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Econ 102 > Midterm #2 > Flashcards

Midterm #2 Flashcards

1
Q

Section

A

Details

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2
Q

Unit II: Income Inequality

A

Macroeconomics Comprehensive Study Guide

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3
Q

Lorenz Curves

A

Lorenz Curve: A graphical representation of income inequality. Gini Coefficient: A measure of inequality (0 = perfect equality, 1 = perfect inequality). Quintiles divide the population into five equal groups by income.

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4
Q

Empirical Evidence: Income Inequality

A

Gini Coefficients (OECD countries, mid-2000s): U.S. Gini coefficient rose from 0.338 (1980s) to 0.381 (2000s). Income gap has widened between quintiles in recent decades.

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5
Q

Economic Explanations for Income Inequality

A

Globalization and Skill-Biased Technological Change favor high-skill workers. The ‘superstar effect,’ immigration, and weaker unions also contribute.

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6
Q

Policy Implications

A

Solutions: Early childhood education, improved high school quality, and financial aid for higher education.

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7
Q

Unit VI: U.S. Tax System

A

Overview of Federal and State Revenue Sources

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8
Q

Financial Overview of U.S. Government

A

Federal Revenue (2018): Income taxes - $1,684B (51%), Payroll - $1,171B (35%), Corporate - $205B (6%). State/Local (2016): Sales - $550B (35%), Property - $466B (30%).

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9
Q

Tax Rates

A

Average Tax Rate (ATR) = T/I. Marginal Tax Rate (MTR) = ΔT/ΔI. For salary $50K, ATR = 13.2%, MTR = 22%.

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10
Q

Taxes and Equity

A

Benefits Principle: Pay taxes based on benefits received (e.g., gas tax). Ability-to-Pay Principle: Higher earners pay more.

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11
Q

Types of Tax Systems

A

Progressive: Higher income pays more % of income. Regressive: Lower income pays more %.

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12
Q

U.S. Debt Ceiling

A

Debt ceiling limits how much the U.S. can borrow. When reached, payments may be prioritized or borrowing halted.

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13
Q

Unit III: Monetary System

A

Overview of the U.S. Monetary System

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14
Q

Functions of Money

A

Money as Medium of Exchange, Unit of Account, Store of Value. Fiat (USD) vs. Commodity Money (e.g., gold).

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15
Q

Money Supply (M0, M1, M2)

A

M1: Currency + demand deposits. M2: M1 + savings deposits.

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16
Q

Money Multiplier

A

Money Multiplier (MM) = 1/R. Example: If R = 10%, MM = 10. ΔTot Dep = Original Deposit × MM.

17
Q

Federal Reserve System

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Main tools: Open Market Operations, Discount Rate, Reserve Requirements, Quantitative Easing (QE).

18
Q

Unit III: Money Growth and Inflation

A

Overview of Money Growth and Inflation

19
Q

Classical Theory of Inflation

A

Inflation (π) = % ΔP. Quantity Theory: M × V = P × Y. Inflation results from increased money supply.

20
Q

Fisher Effect

A

Fisher Equation: i = r + π. Where i = nominal, r = real, π = inflation rate.

21
Q

Costs of Inflation

A

Inflation Tax reduces purchasing power. Shoeleather, Menu Costs, Relative Price Variability, and Tax Distortions from inflation.

22
Q

Unit IV: Open Economy

A

Open Economy Basics

23
Q

Exchange Rates

A

Nominal Rate (e): Currency exchange rate. Real Rate (E): Goods/services exchange rate. E = (e × P_domestic) / P_foreign.

24
Q

Net Exports (NX) and Net Capital Outflow (NCO)

A

NX = NCO: Trade balance connects with capital flow. U.S. residents buying German bonds increases NCO.

25
Q

Savings (S), Investment (I), and NCO

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National Income Accounting: S = I + NCO. Savings used for domestic investment or foreign assets.

26
Q

Market for Loanable Funds (LF)

A

Loanable Funds Market Supply: Savings. Demand: Investment and NCO. Equilibrium real interest rate (r) balances them.

27
Q

Unit IV: Open Economy – Foreign Exchange and Capital Flow

A

FX and Capital Flow in Open Economy

28
Q

Foreign-Currency Exchange Market (FX)

A

If a U.S. resident buys German bonds, they supply USD in FX market. High E = expensive U.S. goods, reducing exports (X).

29
Q

Government Budget Deficits and Capital Flight

A

Deficits increase r, reduce private I, and appreciate USD, decreasing NX. Capital flight increases NCO, depreciates E, increases NX.

30
Q

Three-Panel Diagram for Macroeconomics: Open Economy

A

Three-panel Diagram: Loanable Funds (LF), Net Capital Outflow (NCO), and Foreign Exchange (FX) markets.

31
Q

Loanable Funds (LF) Market

A

Axes: Real Interest Rate (r) and Quantity of Loanable Funds (Q_LF). Budget deficits decrease savings, raise r, reduce Q_LF.

32
Q

Net Capital Outflow (NCO) Market

A

Axes: Real Interest Rate (r) and Net Capital Outflow (NCO). High r attracts foreign capital, reducing NCO.

33
Q

Foreign Exchange (FX) Market

A

Axes: Exchange Rate (E) and Quantity of Dollars (Q_USD). Low NCO decreases USD in FX, raises E, reduces exports.

Econ 102 (1 decks)

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