Session 5&6 Flashcards
Transfer payment
a payment made to individuals by the federal government through various social benefit programs.
One-way payment of money for which no money, good, or service is received in exchange. Governments use such payments as means of income redistribution by giving out money under social welfare programs such as social security, old age or disability pensions, student grants, unemployment compensation, etc. Subsidies paid to exporters, farmers, manufacturers, however, are not considered transfer payments. Transfer payments are excluded in computing gross national product.
Stagnation
rokud, kesadi
recession, depression
Contraction
enghebaz
the general contraction of the industry did further damage to morale
synonyms: shrinking
Fractional reserve banking
A banking system in which only a fraction of bank deposits are backed by actual cash-on-hand and are available for withdrawal. This is done to expand the economy by freeing up capital that can be loaned out to other parties. Most countries operate under this type of system.
Bank reserve
Bank reserves are the currency deposits which are not lent out to the bank’s clients. A small fraction of the total deposits is held internally by the bank or deposited with the central bank. Minimum reserve requirements are established by central banks in order to ensure that the financial institutions will be able to provide clients with cash upon request.
The main purpose of holding reserves is to avoid bank runs and generally appear solvent. Central banks place these restrictions on banks, because the banks can earn a much larger return on their capital by lending out money to clients rather than holding cash in their vaults or depositing it with other institutions. Bank reserves decrease during periods of economic expansion and increase during recessions.
NAFTA
The North American Free Trade Agreement (NAFTA), is an agreement signed by Canada, Mexico, and the United States, creating a trilateral rules-based trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada–United States Free Trade Agreement between the U.S. and Canada.
Eurozone
The eurozone, officially called the euro area, is a monetary union of 19 of the 28 European Union (EU) member states which have adopted the euro (€) as their common currency and sole legal tender. The other nine members of the European Union continue to use their own national currencies.
The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. Other EU states (except for Denmark and the United Kingdom) are obliged to join once they meet the criteria to do so. No state has left, and there are no provisions to do so or to be expelled. Andorra, Monaco, San Marino, and Vatican City have formal agreements with the EU to use the euro as their official currency and issue their own coins. Kosovo and Montenegro have adopted the euro unilaterally, but these countries do not officially form part of the eurozone and do not have representation in the European Central Bank (ECB) or in the Eurogroup.
Free economic zones
Free economic zones (FEZ) or free zones (FZ) are a class of special economic zone (SEZ) designated by the trade and commerce administrations of various countries. The term is used to designate areas in which companies are taxed very lightly or not at all in order to encourage economic activity. The taxation rules are determined by each country. The World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (SCM) has content on the conditions and benefits of free zones.
Free trade zones
A free trade zone (FTZ) is a specific class of special economic zone. They are a geographic area where goods may be landed, handled, manufactured or reconfigured, and reexported without the intervention of the customs authorities. Only when the goods are moved to consumers within the country in which the zone is located do they become subject to the prevailing customs duties. Free-trade zones are organized around major seaports, international airports, and national frontiers—areas with many geographic advantages for trade. It is a region where a group of countries has agreed to reduce or eliminate trade barriers. Free trade zones can also be defined as labor-intensive manufacturing centers that involve the import of raw materials or components and the export of factory products.
Sovereign wealth fund
sandoghe zakhire arzi
Pools of money derived from a country’s reserves, which are set aside for investment purposes that will benefit the country’s economy and citizens. The funding for a sovereign wealth fund (SWF) comes from central bank reserves that accumulate as a result of budget and trade surpluses, and even from revenue generated from the exports of natural resources. The types of acceptable investments included in each SWF vary from country to country; countries with liquidity concerns limit investments to only very liquid public debt instruments.
Some countries have created SWFs to diversify their revenue streams. For example, the United Arab Emirates (UAE) relies on oil exports for its wealth. Therefore, it devotes a portion of its reserves to an SWF that invests in other types of assets that can act as a shield against oil-related risk.
Sovereign
possessing supreme or ultimate power.
in modern democracies the people’s will is in theory sovereign
synonyms: supreme,
Crawling peg exchange rate
A system of exchange rate adjustment in which a currency with a fixed exchange rate is allowed to fluctuate within a band of rates. The par value of the stated currency is also adjusted frequently due to market factors such as inflation. This gradual shift of the currency’s par value is done as an alternative to a sudden and significant devaluation of the currency.
Residual
baghimande
the withdrawal of residual occupying forces.
synonyms: remaining, leftover,
Reconcile
solh dadan, TATBIGH DADAN
restore friendly relations between.
she wanted to be reconciled with her father
Contingency (accounting)
a liability dependent on a future event. (like legal proceedings)
Proxy statement
A document containing the information that a company is required by the SEC to provide to shareholders so they can make informed decisions about matters that will be brought up at an annual stockholder meeting.
Provision (accounting)
an estimated liability.
Prudence–> we should provide for expenses as soon as they are foreseeable–> they’re expenses in income statement and liabilities in balance sheet (like restructuring provision or tax expense in income statement)
Federal funds rate
The federal funds rate is an important benchmark in financial markets. The interest rate that the borrowing bank pays to the lending bank to borrow the funds is negotiated between the two banks, and the weighted average of this rate across all such transactions is the federal funds effective rate.
Non borrowed reserves
‘Non-Borrowed Reserves’ A measure of the reserves in the banking system. Non-borrowed reserves represent the numerical difference between total reserves minus funds that have been borrowed from the Fed discount window.
Bank reserves
Bank reserves or central bank reserves are banks’ holdings of deposits in accounts with their central bank (for instance the European Central Bank or the Federal Reserve, in the latter case including federal funds), plus currency that is physically held in the bank’s vault (“vault cash”).
Lender of last resort
An institution, usually a country’s central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse.
Bailout
A situation in which a business, individual or government offers money to a failing business in order to prevent the consequences that arise from a business’s downfall. Bailouts can take the form of loans, bonds, stocks or cash.
Fractional reserve banking
Fractional-reserve banking is the practice whereby a bank accepts deposits, and holds reserves that are a fraction of the amount of its deposit liabilities. Reserves are held at the bank as currency, or as deposits in the bank’s accounts at the central bank. Fractional-reserve banking is the current form of banking practiced in most countries worldwide.
Full reserve banking
Full-reserve banking (also known as 100% reserve banking) is an alternative to fractional reserve banking in which banks are required to keep the full amount of each depositor’s funds in cash, ready for immediate withdrawal on demand. Funds deposited by customers in demand deposit accounts (such as checking accounts) would not be loaned out by the bank because it would be legally required to retain the full deposit to satisfy potential demand for payments. Proposals for full reserve banking systems generally do not place such restrictions on deposits that are not payable on demand, for example time deposits.
Natural monopoly
Average cost of production is falling over the relevant range of consumer demand. So having more than one producer would result in a significantly higher cost
Network effect
=synergies
A source of market power. Makes it very difficult to compete with a company once it has reached a critical level of marker penetration
Economic rent
economic rent is used to describe a payment to a factor of production above it’s value in it’s next highest valued use (it’s opportunity cost).
Economic rent is the positive difference between the actual payment made for a factor of production (such as land, labor or capital) to its owner and the payment level expected by the owner, due to its exclusivity or scarcity.
fek konam mosavie supplier surplus beshe.
Rent seeking
When a company, organization or individual uses their resources to obtain an economic gain from others without reciprocating any benefits back to society through wealth creation.
An example of rent-seeking is when a company lobbies the government for loan subsidies, grants or tariff protection. These activities don’t create any benefit for society, they just redistribute resources from the taxpayers to the special-interest group.
Common value auction
Private value auction
- common value: value of the auctioned item is the same to all of the bidders, but they don’t know that value at the time of the auction. (e.g., oil lease, IPO, jar of quarters!)
* the bidder who most overestimates wins= winner’s curse - private value: usually of art and collectibles, bidders bid the value of the item to them and no more
Ascending price auction
=english
bidders can bid an amount greater than the previous high bid and the bidder that first offers the highest bid of the auction wins and pays the bid.
Sealed bid auction
each bidder provides one bid, which is unknown to other bidders. the bidder submitting the highest bid wins and pays the bid.
- reservation price: the highest price that a bider is willing to pay
- optimal bid for the bidder with highest reservation price: slightly above that of the second high value bidder. —» bids are not always necessarily equal to bidders’ reservation price
Second price sealed bid auction
= vickery
the bidder submitting the highest bid wins the item but pays the amount bid by the second highest bidder.
*in this type, there is no reason for a bidder to bid less than his reservation price.
Descending price auction
= dutch
begins with a price greater than what any bidder will pay and this offer price is reduced until a bidder agrees to pay it. (if there are several items, the winner can take for example 3 of 10 and then the auction continues.
*Modified version: winning bidders all pay the same price, which is the reservation price of the bidder whose bid wins the last units offered.
Network effect
Agar sherkat az haddi bozorgtar she va sahme bishtari peyda kone dge maziatayi dare ke reghabato hahash kheyli sakht mikone
Quotas
government imposed production limits.
Giffen good
is an inferior good for which the negative income effect outweighs the positive substitution effect when price falls. (theoretically supported by rules of consumer choice)
*is theoretical and have an upward sloping demand curve
Veblen good
a higher price makes the good more desirable
*vs giffen: not inferior, not theoretically supported
Accounting profit
total revenue - total accounting (explicit) costs
Economic profit
accounting profit - implicit opportunity costs
Normal profit
the accounting profit that makes economic profit zero. (long term equilibrium)
Supply function under each market structure
- perfect competition: (short run) what we talked about from the beginning, a defined function between P and Q, it’s the firm’s MC function above AVC and market’s short run supply function is sum of the quantities supplied under at each price. for long run supply function can change by a change in firm’s capacity and scale
- other markets: there is no well defined supply function because they all face downward sloping demand curves and the quantity supplied is determined by the intersection of marginal cost and revenue and the price is determined by the demand curve the firm is facing.
* *dar vague supply be MR va MC va gheymat vibists ke ina khodeshun be Q va nemudarashun bastegi daran, tuye reghabate kamel chon MR=P va sabet bud mishod supply ro be surate faghat tabeE az P nevesht amma tu baghieye bazara intor nist va nemishe inkaro kard.
Identifying market structures
examining pricing power of firms. measuring elasticity of demand directly is very difficult, so we use concentration measures:
- N-firm concentration ratio: percentage of market sales accounted for by the N largest firms in the industry.
* it does not directly measure market power or elasticity of demand
* limitation: not sensitive to mergers - Herfindahl Hirschman index (HHI): sum of the squares of the market shares of the largest firms in the market
* a problem of both methods: not considering barriers to entry, if barriers to entry is low and there is potential competition even firms with high market share face high elasticity demands and cannot increase their prices.
Pricing strategy under each market
- perfect competition: price taker
- monopoly: MR=MC
- monopolistic competition: like monopoly
- oligopoly:
* kinked d curve: kink price
* collusion: like monopoly
* dominant firm model: dominant firm price (MC=MR)
* game theory: don know!
GDP calculation concepts
- MARKET value of FINISHED goods/services.
- PRODUCED (not sold) in this year
- new (not sold before)
- goods and services provided by the government are included even though not priced in market (police, jurisdiction, …)
- transfer payments not included
- rent and value of owner occupied housing is included.
- value of labor not sold (like housewives) not included.
- two different approaches (each method would fall under one of these) for calculation: expenditure approach (amount spent on goods/services) and income approach (amount earned by producing)- two approaches must give equal answers but due to measurement issues there are differences.
Value of final output method
an exp app for GDP.
summing the values of all goods and services produced.
Sum of value added method
an exp app for GDP.
summing the additions to value created at each stage of production and DISTRIBUTION
Nominal vs real GDP
by looking at GDP from exp app, nominal GDP is the total value of all goods and services produced by an economy, valued at current market prices.
real GDP: valued at prices from a base year.
GDP deflator
a price index that can be used to convert nominal GDP to real.
GDP deflator: nominal/real *100
Expenditure approach method (macro view)
Income approach method (macro view)
Exp: GDP = C+I+G+(X-M)
- C= consumption spending
- I= business investment (capital equipment, inventories)
- G= government spending
- X= exports
- M= imports
Income: GDP = national income+capital consumption allowance+statistical discrepancy
- capital consumption allowance (CCA): measures the depreciation of physical capital in a period.
- statistical discrepancy: an adjustment for the difference between exp and inc
GDP method, income expenditure
GDP = income = C+S+T
- C= consumption spending
- S= household and business savings
- T= net taxes (tax paid minus transfer payment received)
National income
sum of income received by all factors of production.
=compensation of employees
+corporate and government enterprise profits before taxes.
+interest income
+business owners income
+rent
+indirect business taxes - subsidies
Personal income
=national income \+transfer payments to households -indirect business taxes -corporate income taxes -undistributed corporate profits
Personal disposable income (PDI)
=personal income - personal taxes
Savings relationship
C+I+G+(X-M) = C+S+T
–>
S= I+(G-T)+(X-M)
G-T = fiscal balance
(positive: budget deficit, negative: budget surplus)
X-M = net exports or trade balance
(positive: trade surplus, negative: trade deficit)
