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Flashcards in Test2 Deck (88)
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1
Q

To socialize

A

spread an individual’s cost/value to the society at large

2
Q

Karl Marx

A

founder of socialism, “from each, according to his ability, to each, according to his need”

3
Q

Original rational of socialism

A

firms have more power than individuals, so they exploit workers, fairness by eliminating the class system

4
Q

Modern rational of socialism

A

must socialize individual decisions by state force in order to counter nature’s socializing effects- externalities- some costs spill over to others

5
Q

Externalities

A

polluting firm imposes costs on people but doesn’t pay those costs

6
Q

______ decision makers _____ for others based on their own assessments of _____ & ______

A

Authoritarian, choose, values, costs

7
Q

State’s response that won’t maintain socialist order

A

Allow individual choice

8
Q

State response that will maintain socialist order

A

The use of force and threat

9
Q

Fascism

A

State does not take title of property, but orders the use of that property and the individual in any way it wishes- no title but threat of force

10
Q

Eminent Domain

A

when property is taken for state use (roads), but the owner is compensated- now used for commercial buildings- spreading private costs

11
Q

Civil forfeiture

A

When a person is suspected of a crime and that person’s property is seized because it is automatically suspected as having contributed to the crime

12
Q

In socialism, who gets what, who does what, and which stuff is produced?

A

Authorities decide

13
Q

In a market society, who gets what?

A

People get based on the value of their production (income), and based on the value of goods and services

14
Q

In a market society, who does what?

A

Individuals choose based of tastes.

15
Q

In a market society, which stuff is produced?

A

The things people demand.

16
Q

In capitalist view,

A

society’s best interest is promoted by individuals with property rights making voluntary decisions

17
Q

Incentive problem of socialism

A

Socialism divorces production from consumption, which takes the incentive to voluntarily serve

18
Q

Money

A

anything that is generally acceptable in making exchanges

19
Q

Barter

A

trading without the use of widely accepted means of exchange (money)

20
Q

Double coincidence of wants

A

to exchange with barter there must exist both mutual wants

21
Q

What is a commodity?

A

money that has other uses

22
Q

What is fiat money?

A

Money that doesn’t have any other use- by law

23
Q

Commodities that evolved into money

A

labor- original mean of exchange, cigarettes in jails, salt, sugar, copper, gold

24
Q

3 functions of money

A

medium of exchange, unit of account, store of value

25
Q

A medium of exchange happens when a good is _____/_____ for exchange.

A

acceptable, convenient

26
Q

Unit of account

A

each unit is worth the same

27
Q

Store of value

A

Retains value over time

28
Q

M1 is the sum of:

A

paper currency held outside banks plus checking account balances plus traveler’s checks

29
Q

Monetary policy

A

The Fed uses the money supply to affect the economy

30
Q

The federal Open Market Committee

A

conducts monetary policy

31
Q

3 tools of monetary policy

A

Open Market Reservations, Required reserve ratio, Discount rate

32
Q

Open Market reservations

A

buying and selling US government bonds from individuals

33
Q

When more bonds are bought the money supply ____.

A

Increases

34
Q

When bonds are sold, the money supply _____.

A

Decreases

35
Q

Required Reserve Ratio

A

Percent of deposits banks can lend out

36
Q

With a _____ reserve ratio, banks can lend ____.

A

lowered, more

37
Q

Which tool of the Fed is seen as dangerous:

A

Required reserve ratio

38
Q

Discount rate

A

when a bank borrows from the fed, it pays an interest rate

39
Q

The Fed prefers to use which tool?

A

Open Market Operations

40
Q

The value of the dollar in the domestic economy depends on

A

how many and which goods and services it will buy

41
Q

Consumer Price Index (CPI)

A

Measures prices of 200 goods that a typical consumer buys- most cited price measure

42
Q

Formula of CPI

A

cost in market in focal period/ cost in base period

43
Q

Inflation % formula

A

CPInew/CPIold - 1

44
Q

Equation of Exchange

A

shows the relationship between prices and the money supply (MV=PQ)

45
Q

Simple Quantity Theory

A

begins with equation of exchange, has 2 observations, assumes that output & velocity are constant- M & P are proportionally related

46
Q

2 Observations of the Simple Quantity Theory

A

output is limited, velocity is limited

47
Q

Monetarism

A

Friedman, begins with equation of exchange then softens the assumptions of the simple quantity theory

48
Q

Assumptions of Monetarism

A

velocity is predictable and stable, economy has a potential that it tends to move toward

49
Q

If all prices in economy double, should you produce more/less/same?

A

Same

50
Q

Unanticipated inflation

A

your wealth increases, the seller’s wealth decreases (buyers gain, lenders lose)

51
Q

Nominal interest rate

A

real rate plus expected inflation, the rate that is advertised

52
Q

Real interest rate

A

how much inflation actually is

53
Q

Helicopter Drop results

A

At the beginning, production increases but after time, output is same and prices have risen proportionally.

54
Q

Secured loans

A

loan with an asset backing (a house)

55
Q

Unsecured loans

A

not backed (credit card)

56
Q

Uneven inflation

A

some prices rise faster than others- can’t tell about value of goods, services, and resources

57
Q

Result of uneven inflation

A

Stagflation- (inefficiency, unemployment)

58
Q

A Bubble is formed when…

A

created money accumulates in some places (housing)

59
Q

Monetizing the debt

A

the Fed can assist government in borrowing

60
Q

Inflationary tax

A

government is the biggest borrower, so they like inflation- outstanding bonds are easier to pay off

61
Q

Gold standard historically

A

with the gold standard, the inflation can’t really change- 0% inflation. After the Fed went off the gold standard, inflation rose to 4%.

62
Q

Direct finance

A

a borrower who deals directly with the lender, saver directly to borrower

63
Q

Maturity

A

date the payment will be made to the lender

64
Q

Face value

A

the value paid at maturity

65
Q

Zero coupon bond

A

US government bonds and some corporate bonds- NO INTEREST

66
Q

Coupon rate

A

interest rate quoted on bond

67
Q

Indirect finance

A

when individuals and businesses use middle men such as banks for borrowing and lending

68
Q

Financial intermediaries, such as banks,:

A

1) Spread the risk of non-payment
2) develop comparative advantages in credit evaluation and collection
3) divide denominations of loans
4) Match up time preferences

69
Q

Usury law

A

puts a ceiling on rates

70
Q

When the Fed is active…

A

Supply increases and there is a social loss`

71
Q

When people are optimistic…

A

demand increases, causing a rise in the interest rate and equilibrium moves right

72
Q

Indirect crowding out

A

when an increase in government spending is financed through borrowing, private spending decreases due to rising interest rates

73
Q

Super crowding out

A

Less output occurs when the government spends more but with the threat of force (marijunana or gambling in GA)

74
Q

Direct crowding out

A

When the government spends more, private markets spend less because their ability to spend is taxed away

75
Q

Leveraged buyout

A

an extreme example of a financial transaction that creates value- where a firm borrows in order to purchase another firm, then immediately sells the firm in whole or in parts—good for economy- resources move to those who can better use them

76
Q

Insolvent bankruptcy

A

a firm whose value is negative (owes more than it owns)—Shred it and sell it

77
Q

Illiquid bankruptcy

A

Cannot pay it’s immediate obligations- not enough cash to pay current debts (hostess twinkies, GM)

78
Q

Absolute priority rule

A

courts are supposed to follow this, by which the creditors are ranked with regard to how long ago the company became indebted to them, that every penny is paid to the senior debt before any less senior debt is paid

79
Q

Community Reinvestment Act

A

Instructed banks to make loans to poor people

80
Q

Nonconforming laws

A

Directed the FMs to purchase loans that banks made to risky borrowers who could not meet the old standards

81
Q

The US poverty rate is about

a. 7%
b. 16%
c. 24%
d. 36%

A

B

82
Q
  1. If the required reserve ratio is .25 and the Fed sells $100 B in government bonds, then throughout the banking system, then the money supply
    a. rises by $25 B
    b. falls by $25 B
    c. rises by $400 B
    d. falls by $400 B
A

C

83
Q
  1. Which is not an assumption of monetarism?
    a. the equation of exchange holds
    b. velocity is a stable function of a few variables
    c. eventually output is at its potential
    d. all of the above are assumptions of monetarism
    e. none of the above is an assumption of monetarism
A

D

84
Q
  1. In the helicopter drop story
    a. in the short run an increase in the money supply can increase output
    b. in the short run an increase in the money supply cannot increase output
    c. in the long run an increase in the money supply increases prices proportionally
    d. a and c
    e. b and c
A

D

85
Q
  1. With unanticipated inflation
    a. those with significant long term contracts to pay for goods or services see their wealth rise
    b. those with significant long term contracts to pay for goods or services see their wealth fall
    c. those with long term contracts to pay for goods or services are not affected
    d. the outcome is uncertain, either a or b could happen
A

A

86
Q
  1. If people become more optimistic about the growth of their future incomes then
    a. interest rates fall
    b. interest rates rise
    c. the supply of loanable funds falls
    d. the supply of loanable funds rises
A

B

87
Q
  1. Bastiat says that Ariste’s savings
    a. kills jobs
    b. is another way of spending
    c. deprives the poor since he is not giving to charity
    d. is short-sighted
A

B

88
Q
  1. In the 1990s and the 2000s, Fannie Mae did not care if homeowners defaulted on mortgage loans because
    a. every time a loan defaulted, the U. S. government compensated the lender
    b. with higher housing prices, foreclosed homes could be sold for more than the debt
    c. they were a government agency that used tax dollars to finance their daily operations
    d. the loans were really just paper instruments that did not have a real value
A

B