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Economics > Modern principles > Flashcards

Modern principles Flashcards

1
Q

On average, it takes about x years and y million to bring a new drug to market.

A

12, $900

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2
Q

More testing means that approved drugs will have fewer side effects, but there are two important trade-offs:

A

drug lag and drug loss.

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3
Q

marginal thinking was simultaneously described by three economists in 1871:

A

William Stanley Jevons, Carl Menger, and Leon Walras

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4
Q

South Korea has a per capita income more than x times greater than its immediate neighbor, North Korea.

A

10

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5
Q

“Inflation is always and everywhere a monetary phenomenon.”

A

Milton Friedman

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6
Q

who produces most of black gold every day

A

Saudi Arabia produces most, 10 million barrels.

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7
Q

Sellers compete with other sellers; buyers compete with other buyers. They DO NOT compete AGAINST eachother.

A

Sellers compete with other sellers; buyers compete with other buyers. They DO NOT compete AGAINST eachother.

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8
Q

revolution in economics by testing the supply and demand model in the lab. Smith’s market converged rapidly to the equilibrium price and quantity exactly as predicted by the supply and demand model. Nearly 50 years later, Smith was awarded the 2002 Nobel Prize in Economics.

A

In 1956, Vernon Smith

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9
Q

suggests a change in tactics. Suppose drugs were legal but taxed, much as alcohol is today. The only difference would be that instead of increasing seller revenues, a tax would increase government revenues.

A

Gary S. Becker

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10
Q

A closely related point is that the local supply of a good is … than the global supply.

A

much more elastic

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11
Q

Percent change in price from a shift in demand

A

percent change in demand/|Ed| + Es

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12
Q

Percent change in price from a shift in supply =

A

percent change in supply/|Ed| + Es

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13
Q

a strong advocate of using wage subsidies to increase the employment of low-wage workers.

A

Edmund Phelps

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14
Q

Rewarding Work

A

Edmund Phelps

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15
Q

Which country produces most roses?

A

Kenya

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16
Q

largest producer and consumer of fuel ethanol in the world

A

Brazil

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17
Q

explained the marvel of the price system

A

Friedrich A. Hayek (1899–1992)

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18
Q

Futures are

A

are standardized contracts to buy or sell specified quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. Futures markets are used not only for speculation but also for reducing risk.

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19
Q

The best known prediction market is

A

the Iowa Electronic Markets. The Iowa market lets traders use real money to buy and sell “shares” of political candidates. A share in Barack Obama, for example, would pay $1 if Barack Obama won the election and nothing otherwise.

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20
Q

Blat

A

a Russian word mean- ing one has connections that can be used to get favors. Today, the blat economy is much larger—about half of all federal politicians who leave office for the private sector become lobbyists.

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21
Q

highest minimum wage

A

Luxembourg has highest minimum wage at 3000 Euros per month 15 per hour.

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22
Q

lowest minimum wage

A

Central African Republic has the lowest 0.36USD per hour

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23
Q

Domain name industries are constant cost industries.

A

Oil industry is an increasing cost industry.

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24
Q

argues that economic growth was slow and sporadic until laws, including patent laws, were created to protect innovation.

A

Nobel Prize-winning economic historian Douglass North

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25
Q

offered one speculative idea of patent buyouts to stop monopolies

A

Economist Michael Kremer

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26
Q

The difference between tying and bundling

A

bundled goods are sold one to one. Every right shoe comes with a left shoe. Tied goods are sold one to many. Every HP printer is tied to a variable number of ink cartridges depending on consumer demand.

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27
Q

A network good

A

a good whose value to one consumer increases the more that other consumers use the good. (Facebook)

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28
Q

A market is contestable if

A

a competitor could credibly enter and take away business from the incumbent. Contestability does not require that such entry actually occur, only that it can potentially occur.

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29
Q

peculiar goods

A

Radio and television are peculiar goods because although they are public goods, nonrival and nonexcludable, they are provided in large quantities by markets. This is because they earn from advertising.

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30
Q

Rational ignorance

A

occurs when the benefits of being informed are less than the costs of becoming informed. Voters

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31
Q

Amartya Sen, the Nobel Prize-winning economist and philosopher, has argued

A

that whether a country is rich or poor, “no famine(food scarcity) has taken place in the his- tory of the world in a functioning democracy.”

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32
Q

that we should legalize the trade in human kidneys.

A

Gary Becker

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33
Q

The best known utilitarian philosopher today is

A

Peter Singer, whom you also may know as an advocate of animal rights.

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34
Q

Nozick’s entitlement theory of justice says

A

the distribution of income in a society is just if property is justly acquired and voluntarily exchanged.

35
Q

A piece rate is

A

any payment system that pays workers directly for their output and not for their time. About one third of U.S. corporations evaluate employees based on relative performance.

36
Q

A tournament is

A

a compensation scheme in which payment is based on relative performance. It reduces environmental risk but increases ability risk.

37
Q

Intrinsic motivation

A

when you want to do something simply for feelings of enjoyment and pride.

38
Q

A Random Walk Down Wall Street

A

Burton Malkiel whose book A Random Walk Down Wall Street claimed that the money and fame that went to stock-picking gurus were a sham and a waste.

39
Q

most famous stock price index

A

The Dow Jones Industrial Average (or the Dow for short) is the most famous stock price index. The Dow is composed of 30 leading American stocks, each of these counted equally, whether the company is large or small. The Dow is not a very diversified index.

40
Q

the riskiest stocks are

A

those that move up and down in harmony with the market. For instance, many real estate stocks are risky because they are highly cyclical. the riskiest stocks are those with the highest covariance with the market as a whole.

41
Q

found that speculative bubbles and crashes occur in experimental markets, even when traders are given enough information to easily calculate an asset’s true value.

A

Vernon Smith

42
Q

GDP calculations are done by the

A

Bureau of Economic Analysis (BEA) which is part of the Department of Commerce and based in Washington, D.C.

43
Q

Worlds poorest country

A

South Sudan

44
Q

Most corrupt country

A

Somalia

45
Q

Least corrupt country

A

Denmark Finland New Zeland

46
Q

(Robert) Solow model of economic growth

A

Y = F(A, K, eL), Y = F (K) = √K

47
Q

We write the fraction of output that is invested in new capital as

A

gamma (g ), and in the example just given, g = 3/10 = 0.3.

48
Q

We write the fraction of capital that wears out or depreciates as

A

delta (δ ); in theexamplejustgiven,δ= 2/100 =0.02.

49
Q

Conditional convergence

A

the tendency—among countries with similar steady-state levels of output—for poorer countries to grow faster than richer countries and thus for poor and rich countries to converge in income.

50
Q

A(ideas) =

A

Population × Incentives × Ideas per Hour
Paul Romer points out that ideas for production are like recipes and the number of potential recipes in the universe is unimaginably vast.

51
Q

The “lifecycle” theory of savings

A

Nobel Laureate Franco Modigliani, puts the demand to borrow and save together. Income starts out low during the college years and in the early work years.

52
Q

collateral

A

something of value that by agreement becomes the property of the lender if the borrower defaults on the loan.

53
Q

commercial paper

A

very short-term bonds

54
Q

Interest rates and bond prices move in opposite directions.

A

Interest rates and bond prices move in opposite directions.

55
Q

An initial public offering (IPO)

A

the first time a corporation sells stock to the public in order to raise capital.

56
Q

the larger the fraction of government-owned banks a country had in 1970, the slower the growth in per capita GDP and productivity over the next several decades.

A

Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer

57
Q

Owner equity is

A

the value of the asset minus the debt, E = V − D.

58
Q

delinquency

A

(failure of payment)

59
Q

In an investment bank, the money comes from investors. Investment banks, such as Lehman before its demise, are part of what has been called the

A

shadow banking system.

60
Q

Country with lowest inflation

A

Andorra -0.9

61
Q

Velocity in US is

A

8

62
Q

Monetizing the debt

A

when the government pays off its debts by printing money.

63
Q

five transmission mechanisms:

A

intertemporal substitution, uncertainty and irreversible investments, labor adjustment costs, time bunch- ing, and shocks to collateral and net worth, which we call collateral damage.

64
Q

Time bunching

A

the tendency for economic activities to be coordinated at common points in time.

65
Q

developed key aspects of the Real Business Cycle (RBC) model in the 1980s

A

Finn Kydland and Edward Prescott

66
Q

Quantitative easing

A

when the Fed buys longer-term government bonds or other securities.

67
Q

Quantitative tightening

A

when the Fed sells longer-term government bonds or other securities.

68
Q

The Term Auction Facility

A

had the Fed announce that it wanted to inject a certain quantity of reserves into banks; those funds were then auctioned until the rate was low enough that banks would borrow the money.

69
Q

Systemic risk

A

the risk that the failure of one financial institution can bring down other institutions as well.

70
Q

Goldilocks amount of stimulation

A

just right amount

71
Q

bandwagon effect on investment

A

caused by uncertainty

72
Q

Austrian economists Ludwig von Mises and Friedrich A. Hayek

A

distorted price signals. A distorted price signal arises when government policy, or in this particular case the Fed’s monetary policy, moves a price in a manner that encourages investors to take risks.

73
Q

Alternative minimum tax (AMT)

A

a separate income tax code that began in 1969 to pre- vent the rich from not paying income taxes. It was not indexed to inflation and is now an extra tax burden on many upper middle class families.

74
Q

US spends most on

A

Social Security and Defense

75
Q

advocated to move to a volunteer army

A

Milton Friedman

76
Q

A tax rebate

A

different from a cut in marginal tax rates.A rebate means that taxpayers are handed a check—it’s just as if your Uncle Sam gives you some cash for your birthday.A rebate does not increase the incentive to invest or work. To increase the incentive to invest or work, the government must cut marginal tax rates, the additional tax that must be paid on additional earned income.

77
Q

Ricardian equivalence

A

occurs when people see that lower taxes today means higher taxes in the future, so instead of spending their tax cut, they save it to pay future taxes.When Ricardian equivalence holds, a tax cut doesn’t increase aggregate demand even in the short run. This is a special case of crowding out. First introduced by David Ricardo and developed by Robert Barro

78
Q

The list of relevant lags includes the following:

A
  1. Recognition lag—The problem must be recognized.
  2. Legislative lag—Congress must propose and pass a plan.
  3. Implementation lag—Bureaucracies must implement the plan.
  4. Effectiveness lag—The plan takes time to work.
  5. Evaluation and adjustment lag—Did the plan work? Have conditions changed? (Return to lag 1!)
79
Q

The balance of payments

A

a yearly summary of all the economic transactions between residents of one country and residents of the rest of the world.

80
Q

Current account

A

(−)Capital account + Change in official reserves

81
Q

Sometimes the small, short-run movements in exchange rates are called

A

noise

82
Q

A dirty or managed float

A

a currency whose value is not pegged but governments will intervene extensively in the market to keep the value within a certain range.

83
Q

International Monetary Fund (IMF)

A

as an international lender of last resort. Often the loans are tied to a country’s willingness to take the IMF’s economic advice.Critics of the IMF(director is European), such as Nobel Laureate Joseph Stiglitz, charge that it forces borrowing governments to cut government spending, tighten monetary policy, and raise interest rates. In other words, the claim is that the IMF has encouraged contractionary macroeconomic policies when (perhaps) expansionary policies were called for. Defenders of the IMF have argued that the advice is more subtle than is often portrayed, tough fiscal reforms are sometimes needed, or that borrowing countries do not in fact follow the advice, regardless of whether or not it is good advice.

84
Q

The World Bank

A

It was designed to facilitate the flow of capital to poor countries, especially those parts of the world not being served by private capital markets. Mostly the World Bank lends money for specific projects in developing countries. Overall, the Bank’s largest borrower, by far, is India.

Economics (7 decks)

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