General Flashcards
How do commercial banks make money
By having loans and reserves. The more they loan out the more can be deposited and so on. This leads to a large increase in the supply of money.
What is meant by the tragedy of commons?
An economic problem in which every individual try’s to reap the greatest benefit from a resource. The supply is overwhelmed so every individual consuming an additional unit direct takes away from others.
What is a fish in a private pond?
Rival and excludable, private good
What is a rival good?
Whose consumption by one consumer prevents simultaneously prevents consumption by other consumers
What is an excludable good?
It is possible to prevent people who have not paid for it from having access to it
What is Nash equilibrium?
Part of game theory where all players know eachothers strategy and gain nothing from changing their own strategy
What is a moral hazard?
A theory that states pipele are more willing to take risks if the burden doesn’t fall on them. A moral hazard occurs when action of one can be at the detriment of another
If the interest rate on bonds falls what effect will this have on a companies share price?
It will increase demand for the stocks so share price increases
If several companies in the same sector release low sales figures what effect will this have on a similar companies share price?
It will go down
If there is a change in tax law passed that reduces this years profit what effect will that have on a companies share price?
It won’t affect it
What is the relationship between i% and I?
Inverse
If the yield curve is upward sloping in the long run, what does it predict for the macroeconomy?
Future interest rates will increase
Inflation will be much higher
Industrial Production will be higher
GNP will be higher
What is Coase Theorem?
States that if trade in an externality is possible and there are sufficiently low transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property. Where there are competitive markets with no transaction costs, an efficient set of inputs and outputs will be selected regardless of how property rights are divided. When property rights are involved, parties naturally gravitate toward the most efficient and mutually beneficial outcome.
Define human capital
Schultz invented this term in the 60s. It reflects the value of human capacities, it can be invested in through education, training and enhanced benefits which will improve quality and production. It recognizes that not all labour is equal and that quality of employees can be improved by investing in them
What is the Gini Coefficient?
A measurement of the income distribution of a country’s residents. This number (ranging from 0-1) it based on net income and helps define the gal between rich and poor. 0 is perfect equality and 1 is perfect inequality.
