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25 Cards in this Set
- Front
- Back
What happened to the distribution of income during these three eras? |
The distribution of income was perfectly equal during ancient times. All families earned the same amount of income. Income distribution became unequal during dictatorship of the wicked witch
Same as first. |
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What happened to the gini ratio during these three days eras? |
The gini ratio was 0 in the first and third eras and was greater then 0 during the dictatorship of the wicked witch of the west. |
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There are 5 different Philosophical positions used to assess the causes and consequences of inequality: EEEEB LIST the first TWO AND DEFINE THEM ALL |
equality of outcomes: people are entitled to an equal level of well being thru redistributive taxation and high public spending critics. Equality of opportunities: John Rawls and the level of playing field... individuals are entitled to equal opportunity.. access the means through which they can through their own effort and ambition create a life for themselves. |
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There are 5 different Philosophical positions used to assess the causes and consequences of inequality: EEEEB LIST the last THREE AND DEFINE THEM ALL |
Equal rewards for equal contributions: people are entitled to the market contributions they make... market value of their work. Marker value of their savings. People are entitled to the fruits of their labor and their property. Equal rights: equal entitlements to... democratic voice/participation. Education. Health care. Family planning. The basic needs approach: societies are obliged to secure basic material well being for their poorest |
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Describe a bonds several features and characteristics: it’s face value, coupon payments, maturity date, and coupon yield. |
Bonds are issued/sold which a face value typically in denominations of 1000$. They come with a maturity date: the date when the face value of the bond is repaid. Coupon payment: is a fixed yearly payment. Bonds are issued by an initial borrower or lender. Can be resold by initial lender in the secondary market to other firms, households, banks. Price at which bonds can be resold is called market price. Coupon yield: coupon payment/face value. |
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Why might the face value of a bond that was issued in the past differ from its current market price? How is the difference related to the difference between its coupon yield when it was issued and the “current market interest rate”? |
At any given moment new bonds are issued with their own face value, coupon interest payments, coupon interest yields and maturity dates. Their face value and coupon interest rate will offer coupon interest yields which reflect the current market interest rate. Precariously issues bonds also exist and have their own “characteristics” when they were first issued. Marker price and interest rate of a previously issued bond will usually differ from its face value and coupon yield that was set when the bond was first issued. When current market interest rates rise = the current market price of the bonds issued in the past fall. And vice versa. When current market prices issued of bonds issued in the past rise = the current market interest rate on bonds issued in the past fall. And vice versa |
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Describe the transactions motive for holding money. |
Households and firms can hold their wealth in various forms. They can hold money which does not earn interest or they can hold interest bearing time or savings deposits or securities such as bonds. Although households and firms need to hold balances for every day transactions their demand has a limit. The demand for money depends negatively on the market interest rate on bonds. The higher the interest rate on bonds the higher the opportunity cost from holding money and the less money households and firms want to hold. Non-synchronization of income and spending: the mismatch between the timing of money inflow to the household or firm and the timing of money out flow for expenses. The demand for money depends positively on aggregate nominal income. |
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Describe speculative motive for holding money. |
Because the market price of interest bearing bonds issued in the past are inversely related to market interest rates, investors may want to hold. 1. More bonds (less money) when interest rates are high with hope of selling their bonds when market interest rates fall and market bond prices rise.
2. More money (fewer bonds) when interest rates are low, to avoid a fall in bond prices when market interest rates rise and market bond prices fall. |
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Given the FED rule, what policy does the federal reserve pursue in response to a rise in the price level? |
When the FED observed rising prices, it conducts open market sales of securities, raises its discount rate and raises reserves requirements —- reduces the money supply —— raises market interest rates.
It seeks to reduce aggregate demand and reduces prices |
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Given the FED rule, what policy does the federal reserve pursue in response to fall in GDP? |
When the FED observes falling GDP, it conducts open market purchases of securities, lowers its discount rate and reduces reserves requirements —- increases the money supply —- reduces market interest rates. It seeks to increase aggregate demand and increase GDP |
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Given the FED rule, what policy does the federal reserve pursue in response to a decline in business and consumer confidence? |
When the FED observes a decline in business and consumer confidence, it conducts open market purchases of securities, lowers its discount rate and reduces reserves requirements—— increase the money supply —— reduces market interest rates. It seeks to increase aggregate demand and increase GDP |
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Can expansionary monetary policy be effective in stimulating business investment spending and consumer spending if the economy is at the zero interest rate bound? Explain |
Since expansionary monetary policy stimulates investment and consumer spending mostly by engineering a decline in interest rates, it is powerless to do so when the interest rates it influences become 0 |
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When happens if the US federal government increases its expenditures and decreases its income tax rates when the US economy is operating at potential GDP? |
Increase in G and Decrease in T —- increase in AD —— increase in P which no increases in gdp |
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What happens if the US federal government increases its expenditures and decreases its income tax rates when the US economy is operating at low levels of capacity utilization and high unemployment? |
Increase in G and decrease in T — increase in AD —— increase in GDP with little or no increase in P |
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What happened in the US economy when the organization of the petroleum exporting countries doubled the world price of oil in 1973? What is stagflation? |
Occurs when output is falling at the same time prices are rising. The shift of the AS curve to the left leads to lower output and a higher price level. The increase in P leads to the fed to to raise the interest rate, which lowers planned investment and thus our put |
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According to Classical labor market theory, what is the impact of a decline in labor demand on employment, on unemployment, and on wages in an unregulated labor market? |
Labor supply curve: the amount of labor that households want to supply at each given wage rate. Labor demand curve: the amount of labor that firms want to employ at each given wage rate. Equilibrium: the market generates a wage that reconciles the demand and supply of labor. When demand is greater/less than supply, the wage rate rises/falls When labor demand declines— wages fall and employment falls. |
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What is the impact of sticky wages on employment, wages and unemployment in the face of a decline in labor demand? |
The downward rigidity of wages can cause unemployment when demand for labor falls. If labor demand falls and wages do not adjust, forms lay part of their labor force off. |
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What are the features that distinguish these three kinds of unemployment |
Frictional unemployment: portion of unemployment ghag is due to the normal working of labor market There is always some level of frictional unemployment. Structural unemployment: portion that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries. Typically longer lasting than frictional unemployment Cyclical unemployment: portion that rises and falls with the business cycle— rising during recession/depressions and falling during expansions or booms. |
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What is the nature al rate of unemployment? Can expansionary fiscal and monetary policies reduce the natural rate of unemployment? |
The level of unemployment rate that remains after all wages in all labor markets have fully adjusted. Equals: structural rate + frictional rate of unemployment Both rates change slowly over time and therefore natural unemployment rate is across countries. Can not be impacted by changes in aggregate demand. Can be impacted by changes in the organization and behavior of households and firms. |
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What is the short run Phillips curve? Draw one |
Is the relationship between the inflation and unemployment rates. Lower unemployment rates tended to be related to higher inflation rates and vice versa |
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What does a share of stock entitle it’s owner to do and to have? |
A stock is a certificate that certified ownership of a certain portion of a firm. Share owners are entitled to vote/select corporate boards of directions who appoint the officers that manage their firms. Also have legal claims on a share of a company profits and on their equity. |
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What are the fundamental determinante of the price of a share of stock? |
Current market price of a stock is determined by: What people expect it’s future dividends will be. When the dividends are expected to be paid The amount of risk involved The expected future sales price So the fundamental value of a share of stock equals the present value of all the dividends expected to be received into the indefinite future |
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What is the price to earnings ratio of a share of stock? |
Price per share/earnings or profits per share The price at which the stock was bought and sold at the end of a trading day divided by the most recent yearly company earnings or profits per share |
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What does Keynes analogy of the beauty contest imply about the valuation of a share of stock and a stock price bubble? |
The price of a stock may be affected by people’s views of what others will pay for the stock in the future. Stock prices bubble and crashes often depending on what peopld expect others to expect A stock market bubble exists of the price of a stock exceeds the discounted value of its expected future dividends |
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How might the emergence and subsequent bursting of a stock market bubble” affect household spending and saving and the level of GDP? |
A stock price bubble will increase household consumption and decrease household savings as household wealth levels rise. Increase in household spending from a dollar increased in housing wealth is greater than the increase in spending from increases in stock wealth. |
