The American Economy Midterm

Question 1

What is the largest driver of the economy?

Answer 1

Consumer Spending

Question 2

What are measures of consumer demand?

Answer 2

Personal Income
Personal Expenditures
Savings

Question 3

Subcategories of personal income

Answer 3

Wages and salaries (56%)
Proprietors income (8%) self employed
Rental Income (1%)
Transfer payments (13%)
Dividend Income (5%)
Interest income (9%)
Other income (pensions, health care, worker insurance (9%)

Question 4

Categories of expenditures

Answer 4

Durable goods
Nondurable Goods
Services

Question 5

Durable good

Answer 5

Products that last 3+ years
(appliances, furniture, cars,)
Expensive
Around 13% of all spending

Question 6

Non Durable goods

Answer 6

Products that last under 3 years
Food, clothing, books.
30% of all spending.

Question 7

Services

Answer 7

medical treatments, streaming services, legal services, wellness services,
60% of all spending

Question 8

Decentralized mechanisms

Answer 8

Voluntary
>Non market examples: collective action which is engaging in common activity with others.
>Markets

Question 9

Centralized mechanisms

Answer 9

Most clear example is the state
Median Voter theory is used to model these

Question 10

Median voter theory

Answer 10

States that in the right circumstance (democratic, majority rules vote) that the median voter will elect the person or law.

Question 11

Criteria for Decentralized Decision-Making in game theory…

Answer 11

All outcomes have to be self-enforcing.

Is the promise made a credible commitment?

Problems of multiple equilibria and suboptimal equilibria are likely

Question 12

Collective bargaining

Answer 12

process by which a labor organization, designated or selected by a majority of an employer’s employees, negotiates on behalf of employees with the employer over wages and other terms and conditions of employmen

Question 13

Public vs private sector unions

Answer 13

Private unions- negotiate and bargain with employers,
Public unions - spend their time bargaining with local and state legislators

Question 14

Wagner act

Answer 14

it gave employees to formulate and join unions
Created a new agency called the N.L.R.B (national Labor Relations board which oversaw negotiations between labor unions and employers.

Question 15

Taft Hartley

Answer 15

Taft hartley madę edits to the Wagner act and was seen by many as a step back for labor rights. it enacted right to work laws which took away union shops which in turn hurt union participation and collective bargaining possibility.s

Question 16

Labor Force participation rate

Answer 16

Labor force: employed persons or those seeking employment

Question 17

What are reasons that productivity will significantly increase?

Answer 17

> Technological changes
Capital Deepening over time: Capital cheaper relative to labor AND increase in use of capital per worker
Investment in human capital: Schooling and health

Question 18

What are variables affecting Labor Force Participation Rate?

Answer 18

> Declining fertility rates
Decrease in child labor
Increased female participation
Immigration
Longevity (older population works less)

Question 19

What is an agency shop?

Answer 19

a place of employment where full membership in a union is not required, but union acts an agent for the employees

Question 20

What did the Wagner act of 1935 do?

Answer 20

> Created the NLRB (national labor relations board)
Created agency shops
Streamlined unionization process
Curtailed managements response to unionization efforts
Workers could not be fired
Replacements could be hired to keep business in operation
Lockouts were allowed for contract negation purposes but not to stop unionization.

Question 21

What did Taft Hartley 1947 do?

Answer 21

Created Right to Work Laws
> States were given power to ban closed shops/ union shops
> No strikes allowed to put pressure on firms to allow unions
> Lowered penalties for interfering with unionization

Question 22

What was the peak of US unionized labor?

Answer 22

1947- 35%

Question 23

Rates of declining organized labor…

Answer 23

1947- 35%
1970’s 30%
Mid 1990’s 15%

Question 24

what was the unionization % in 2016?

Answer 24

10.7% in the US overall

6.4 % in the private sector
34.4% in the public sector

Question 25

What caused this decline of organized labor?

Answer 25

> change in economic structure of the US.

> Rise of service sector and decline of manufacturing sector

> Globalization and the movement of capital (forms move right to work states to the south, and outsource international)

> Negative perceptions of labor

> Laws favoring business at the expense of labor

Question 26

LLC

Answer 26

Limited Liability Company

a business structure that protection to owners and pass through taxation.

It separates the entity from its owners, and saves them from being responsible for the LLC’s debts and liabilities.

Increases capital pool available for production.

Question 27

What are three improvements of industrialization?

Answer 27

Steam powered factories
Internal combustion engine
Computer revolution

Question 28

Sectors as a % of GDP in 2016

Answer 28

Service Sector- 79.5%
Industry- 19.4%
Agriculture- 1.1%

Question 29

what make up the “industry sector”

Answer 29

Manufacturing, Utilities, and Mining

Question 30

Largest Industries (share of GDP 2015)

Answer 30

1) Real estate 13%
2) Professional and Business Services (12%)
3) State and Local government ( 9.1%)
4) Finance and insurance (7.2%)
5) Healthcare and Social Assistance (7.1%)
6) Manufacturing of Durable Goods (6.5%)
7) Wholesale Trade (6%)
8) Retail Trade (5.8%)
9) Manufacturing of nondurable Goods (5.5%)
10) Information (4.6%)

Question 31

Ways to categorize businesses by size?

Answer 31

1. Contribution to GDP
2. Employment
3. Trends over time

Question 32

What is rent seeking?

Answer 32

Profit created above market payoff without innovation that the government creates through legislation and regulation.

Pure wealth transfer from one group to another.

Question 33

Types of rent?

Answer 33

Tariffs
Legislation
Subsidies
Tax Breaks
Regulation exemptions
Bailouts
Labor Regulations
Licenses
Product name restrictions

Question 34

What are costs of rent seeking?

Answer 34

Efforts and expenditures of the potential rent recipients
The efforts of government officials to solicit rents
Third party distortions induces by the rent seeking activities.

Question 35

What does lobbying do?

Answer 35

Shapes major legislation because they have expertise/ area specialization.

Draft the regulations (details) that enact the laws that are passed

Determine how administrative rules are applied

Question 36

What are the 5 biggest lobbying industries?

Answer 36

1) Pharmaceuticals/ Health products
2) Insurance
3) Electric Utilities
4) Electronics
5)business Associations

Question 37

How has lobbying spending increased over the years?

Answer 37

1999- 1.45 B
2010- 3.5 B
2016- 3.15 B

Question 38

What is a PAC?

Answer 38

Political Action Committees
They are part of interest groups that contribute to campaigns

Question 39

Types of PAC’s

Answer 39

Corporate
Labor
Trade Associations
Unconnected
SupePAC’s

Question 40

What is Olsons Theory?

Answer 40

In equilibrium, damage to the economy is greater than gain to rent seeker excuse not all interest groups are