Econ Flashcards
(157 cards)
1
Q
What is defined as short-run?
A
Timeframe when some factors are fixed
2
Q
What is defined to as long-run?
A
Timeframe when all factors are variable
3
Q
When should firm operate in perfect market?
A
When AR>=ATC
4
Q
When should firm operate in short-run only in perfect market?
A
When AR>=AVC but AR<ATC
5
Q
When should firm firm shut-down in perfect market?
A
AR<AVC
6
Q
When is break-even point?
A
TR=TC
7
Q
When should firm operate in short-term market in imperfect environment?
A
TC>TR>TVC
8
Q
When should firm shut down in imperfect market?
A
TR<TVC
9
Q
Why do we compare averages for perfect and total costs for imperfect markets?
A
Because price is not equal to marginal revenues
10
Q
What are conditions of the perfect market?
A
many firms, very low barriers of entry, very good substitutes, competes on price only, none pricing power
11
Q
What are conditions of the monopolistic competition?
A
many firms, low barriers of entry, goods have substitutes but are differentiated, competes on price, makreting and features, some pricing power
12
Q
What are conditions of the oligopoly?
A
There are few firms in the market, high barriers of entry, goods have substitutes but are differentiated, competes on price, marketing and festures, some to significant pricing power
13
Q
What are conditions on monopoly?
A
There is single firm, very high barriers of entry, no good substitutes, competes on adversiting, have significant pricing power
14
Q
What is long-term equilibirium of monopolistic competition?
A
P=ATC
15
Q
What is the most significant cost for monopolists?
A
Marketing costs
16
Q
What is a distinct feature of oligopoly?
A
They are interdependent
17
Q
What is kinked demand theory?
A
Competitors are likely to match the price decrease, but not the price increase
18
Q
How does demand elasticity reflected in the kinked demand theory?
A
It is more elastic on the left and less elastic on the right
19
Q
What is Cornot duopoly model?
A
Two firms with identical MC curves will chose their price based on the price of the other firm in the previous periods
20
Q
What is the assumption of Cournot duopoly model?
A
Prices would not change and firms set prices simultaneously
21
Q
What is equilibrium of duopoly model?
A
Sell the same quantity, as the price would be less than a single monopolist would charge, but greater under perfect competition
22
Q
What is Stackelberg model?
A
Pricing decisions of the firms are based sequentially and the leader gets higher price and more of total profits
23
Q
What is Nash equilibrium?
A
Choices of firms are that no other choice would make any firm better off.
24
Q
What is collusion?
A
Joint agreement to charge given price or take speficit output.
25
What is dominant firm model?
Single firm has advantage of larger market share as a result of greater scale or lower cost.
26
What would happen if competitive firm would decrease the price?
Dominant firm would decrease the price, competitive firms output would fall and dominant firm would increase their market share.
27
What are concentration measures?
Indications of market power
28
What is n-firm concentration ratio?
It is sum of % of market shares of largest N-firms in a market.
29
What is HHI?
Sum of squares of the market shares of the largest firms in the market.
30
What is the limitation of the concentration ratios?
Limitation is that barriers to enter are not considered.
31
What is business cycle?
Fluctuation in economic activity
32
What is expansion?
Real GDP is growing
33
What is peak?
Real GDP stops increasing and begins decreasing
34
What is contraction/recession?
Real GDP decreasing
35
What is through?
GDP stops decreasing and begins increasing
36
What is growth cycle?
Changes in the % difference between real GDP and potential value
37
What is growth rate cycle?
Changes in the annualized % growth rate from one to next
38
What is a credit cycle?
It is cyclical fluctuation in the interest rates and the availability of loans.
39
What is investory/sales ratio?
It is representation of a business cycle.
40
What is expansion & peak in business cycle?
When inventory to sales ratio begins increasing as sales start to slow and inventory starts accumulating
41
How does firms react to businness fluctuations?
They adjust labor and physical capital
42
What is largest component of the GDP?
Consumer spending
43
Spending on which goods is rather cyclical?
Durable goods and services
44
What are leading economic indicators?
It is change in the direction before peak on throughs
45
What are coincident indicators?
They change direiction at the same time as the cycle
46
What are lagging indicators?
They change direction when business cycle is already underway
47
What is fiscal policy?
Government spending and taxation with the objective of boosting AD.
48
What is monetary policy?
It is quantity of money and credit in the economy.
49
What is balanced budget?
tax reevenues=government expenditures
50
What is budget deficit?
Expenditures>revenues
51
What is budget surplus?
Revenues>expenditures
52
What are objectives of fiscal policy? (3)
Influence economic activity and AD, redistribute wealth and income among segments, allocate resources among economic agents and sectors
53
What does Keneysian theory say?
Fiscal policy has an affect when economy is below its full employment
54
What does Monetarist theory say?
Fiscal policy effect is temporary and monetary policy should be used to increase or decrease the inflationary pressure.
55
What is discretionary fiscal policy?
It is spending and taxing decisions to stabilise the economy
56
What are automatic stabilizers?
They are built-in fiscal devices trigerred by the state economy
57
What is debt ratio?
Debt/GDP
58
What is crowding out?
It is when government borrowing increases IR and then private sector cannot borrow
59
What is Ricardian equivalence?
People look into the future and adjust their spending patterns to correspond to future tax changes.
60
What are fiscal policy tools?
Revenue and spending tools
61
What is transfer payment?
Redistribution of wealth by taxing ones and making payments to others
62
What is current spending?
government expenditures on goods and services on the routine basis
63
What is capital spending?
It is spending on infrastructure to boost future productivity of economy
64
What are direct taxes?
Taxes levied on income and wealth
65
What is indirect taxes?
Taxes levied on goods and services
66
What are attributes of taxing policy?
Simplicity, efficiency, fairness and sufficiency
67
What is fiscal multiplier?
It is potential increase in AD increasing from government spending
68
Fiscal multiplier equation
1/1-MPC(1-t)
69
What is balance budget multiplier?
Net effect on the budget from decrease/increase in the AD
70
How does negative effect is calculated?
Amount*MPC*fiscal multiplier
71
What is recognition lag?
Policymakers might take time to recognize the nature and extent of the economic problems
72
What is action lag?
Enaction of the policy takes time
73
What is impact lag?
Lag between enactment and impact of the changes on the economy
74
Which policy is increase in budget surplus?
Contractionary
75
Which policy is increase in budget deficit?
Expansionary
76
What are structural budget deficit?
Deficit that would occur based on current policies if economy were at full employment
77
What is fiat money?
Currency that is not backed by any tangible value
78
What are the roles of central bank?
Supplier of currency, banker to government and other banks, regulator and supervisor of payment system, lender of the last resort, holder of gold and forex, conductor of monetary policy
79
What is primary objective of the central bank?
To control inflation
80
What is menu costs?
Businesses contrantly having to change prices
81
What is shoe leather costs?
Costs of trips to banks to minimize deposits since they depreciate
82
What is inflation target rate?
2+-1%
83
What is pegging?
It is attaching currency rate to that of other country
84
How effective is pegging?
It is effective in the short-run, but in the long-run we need to manage interest rates.
85
What is policy rate?
Rate at which banks can borrow if they have shortfalls
86
What is policy rate named in US and Europe?
US -> discount rate, Europe -> refinancing rate
87
What is repurchase agreement?
Central bank purchases securities from the banks as they promise to repurchase them at the higher price in the future
88
What is effect of reserve requirement change?
If reserve requirement increases, money supply will decrease and interest rates will go up.
89
What are open market operations?
Buying and selling securities
90
What are monetary policy transmission mechanism?
It is ways that monetary policy affects price level and inflation
91
What are central banks essential qualities?
Independence, credibility and transparency
92
What is meant by independence?
Political powers might try to intervene as it conflicts with their goals
93
What is operational independence?
Independently determine policy rate
94
What is target independence?
Determine how inflation is computed, targeted and the time horizon for the achievement
95
What is meanth by credibility?
Following through on their stated intentions
96
What is meant by transparency?
Aiding credidibility by disclosing the state of the economic environment by issuing reports
97
What is interest rate targeting?
Using money supply to adjust interest rates
98
What is exchange rate targeting?
Maintaining a set exchange rate between local and other currency, usually the dollar.
99
What is net effect of the exchange rate targeting?
Targeting country will have he same inflation rate and have to adopt monetary policy and accept interest rates.
100
What are bond market vigilantes?
Traders who threatens or sells a large amount of bonds to protest or signal distate with policies of issuers
101
What is liquidity trap?
It is when demand for money becomes elastics and individuals hold more money even with decrease in the short-run interest rates.
102
What is quantitative easing?
Central bank purchases securities in attempt to increase money supply to reduce interest rates
103
What are geopolitics?
Interactions of nations including actors of state and nonstate
104
What is globalization?
Long-term trend toward worldwide integration of economic activity and cultures
105
What is economic openess?
International trade as % of total output
106
What is autarky?
Goal of national self-reliance, state-dominates society with government control of industry and media
107
What is hegemony?
Open to globalization, but have size and scalo to influence other countries without cooperating
108
What is bilateralism?
Cooperation of two nations, might have multiple agreements
109
What is multilateralism?
Cooperation with multiple countries
110
What is regionalism?
Form of multilateralism with nearby countries
111
What is portfolio investment flows?
Buy and sell foreign securities
112
What is foreign direct investment?
Own physical production capacity in other countries
113
What is the role of IMF?
Facilitate trade by promoting international monetary cooperation and exchange rate stability, assists in setting up payment systems and make resources available to other countries by BoP.
114
What is the role of world trade organization?
Trade flows freely and works smoothly
115
What is the role of World Bank?
Low interest loans, interest free credits, grants to developing countries, resources to public/private partnerships with goal of fighting poverty
116
What is geopolitical risk?
Probability of events that interupt peaceful international relations
117
What are events risks?
Events that we know the timing, but not the outcome
118
What are exogenous risk?
Unanticipated events
119
What are thematic risk?
Known factors that have effects on long period
120
What are black-swan risks?
Risk of low likelihood exogenous events that have substantial effects
121
What are economic tools?
Cooperative and noncooperative
122
What are financial tools?
FDI and exchange of currencies
123
What are discrete impacts?
Company or industry, broad impacts on country, region or the world
124
What are the reasons for trade restrictions?
Infant industry protection, national security, protecting domestic jobs and protecting domestic industries
125
What are tariffs?
Taxes on imported goods
126
What are quotas?
Limits on imported goods
127
What is minimum domestic content?
Requirement that % of goods must be from domestic country
128
What is voluntarily export restraint?
Restrict amount of goods exported
129
What are free trade areas?
all barriers among member countries are eliminated
130
Whar are custom unions?
FTA + set of rules are adopted for non-members
131
What are common market?
Custom union + barriers for labor and capital among members are removed
132
What is economic union?
Common market + common institution and economic policy
133
What is monetary union?
Economic union + single currency
134
What does it mean to hedge the risk?
Taking position in the foreign exchange market to reduce on existing risk
135
What is speculating?
When transaction in the FX market increases currency risk
136
What are the buyers of FX?
Corporations, investment accounts, gov and its entities, retail FX markets
137
What are leveraged accounts?
Investment firms that use derivatives
138
What are real money accounts?
Accounts that do not engage in the derivative trading
139
What is direct quote?
currency/base quotation from a point of view of investor in the price currency country
140
What is indirect quote?
Quatation from a point of view of base currency country
141
What is nominal exchange rate?
Exchange rate in point in time
142
What is real exchange rate?
Purchasing power relative to the earlier base period
143
Formula for the real P/B exchange rate
nominal P/B * (CPIbase/CPIprice)
144
What is spot exchange rate?
Exchange rate with immediate delivery
145
What is forward exchange rate?
Exchange rate to be done in the future
146
What is formal dollarization?
Country that use currency of another country
147
What is currency board agreement?
Commitment to exchange domestic currency for a specified foreign currency at a fixed rate.
148
What is conventional fixed peg arrangement?
Currency is pegged within margins of +-1% versus another currency or basket of currencies of major trading partners
149
What is crawling peg?
Exchange rate is adjusted periodically, usually for higher inflation
150
What is managed floating exchange rate?
Exchange rate with attempts to influence the exchange rate with response to specific indicators
151
What is independent floating exchange rate?
Exchange rate determines in the market
152
What is the equation for trade equilibrium?
X-M=S-I+T-G
153
What are the objections of capital flow restrictions?
Reduce volatility of asset prices, maintain fixed exchange rate, keep domestic interest rates low, protect strategic industries
154
What is a cross rate?
Exchange rate between two currencies implied by their exchange rates with a common third currency
155
What is no-arbitrage condition?
Difference between spot and forward exchange is equal to countries interest rate so no riskless profits can be made
156
What is formula of spot exchange rate?
[(1+rforeign)/(1+domestic)]*forward
157
What is formula of forward exchange rate?
[(1+rdomestic/1+foreign)]*spot
