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Macro Economics > Macro Econ Text 2 > Flashcards

Macro Econ Text 2 Flashcards

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1
Q

Historical school of economic thought?

Name the 3

A 
Pure market economy 
- Classical liberal 
- Mercantilist
- Communist 
Pure command economy
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2
Q

Classical liberal

Philosophical roots started with whom

A

John Locke and the belief of life the Devine right of kings is wrong

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3
Q

Classical liberal

Economist

A

Quesnay came up with
Laissez faire - leave it alone the economy, it will heal itself

Adam Smith and his wealth of nations (1776)

Wealth of nations not measured by gold it is measured by the consumption of a nation

Pursuit of own happiness

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4
Q

Classical liberal

Major ideas and policy

A

Q

Laissez Faire
Leave it alone, “let the economy heal itself”

A

Wealth of nations
Wealth of nations not measured in going or but in consumption of goods, etc

  • trade is positive
    Pursuit of own interest not the king
    Competition
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5
Q

Mercantilist

Philosophical roots

A

Thomas Hobbs
Devine right of kings
God gave kings power to rule over the people

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6
Q

Mercantilist

Economist

A

Thomas mun

Measure of wealth is gold

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7
Q

Mercantilist

Major ideas and policy

A

Measure of wealth of a nation is gold

Dominion of king to collect all through expeditions etc

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8
Q

Classical communist

Philosophical roots

A 
Hegel 
The dialectic 
Thesis clash with antithesis 
Creates sythesis clash with antithesis 
Creates synthesis
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9
Q

Classical communist

Economist

A 
Karl Marx 
Wrote communist manifesto 
Dialectic materialism 
Inevitable violent revolution 
Abolition of traditional institutions
Dictatorship of proletariate
Collectivization of society 
--- central planning and the egalitarian society 
Each according to ability and each to according to need
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10
Q

Classical communist

Main ideas and policies

A 
Dialectic materialism 
Inevitable violent revolution 
Abolition of traditional institutions 
Dictatorship of proletariat 
Collectivization of society 
Central planning and egalitarian society
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11
Q

Current school of economic thought

A 
PME
-Austrian 
-Monetarism (monetarist)
-Keynesian 
-communist 
PCE
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12
Q

Monetarist

Economist

A

Friedman

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13
Q

Monetarist

Problem they want to solve

A

They believe that they handled Great Depression wrong

The root cause was 1913 us set up the central bank federal reserve

They should of contract the the supply of money instead of giving out more money which only made it worse

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14
Q

Monetarist

Main idea and policy

A

Indirect govt control
Monetary policy: federal reserve system
Regulate money supply, interstate banking

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15
Q

Austrian
Economist
Problem want to solve
Policy and main idea

A

F Hayek

Wrote the road to serfdom
Monetary policy leads to problems, doesn’t cure, but causes boom and bust cycle
Laissez faire - end govt controls

Minimum role of
Govt protection 
Ending fiscal policy and monetary policy
Collectivization 
Individual freedom
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16
Q

Communist

Economist
Problem want to solve
Policy and main idea

A

1917 Lenin and stalin

Violent revolution has to happen and it can happen on its own
Bolshevik revolution

Dialectic materialism
Inevitable violent revolution (oppressed rise up)
Dictatorship of proletariate
Abolish traditional institutions
Central planning (collectivization and egalitarian)

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17
Q

Keynesian

Economist
Problem want to solve
Policy and main idea

A

JM Keynes

Wrote general theory 
Direct government intervention 
In form of fiscal policy 
--- government spending 
-- taxation 
-- debt 
-- regulation
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18
Q

Business cycle

Over expansion

A

To much growth in economy
(can’t be sustained)

Goes over the steady growth ideal

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20
Q

Business cycles:

Expansion

A

economy moves from a trough to a peak. It is a period when the level of business activity surges and gross domestic product (GDP) expands until it reaches a peak.

Increase growth of economy

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21
Q

Business cycle

Stagnation

A

No growth in economy

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22
Q

Business cycle

Contraction

A

contraction occurs after the business cycle peaks but before it becomes a trough.

to occur when a country’s real GDP has declined for two or more consecutive quarters.

Decline in growth of an economy

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23
Q

Business cycle

Recession

A

Period of economic down

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24
Q

Business cycle

Depression

A

Long period of recession

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25
Q

GDP (Gross Domestic Product)

What is what does it measure

A

measure of a nation’s total economic activity.

More specifically, GDP represents the monetary value of all goods and services produced

How much people spend

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26
Unemployment | What is it
People who are out of work but are looking for jobs
27
Unemployment types | FSCS
Frictional Seasonal Cyclical Structural Fscs
28
Frictional unemployment
Out of work for personal reasons
29
Seasonal unemployment
Out of work during a certain time
30
Cyclical unemployment
Out of work because downturn in business cycle (downturn in economy)
31
Structural unemployment
Out of work but looking for a work all the time (never get job even if economy is good)
32
Inflation
Is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling
33
CPI (Consumer price index)
measure that examines the weighted average of prices of a basket of consumer goods and services
34
Seigniorage
Seigniorage may be counted as revenue for a government when the money that is created is worth more than it costs to produce it.
35
Keynesian and neo classical divergence | Economy self correcting or not
Keynesian --- Economy is not self correcting Neo classical view--- Economy is self correcting
36
GDP | What it allows us to measure
Easy to make comparison against other nations Easy to measure Easy to see changes over time Doesn't input household task (not paid) Looks at money flow
37
Classical view that the economy is self or not correcting
The economy is self correcting Interest and investment fall People panic spend less and save more Therefore people borrow more
38
Keynesian view that the economy is self or not correcting
The economy is not self correcting Businesses borrow less therefore pay people less
39
Consumption function is what
an economic formula representing the functional relationship between total consumption and gross national income.
40
Consumption function: | Multiplier effect
5000=4000+1000 4000=3200+800 3200=2560+640 2560=2048+512 Total potential changes 25000=20000+5000
41
MPC (Marginal Propensity to Consume) is what
How much you spend per amount you earn Ex) mpc=3/4 4000 (income) x (3/4)= 3000 spent Therefore mps= 1/4
42
MPS (Marginal propensity to spend) | Is what
How much you save per amount you earn Ex) MPS=1/4 Income: 4000 4000(1/4)= 1000 spent
43
Multiple (multiplier factor) factor | How to find and is used for what?
It is found using the formula: 1/mps Ex) 1/mps= 1/1/4= 4 This is then used to find total potential change (income spending in the economy) 4 x original income from multiplier effect
44
Fiscal policy prescriptions for contraction
Increase government spending and decrease taxation Bring back to full employment level
45
Fiscal policy prescriptions for over expansion
Decrease government spending and increase taxation Bring back to full employment level
46
FEL (Full employment level)
level of employment rates where there is no cyclical or deficient-demand unemployment. The equilibrium point
47
Fiscal policy prescriptions Which is popular Balanced +G-T -G+T
Increased government spending and decrease taxation Creates a deficit putting us in debt But the beliefs is that in the long run you will be able to pay off the debt Print more money and borrow more money
48
Fiscal policy prescriptions Which is unpopular Balanced +G-T -G+T
Decreasing government spending and increasing taxation is unpopular It sounds better and creates a surplus Which conferences a deficit
49
Forecasting ( economic indicators)
Lagging Coincident Leading Lcl
50
What is lagging economic indicator
Analyze the past
51
What is coincidental economic indicator
Explain the present
52
What is leading economic indicator
Predict the future
53
Critique about fortune telling
Economist are basically fortune teller
54
Philips curve what is
Shows the trade off b/w the rate of inflation and the rate of unemployment the fiscal policy prescriptions aim to be in the middle, during contraction, increasing government spending and citing taxes Fiscal policy states to fight over expansion (inflation) you cut gov spending and increase tax, to fight contraction you would do it in vice versa
55
Phillip curve prescriptions
``` Fiscal policy states to fight Over expansion (inflation) you cut government spending and increasing tax ``` Contraction (unemployment) you increase government spending and cut taxes
56
Phillips curve what do the critics say
Phelps and critics say that the Phillips curve is wrong Inflation and unemployment come at the same time And Inflation doesn't go way right away The economy is unpredictable there have been some time in history that both inflation and unemployment have been high, creating stagflation-- how do you combat that
57
Stagflation
High unemployment and high inflation
58
Public goods what are they
They are goods that benefit all and are non exclusive Owned by government They create a "free rider problem" which won't be covered by the private sector Lead to tyranny, offense and waste Ex) the lighthouse
59
Free riders at the Light house
Light houses used to be private owned and built But people using the light house want a free ride bc they don't want to pay for the light house So they go to the government and ask them to tax people (to pay for it) or else there will be no light house
60
Who does better private or public companies
Private companies does better job then government public companies Bc govt has no incentives to renovate or do above and beyond (cause they got monopoly) Private company also has motivation Private owned institutions = less taxes and better service then govt owned
61
Lorenz curve shows what?
It shows the distribution of income ``` Perfectly equal distribution Robin Hood effect Actual distribution Sharif effect Perfectly unequal distribution ```
62
Robin Hood effect on Lorenz curve
There is a legitimate function off | Government to redistribute income from the rich to give to the poor
63
Lorenz curve critics | Name the 3
Power critics Productivity critics Ethics critics PPE
64
Power critics
The rich have more power The powerful May say that they are helping the poor to be popular but they really intend to take from both the rich and the poor to give to the powerful
65
Productivity critics
Equal distribution of income limits the incentives for productivity and growth Even the poor are better off in a growing economy with incentives for productivity
66
Ethics critic
If it is wrong for a person to take another persons money against their will, then it is also wrong to ask others to do it for them The action is the same no matter how much people approve
67
Laffer curve
representation of the relationship between rates of taxation and the resulting levels of government revenue.
68
Laffer curve
As tax rate goes up government get less revenue Cut taxes increases govt revenue
69
Taxes and affect on human behavior | People change behavior at high tax
``` They: Hide income Move way Stop work Rebel with a rebellion ```
70
People react to cut taxes at low tax by
Revealing income Moving into area Starting work Cooperating
71
Historical examples of laffer curve
American revolution is an example Before revolution the Boston tea party is also an example when the people of the colony threw tea into harbor because of unfair/high taxes from England and king Taxation without representation
72
Tanstaafl
The ain't such thing as a free lunch Nothing is free because someone had to pay for the said good down the line of creating it
73
Hidden tax
Government get money in different way by either printing more money inflation or by borrowing money crowding Austrian critic Cut the real tax which is govt spending so there is real growth in future
74
Tax purposes
So govt can collect revenue Redistribution of income -- tax some to give to others Manipulate values -- taxing something to discourage without taking item away and tax break to encourage
75
3 tax types
Regressive Proportional Progressive
76
Regressive tax
Rate of taxation decrease as income rises Same tax amount for each person Different tax rate for each person decreasing
77
Proportional tax
Rate is same but as income increases amount taxes increases Tax amount is different and rising Tax rate is same rate
78
Progressive tax
Greater the income the different the rate and amount paid Tax amount is different rising Tax rate is different rising
79
Alternative to tax
Managing resources better User fees (tax people who use it) Lottery Check off Allows people to check off how much they meant to get taxes on of tax form
80
4 tax objections
Excessive Abusive and unfair Manipulative of values Wasteful and corrupting
81
Tax objections | Excessive
Too much Protect ability to get campaign contribution Too many Too complicated
82
Abusive and unfair
IRS Big cases big problems Small cases small problems They lie (can't be held accountable) they promise to give money but they never do Ex Pres nixon gave enemy list to irs so they can audit them
83
Manipulative of values
Tax high for some - discourage behavior Tax low for some - encourage behavior To discourage sinful behavior we have sin taxes Like smoking and the cigarette tax Congress spending subsidies Tabasco farm Drinking alcohol tax congress spending at military Working .income tax .unemployment care
84
Wasteful and corrupt
People pay for things that they are uninterested in though taxes therefore wasteful Moral objection Go to jail for it paying tax or pay them and go to hell Moral hazard Alcohol drug addicts Like
85
Moral hazard
Govt policies that reward and encourage reckless behavior by removing risk Disaster relief stuff like insurance
86
What is debt
Govt give and take Federal recipient and outlays rarely match current breakdown Govt spend more then take in tax

Macro Economics (2 decks)

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