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Flashcards in Final Exam Deck (74):
1

elastic

-degree that supply and demand respond to price change
-supply curve flatter

2

inelastic

-no matter the price consumers will continue to buy

3

burden of tax

-falls on the inelastic side of the market

4

which way does supply curve shift by the amount of tax?

supply curve shifts up by amount of tax

5

exercise tax

-fixed dollar amount paid for each unit
-on buyers (shift demand down)
-on sellers (shifts supply up)

6

inequality

-sometimes measured as ratio of richest quintile to poorest quintile
-can be hard to capture (and to track poorest)
-has been increasing in the US since 1970s (cheap labor from abroad creates decrease in wages, capital owned by increasingly small share)

7

LDC

least/ less developed country

8

poverty

-sometimes measured as living in less than $1.00 /day (LDC)
-US definition is living on less than 23K a yr for family of 4
-unemployment: 5%

9

policies to address poverty

-min wage law
-welfare
-negative income tax
-transfers
-give cash ex
-give conditional can transfers ex

10

min wage law

-can create job shortages if min wage is binding (above set wage level)

11

welfare

-can discourage working

12

negative income tax

-can encourage working but only up to a certain point
-gov collects tax revenue from high income households and gives substitutes to low

13

transfers

-only up to a certain point
-"leaky bucket" too much bureaucracy to manage
-redistribution of income and wealth

14

give cash example

-universal basic income
-give directly

15

give conditional cash transfers (CCT) example

-progress
-opportunities

16

labor force (LF)

# employed + # unemployed + # neither

17

how is unemployment estimated monthly

estimated by bureau of labor statistics (BLS) by conducting a census population survey (CPS) of 60 K households

18

budget constraint

-represents all possible bundles (x,y) that a consumer can afford
-Income = (Px)(Qx) + (Py)(Qy)
-set equal to Qy for equation of budget constraint line

19

if Px decreases

budget constraint pivots out (on x axis)

20

if income increases

budget constraint shifts out (parallel)

21

how to find BC point on x axis

income / Px

22

how to find BC point on y axis

income / Py

23

indifference curve (IC)

-represents consumer's willingness to trade one good for another
-higher IC is better
-downward sloping
-IC's don't cross
-bowed inward

24

perfect compliments

two goods with right angle indifference curves (spooning right angles)

25

perfect substitutes

two goods with straight line indifference curves (look like demand curve)

26

optimal consumer choice

-when IC is tangent to BC
-where MRS = slope of BC

27

MRS

-marginal rate of substitution
-rate at which consumer is willing to substitute two goods
- dy / dx slope of indifference curve

28

normal good

-any good for which demand increases when income increases
-ex. with positive income elasticity of demand

29

inferior good

-type of good which demand declines as level of income or real GDP in the economy increases
-ex. opposite of normal good

30

what happens to normal and inferior goods when income increases

-normal good: demand rises when income rises
-inferior good: demand falls when income rises

31

what happens to normal and inferior goods when price changes

-normal good: Q demand increases price decreases
-inferior good: Q demand decreases price decreases

32

price change

income effect + substitution effect

33

income effect

change in consumption that results when price change moves the consumer to a higher or lower indifference curve

34

substitution effect

change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new MRS

35

information asymmetry

when one agent in a market transaction (buyer/seller, worker/employer) has more information than the other

36

moral hazard

-hidden action (dishonest behavior)
-ex. worker at a job

37

adverse selection

-hidden type / characteristic
-ex. used cars

38

George Akerlof

-won Nobel prize in 2001
-work on formalizing adverse selection
-ex. used market for lemons in the used car industry

39

lemon problem

how quality of good traded in a market can degrade in pretense of information asymmetry between buyers and sellers

40

asymmetric information

sellers knowing more than they tell the buyers

41

gross domestic product (GDP)

the total value of everything produced by all the people and companies in the country

42

determinate of productivity

-physical capital
-human capital
-natural capital
-technical knowledge

43

how to increase productivity

-invest in capital rather than consumption goods
-invest when leans are cheap (low r)

44

national saving

-S
-private saving + public saving
-savings = investment

45

private saving

-amount households have left after paying taxes
-(Y - C - T)
-GDP - consumption - taxes

46

public saving

-amount of tax revenue gov has after paying for its spending
-(T - G)
-taxes - government purchases

47

if (T - G) > 0 ...

gov surplus

48

if (T - G) < 0 ...

gov deficit

49

gov deficit

-amount that something falls short (usually money)
-gov must borrow money (from private lenders)
-gov deficit since 1969

50

what happens when the gov borrows

-sell a bond
-pulls money from the private sector
-decreases money supply
-aka open market sales

51

what happens when the gov lends

-buys bonds
-injects money into private sector
-increases MS marginal supply
-aka open market purchases

52

FOMC

-committee inside the federal reserve bank
-gov in open market operation

53

government bonds

treasury securities

54

bills

less than 1 hr maturity

55

notes

1-10 hrs maturity

56

bonds

greater than 10 hrs maturity

57

two types of bonds

with and without coupons

58

without coupons

-present value formula
-P = face value / (income + interest rate) ^maturity

59

with coupons

-10% of FV
-P = longer equation

60

n

maturity

61

r

intrest rate

62

FV

face value

63

as interest rate increases...

demand for loans decreases

64

when fed buy bonds

-loans money to banks
-money supply increases
-reserves increase

65

when fed issues / sells bonds

-it borrows money
-money supply decreases

66

fed funds rate

rate at which banks lend to each other

67

mm

-money multiplier
-when money gets re-loaned

68

rr

reserve ratio

69

deficits

-increase demand for loans
-increase interest

70

high interest

-reduces borrowing demand for capital investing
-income decrease
-GDP decreases

71

to get interest to decrease gov will:

-buy bonds
-print money -> inflation

72

CPI

price index of a given basket of goods for a given base year

73

deflation

-when cost of basket decreases
-negative inflation

74

disinflation

inflation still pos, but falling over time