-run equilibrium occurs when the AD curve, the SRAS line, and the LRAS line all intersect at a single point.
lump-sum tax
a tax that does not depend on income
M1
Sum of currency outstanding and balances held in checking accounts.
M2
M1 plus savings deposits, small-demonimation time deposits, and money market mutual fund shares, along with some esoteric financial instruments.
Macroeconomic Equilibrium
The equilibrium level of output and the price level where aggregate demand equals aggregate supply.
Macroeconomic policies
Government actions designed to affect the performance of the economy as a whole.
Macroeconomics
The study of economics concerned with the economy as a whole, involving aggregate demand, aggregate supply, and monetary and fiscal policy.
main determinant of saving (classical model)
the rate of interest (the higher the rate of interest, the more peole wante to save, and therefore the less people wanted to consume)
main determinant of saving (Keynes)
income: Keynes argued that real saving and consumption decisions depend primarily on a household’s present real disposable income
major theories of FDI?
- Monopolistic Advantage theory
- Strategic Behavior (Following competitors)
- Horizontal FDI (FDI in the same industry abroad as at home)
- Dunnings Eclectic theory (Location Theory)
Managing an international business is different from managing a purely domestic business for all of the following reasons except:
the range of problems confronted by a manager in an international business are narrower than those confronted by a manager in a domestic business
Marginal benefit
The marginal benefit of an activity is the increase in total benefit that results from carrying out one additional unit of the activity.
Marginal cost
The marginal cost of an activity is the increase in total cost that results from carrying out one additional unit of the activity; as output changes from one level to another, the change in total cost divided by the corresponding change in output.
Marginal expenditure
Additional cost of buying one more unit of a good
Marginal External cost
Increase in cost imposed externally as one or more firms increase output by one unit
Marginal Factor Cost
The additional cost to a firm of hiring another worker.
Marginal Physical Product (MPP)
The additional units of output that hiring an additional worker will bring about.
Marginal Product
The additional output that will be forthcoming from an additional worker, other inputs constant.
Marginal product of labor (MP)
The additional output a firm gets by employing one additional unit of labor.
Marginal propensity to consume (MPC)
The amount by which consumption rises when disposable income rises by $1; we assume that 0 < MPC < 1.
marginal propensity to save (MPS)
the ratio of the change in saving to the change in disposable income
Marginal revenue
The change in a firm’s total revenue that results from a one-unit change in output.
Marginal Social cost
Sum of the marginal cost of production and the marginal external cost
Marginal tax rate
The amount by which taxes rise when before-tax income rises by one dollar.
Marginal utility
The additional utility gained from consuming an additional unit of a good.
Marginal Value
Additional benefit derived from purchaisn on more unit of a good
Market
The market for any good consists of all buyers or sellers of that good.
market definition for globalization?
The merging of historically distinct and separate national markets into one huge global marketplace
Market Demand Curve
The horizontal sum of all individual demand curves.
Market Economy
An economic system based on private property and the market in which, in principle, individuals decide how, what, and for whom to produce.
Market equilibrium
Occurs when all buyers and sellers are satisfied with their respective quantities at the market price.
Market equilibrium value of the exchange rate
The exchange rate that equates the quantities of the currency supplied and demanded in the foreign exchange market.
Market Failure
Situation in which an unregulated competitive market is inefficient because prices fail to provide proper signals to consumers and producers
Market power
Ability of a seller or buyer to affect the price of a good
Market screening eliminates:
environmental forces.
Market Seeking?”
explore new market opportunities, to circumvent prohibitive protectionist policies and actions such as tariffs and quotas, to establish a local presence to ensure product and customer service availability, to meet buy national requirements, to become more visible locally by hiring many local staff, paying local taxes and to serve a wider range (portfolio) of markets.
Market supply
refers to the sum of all individual supplies for a particular
good or service; individual supply curves are summed horizontally to obtain
the market supply curve
Market-Clearing Level
The level, price, or quantity where supply and demand are equal.
Maturation date
The date at which the principal of a bond will be repaid.
Maximin Strategy
Strategy that maximizes the minimum gain that can be earned
Means-tested
A benefit program is means-tested if its benefit level declines as the recipient earns additional income.
Medium of Exchange
An item used commonly to trade for goods and services.
Menu costs
The costs of changing prices.
Merchantilism?
Economic Philosophy that countries should encourage exports while discouraging imports.
Merger
The act of combining two firms.
Microeconomics
The study of individual choice under scarcity and its implications for the behavior of prices and quantities in individual markets.
Minimum Wage Law
A law specifying the lowest wage a firm can legally pay an employee.
Mixed Strategy
Strategy in which a player makes a random choice among two or more possible actiosn based on a set of chosen probabilities.
MNC?
an incorporated firm that operates, to a significant degree, in more than a few countries
MODERN TRADE THEORIES?
STRATEGIC(NEW) TRADE THEORY
PORTER’S DIAMOND OF NATIONAL ADVANTAGE.
Monetarist Theory
A macroeconomic theory holding that the main cause of changes in the business cycle are changes in money supply.
Monetary Policy
Policy used to affect the money supply employed by the Fed. In particular, this describes the open market operations of buying & selling gove’t bonds.
money
any medium that is universally accepted in an economy both by sellers of goods and services as payment for those goods and services and by creditors as payment for debts
money balances
synonymous with money, money stock, money holdings
Money demand curve
Shows the relationship between the aggregate quantity of money demanded M and the nominal interest rate i; because an increase in the nominal interest rate increases the opportunity cost of holding money, which reduces the quantity of money demanded, the money demand curve slopes down.
money market deposit accounts (MMDAs)
accounts issued by banks yielding a market rate of interest with a minimum balance requirement and a limit on transactions; they have no minimum maturity
money market mutual funds
funds obtained from the public that investment companies hold in common and use to acquire short-maturity credit instruments, such as certificates of deposit and securities sold by the U.S. government
Money Multiplier
The number that describes the change in the money supply given an initial deposit and a reserve requirement.
Money Supply
The quantity of money in an economy. In the US this is controlled through policy by the Fed.
money supply can increase when
additional new reserves and deposits are created by the Federal Reserve System (the fundamental way)
Monitoring Costs
costs incurred by the organizer of production in seeing to it that the emplooyees do what they’re supposed to do.
Monoploy
A market structure in which one firm makes up the entire market.
monopolistic advantage theory?
based on the premise that a firm has obtained a monopolistic advantage through domestic competition that would enable it to be successful internationally.
Monopolistic Competition
Market in which firms can enter freely each producing its own brand or version of a differentiated product
Monopoly
A market structure in which a single seller produces sells all the units of a good or service in a particular market, and where the barriers to new firms entering the market are very high.
Monopsony
A market with only a single buyer.
Moral hazard
The tendency of people to expend less effort protecting those goods that are insured against theft or damage.
Most Favored Nation Status?
Most favoured nation (MFN), also called normal trade relations in the United States, is a status accorded by one nation to another in international trade. Somewhat counterintuitively, it does not confer particular advantages on the receiving nation, but means that the receiving nation will be granted all trade advantages, such as low tariffsm that any third nation also receives. In effect, having MFN status means that one’s nation will not be treated worse than anyone else’s nation. The members of the World Trade Organization, which include all developed nations, accord MFN status to each other. Exceptions exist for preferential treatment of developing countries, regional free trade areas and customs unions. In the early days of international trade, most favoured nation status was usually used on a dual-party, state-to-state basis. A nation could enter into a most favored nation treaty with another nation. Generally bilateral, in the late 19th and early 20th century unilateral most favored nation clauses were imposed on Asian nations by the more powerful Western countries (see Open Door Policy). In the 1990s continued most favoured nation status for the People’s Republic of China sparked U.S. controversy because of its sales of sensitive military technology and its use of prison labor, and its most favoured nation status was only made permanent in 2000. All of the former Soviet states, including Russia, were granted most favoured nation status in 1992. In the United States, “most favored nation status” has been called Normal Trade Relations since 1998 as all but a handful of countries had this status (The impetus for the change in terminology came from irritation voiced by some Americans that various totalitarian governments around the world enjoyed being a “most favored nation” of the United States).
multi-domestic firm?
Multi-domestic firm is one that focuses on local responsiveness! Product offerings are customized and a complete set of value creating activities are developed in each country/region, with largely autonomous decentralized organizations.
multiplier
the number by which a change in autonomous real investment or autonomous real consumption, for example, is multiplied to get the change in equilibrium real GDP
multiplier formula
=1/1-MPC or 1/MPS
Mutual fund
A financial intermediary that sells shares in itself to the public, then uses the funds raised to buy a wide variety of financial assets.
Nash equilibrium
Any combination of strategy choices in which each player’s choice is his or her best choice, given the other players’ choices.
NATIONAL COMMERCIAL POLICY?
THE INFLUENCE OF GOVERNMENT IMPOSED AND OTHER DISTORTIONS IN THE MARKETPLACE
National Debt
The total amount owed by the national government to those from whom it has borrowed to finance the accumulated difference between annual budget deficits and annual budget surpluses; also called public debt.
National Output
The total value of goods and services produced by an economy in a specified time period. Also known as GDP.
National Resources
Gifts of nature†that can be used to produce goods and services; for example, oceans, air, mineral deposits, virgin forests, and actual fields of land. When investments are made to improve fields of land or other natural resources, those resources become, in part, capital resources.
National saving
The saving of the entire economy, equal to GDP less consumption expenditures and government purchases of goods and services, or Y − C − G.
Natural Monopoly
Firm that can produce the entire output of the market at a cost lower than what it would be if there were several firms
Natural rate of unemployment, u*
The part of the total unemployment rate that is attributable to frictional and structural unemployment; equivalently, the unemployment rate that prevails when cyclical unemployment is zero, so the economy has neither a recessionary nor an expansionary output gap.
Negative externality
See External cost.
Negative income tax (NIT)
A system under which the government would grant every citizen a cash payment each year, financed by an additional tax on earned income.
neoliberalism?
Neoliberalism is widely used as a description of the revived form of economic liberalism that became increasingly important in international economic policy discussions from the 1970s onwards. In its dominant international use, neoliberalism refers to a political-economic philosophy that de-emphasizes or rejects government intervention in the domestic economy. It focuses on free-market methods, fewer restrictions on business operations, and property rights. In foreign policy, neoliberalism favors the opening of foreign markets by political means, using economic pressure, diplomacy, and/or military intervention.
Net capital inflows
Capital flows that are equal to foreign purchases of domestic assets (which bring funds into the country) minus domestic purchases of foreign assets (which send funds out of the country); that is, capital inflows minus capital outflows.
Net Domestic Product (NDP)
The sum of consumption expenditures, government expenditures, net exports, and invetment less depreciation.
Net exports
Exports minus imports.
net public debt
gross public debt minus all government interagency borrowing
net worth
the difference between assets and liabilities
New Growth Theory
a theory that emphasizes the role of technology rather than capital in the growth process.
New Trade Theory?”
Based on the assumptions that:
- Trade has an impact on economies of scale which increases variety and average cost.
- World trade in items that require greater economies of scale on a global scale is beneficial to first movers.
Nominal Deficit
The deficit determined by looking at the difference between expenditures and receipts.
Nominal exchange rate
The rate at which two currencies can be traded for each other.
Nominal GDP
GDP calculated at existing prices.
Nominal gross domestic product (nominal GDP)
The sum value of goods and services produced in a country and valued at current prices.
Nominal Interest
The percent of the amount borrowed paid each year to the lender by the borrower in return for the use of the money not taking inflation into account.
Nominal Prices
Prices of goods and services valued at dollars current when the goods and services were provided. Nominal prices are not adjusted for inflation.
Nominal quantity
A quantity that is measured in terms of its current dollar value.
Nominal Value
The value of something in current dollars without taking into account the effects of inflation.
noncontrollable expenditures
government spending that changes automatically without action by Congress
Nonexcludable good
A good that is difficult, or costly, to exclude nonpayers from consuming.
Nonexclusion
A property of certain goods and services such that (once the goods or services are provided) they cannot be denied to or withheld from people who have not paid for the goods or services; examples include street lights or national defense.
Nonrival good
A good whose consumption by one person does not diminish its availability for others.
non-tarrif barriers?
- Subsidies
- Voluntary export restraints (VER’S) and voluntary export agreements (VEA’S).
- Import Quotas
- “Buy local” laws
- Local standards and laws
- Anti-dumping policies
Normal Good
When a rise in income increases the demand for a good.
Normal profit
The opportunity cost of the resources supplied by the firm’s owners; Normal profit = Accounting profit − Economic profit.
Normal Rate of Profit
Profits just high enough to compensate producers for the explicit and implicit costs (including opportunity costs) they incur in producing a particular good or service, without leading to any net entry or exit by producers in that market. Also called normal profits. Normal profits are an economic cost of production; they mark a point at which any lower level of profit would lead a producer to pursue some other use of his or her resources.
Normative analysis
Addresses the question of whether a policy should be used; normative analysis inevitably involves the values of the person doing the analysis.
North American Industry Classification System (NAICS)
An industry classification that categorizes industries by type of economic activity and groups firms with like production processes.
Official Reserves
Government holdings of foreign currencies.
Okun’s Law
This details the inverse relationship between unemployment and real GDP.
oligarchy
Govn’t by the few, especially despotic power exercised by a small and privileged group for corrupt or selfish purposes. It’s also a form of monopoly, but by more than one business.
Oligopoly
An industry structure in which a small number of large firms produce products that are either close or perfect substitutes.
Oligopsony
Market with only a few buyers
On a straight-line demand curve, elasticity decreases as the price ______ and the quantity _______ increases.
On a straight-line demand curve, elasticity decreases as the price FALLS and the quantity demanded INCREASES.
One cultural problem a researcher faces when doing primary research is:
the overuse of up-to-date maps.
Open economy
An economy that trades with other countries.
Open Market Operations
The Fed’s buying and selling of government securities.
operating budget
expenditures for current operations, such as salaries and interest payments
Opportunity benefit
What is gained by making a particular choice
Opportunity cost
The opportunity cost of an activity is the value of the next-best alternative that must be forgone to undertake the activity.
Opportunity Cost
Cost associated with opportunites that are forgone when a firm’s resources are not put to their best alternative use
Opportunity Cost
The benefit you might have gained from choosing the next-best alternative.
Optimal combination of goods
The affordable combination that yields the highest total utility.
Optimal Comparative Advantage (Crusoe/Friday)
for each to be completely specialised in produc-
tion, and will then trade in order to get some of the other’s good
Out of the Labor Force
Describes people who are not employed and are not currently looking for employment. This includes children and retirees.
Outflows of FDI?”
the flow of FDI out of the country
Output gap (Y* − Y)
The difference between the economy’s potential output and its actual output at a point in time.
Outside lag (of macroeconomic policy)
The delay between the date a policy change is implemented and the date by which most of its effects on the economy have occurred.
Outsourcing
The relocation of production once done in the United States to foreign countries.
Overvalued exchange rate
An exchange rate that has an officially fixed value greater than its fundamental value.
Paasche Index
An index based upon a flexible basket of goods and services.
Paper Balances
Deposits that exist on paper but are not backed by physical currency.
Parallel Conduct
Form of implicit collusion in which one firm consistently follows actions of another
Parameter
See Constant.
Pareto-efficient
See Efficient.
Participation rate
The percentage of the working-age population in the labor force (that is, the percentage that is either employed or looking for work).
Partnership
A business with two or more owners.
Passive Deficit
The part of the deficit that exists because the economy is operating below its potential level of output.
Patent
The legal protectin of a technical innovation that gives the person holding it sole right to use that innovation.
payment intermediaries
institutions that facilitate transfers of funds between depositors who hold transactions deposits with those institutions
Payoff matrix
A table that describes the payoffs in a game for each possible combination of strategies.
Peak
The beginning of a recession, the high point of economic activity prior to a downturn.
Peak-load Pricing
Practice of charging higher prices during peak periods when capacity constraints cause marginal costs to be high.
People respond to ……
People respond to incentives
Per Capita Growth
Producing more goods and services per person.
Perfect hurdle
One that completely segregates buyers whose reservation prices lie above some threshold from others whose reservation prices lie below it, imposing no cost on those who jump the hurdle.
Perfectly competitive market
A market in which no individual supplier has significant influence on the market price of the product.
Perfectly Competitve Market
Price taking, product homegeniety, free entry and exit, and perfect information
