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559 Cards in this Set

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_______ are the two macro factors that seem to underlie the trend toward greater globalization.
The decline in barriers to the free flow of goods, services, and capital Technological change
_______ theory of international trade suggests that the production of products is likely to switch from advanced countries to developing countries over time.
Product life-cycle
3 core Classical Trade Theories?
Absolute advantage (natural and acquired) Comparative advantage (David Ricardo) Factor Proportions theory ( Heckscher & Ohlin). Some empirical contradictions (Leontif).
45 degree reference line
the line along which planned real expenditures equal real GDP per year
5 functions of the Fed?
The Federal Reserve Board controls the supply of money, sets the discount rate, performs open market operations, regulates banks and other financial institutions, and supervises the FDIC.
Above the mid-point on a straight-line demand curve, demand is ___________
Elastic
accelerator effect in economics?
The accelerator effect in economics refers to a positive effect on private fixed investment of the growth of the market economy (measured e.g. by Gross Domestic Product). Rising GDP (an economic boom or prosperity) implies that businesses in general see rising profits, increased sales and cash flow, and greater use of existing capacity. This usually implies that profit expectations and business confidence rise, encouraging businesses to build more factories and other buildings and to install more machinery. (This expenditure is called fixed investment.) This may lead to further growth of the economy through the stimulation of consumer incomes and purchases, i.e., via the multiplier effect.
According to former Secretary of Labor Robert Reich, the propensity of firms to outsource many of their productive activities to different suppliers around the world has resulted in the creation of __________ products.
global
According to our textbook, the growing integration of the world economy is:
increasing the intensity of competition in a wide range of manufacturing and service industries
According to Smith, countries should specialize in the production of goods for which they have an absolute advantage and then:
prohibit the import of these goods from other countries
According to the textbook, FDI is expensive because
a firm must establish production facilities in a foreign country or acquire a foreign enterprise.
Accounting cost
Actual expense plus depreciation charges for capital equipment
Accounting profit
The difference between a firm's total revenue and its explicit costs.
Acquisition
A transaction in which a company buys another company and the purchaser has the right of direct control over the resulting operation.
action time lag
time between recognizing an economic problem and implementing policy to sole it; particularly long for fiscal policy (requires congressional approval)
actual change in money supply
actual money multiplier X change in total reserves
ad valorem tariff?
A Tariff based on a percentage of the price of a good.
Adverse Selection
Form of market failure resulting when products of different qualities are sold at a signle price because of asymmetric information, so that too much of the low-uality product and too little of the igh-quality product are sold. An example: The pattern in which insurance tends to be purchased disproportionately by those who are most costly for companies to insure.
Allocative function of price
Changes in prices direct resources away from overcrowded markets and toward markets that are underserved.
Anchored inflationary expectations
When people's expectations of future inflation do not change even if inflation rises temporarily.
As the market in the U.S. and other advanced nations matures, the product becomes more standardized and price becomes:
the main competitive weapon.
asset demand
holding money as a store of value instead of other assets such as certificates of deposit, corporate bonds, and stocks
asset utilization ratio?
A measure of how well a firm uses its assets to generate $1 in sales.
assumption # 1 for balance sheets
required reserve ratio is 10% for all transaction deposits
assumption #2 for balance sheets
transaction deposits are the bank's only liabilities; reserves at a Federal Reserve district bank and loans are the bank's only assets
assumption #3 for balance sheets
an individual bank can lend as much as it is legally allowed
assumption #4 for balance sheets
every time a loan is made to an individual (consumer or business), all the proceeds from the loan are put into a transaction deposit account; no cash is withdrawn
assumption #5 for balance sheets
depository institutions seek to keep zero excess reserves because reserves do not earn interest
assumption #6 for balance sheets
depository institutions have zero net worth
Austrian school of economics?
It is is a school of economic thought that rejects opposing economists' reliance on methods used in natural science for the study of human action, and instead bases its formalism of economics on relationships through logic or introspection called "praxeology". It is a subset of classical liberal school of economics. Friedrich Hayek was a famous member.
automatic transfer accounts
funds are automatically transferred from savings deposits to transactions depsits whenever the account holder makes a debit-card transaction or writes a check that would otherwise cause the balance of transactions deposits to become negative
autonomous consumption
the part of consumption that is independent of the level of disposable income; changes in autonomous consumption shift the consumption function
Autonomous expenditure
The portion of planned aggregate expenditure that is independent of output.
Average benefit
Total benefit of undertaking n units of an activity divided by n.
Average expenditure
Price paid per unit of good
Average Product
Output per worker.
average propensity to consume (APC)
the proportion of total real disposable income that is consumed
average propensity to save (APS)
the proportion of total real disposable income that is saved
Backward Vertical FDI?"
choosing to invest in economic activity upstream from the core business activity of the business unit.
Balance of Payments (BOP)?
A measure of how much money is going into or out of a country. If it is coming in, it is a positive balance. The BOP consists of the current, capital, and reserve accounts.
Balance-of-payments deficit
The net decline in a country's stock of international reserves over a year.
Balance-of-payments surplus
The net increase in a country's stock of international reserves over a year.
Basic elements of a game
The players, the strategies available to each player, and the payoffs each player receives for each possible combination of strategies.
Basic Needs
Qdequate food, clothing, and shelter.
Below the mid-point on a straight-line demand curve, demand is ___________
Inelastic.
Benefit Budget
An element of financial planning where all income is listed and compared to all expenditures. Often expenditure decisions need to be made to hold spending less than or equal to income.
benefit of municipal bonds?
They are always free from federal tax, and usually free from state and local tax. Because of this, their yields can be lower.
Bequest saving
Saving done for the purpose of leaving an inheritance.
Bertrand model
Oligopoly model in which firms produce a homogeneous good, each firm treats the price of its competitors as fixed, and all frims decide simultaneously what price to charge
Better-than-fair gamble
A gamble whose expected value is positive.
Bilateral Monopoly
Market with only one seller and one buyer
Block Pricing
Practice of Chargin different prices for different quanitites or "block" of a good.
Board of Governors
The leadership of the Fed, consisting of seven governors appointed by the president to staggered 14-year terms.
board of Governors of the Federal Reserve System
appointed by the president with the approval of the U.S. senate
Bretton Woods triangle trade?
Bretton Woods, then, created a system of triangular trade: the United States would use the convertible financial system to trade at a tremendous profit with developing nations, expanding industry and acquiring raw materials. It would use this surplus to send dollars to Europe, which would then be used to rebuild their economies, and make the United States the market for their products. This would allow the other industrialized nations to purchase products from the Third World, which reinforced the American role as the guarantor of stability. When this triangle became destabilized, Bretton Woods entered a period of crisis which lead ultimately to its collapse.
Bundling
Practice of selling two or more products as a package
Business
A private producing unit in our society.
calculation of change in equilibrium real GDP
multiplier X change in autonomous spending
calculation of multiplier
1/1-MPC or 1/MPS
calculation of potential money multiplier
1/required reserve ratio
calculation of required reserves
transaction deposits X required reserve ratio
callable" bond?
A bond that can be paid back early, thus forcing the buyer to find another place to put his money.
Capital
Resources and goods made and used to produce other goods and services. Examples include buildings, machinery, tools, and equipment.
capital budget
expenditures on investment items, such as machines, buildings, roads, and dams
Capital good
A long-lived good that is used in the production of other goods and services.
Capital inflows
Purchases of domestic assets by foreign households and firms.
Capital losses
Decreases in the value of existing assets.
Capital outflows
Purchases of foreign assets by domestic households and firms.
Carl Menger?
Founder of Austrian school of economics. Started the neoclassical revolution.
Cash Flow Accounting System
An accounting system entering expenses and revenues only when cash is received or paid out.
Cash on the table
Economic metaphor for unexploited gain from exchange.
causes of inflation
decline in long-run aggregate supply (continual reductions in economywide production) and if aggregate demand curve shifts rightward over time at a faster pace then the rightward progression of the long-run aggregate supply curve
causes of shifts in the consumption function
a change in any other relevant economic variable (besides real disposable income); # of such determinants is unlimited
Chance" in Porter's Theory?
wholly unpredictable occurances that you cannot mitigate
Classical Growth Model
A model of growth that focuses on the role of capital accumulation in the growth process.
Closed Shop
A firm where unions control the hiring.
Coase theorem
If at no cost people can negotiate the purchase and sale of the right to perform activities that cause externalities, they can always arrive at efficient solutions to the problems caused by externalities.
Collective good
A good or service that, to at least some degree, is nonrival but excludable.
Commitment device
A way of changing incentives so as to make otherwise empty threats or promises credible.
Commitment problem
A situation in which people cannot achieve their goals because of an inability to make credible threats or promises.
Commodity Money
Money that has an intrinsic value, that is, value beyond any value given to it because it is money. An example of this would be a gold coin that has value because it is a precious metal.
Common Market
Characterized by free movement of factors of production.
Comparable Worth Laws
Laws mandating comparable pay for comparable work.
Comparative Business/Management?
compared business practices/management in various countries that are different enough to justify study and separate treatment in the academic curriculum
Compare the four basic types of economic systems.
Traditional, are ecomies decided by social customs; market economies, are economiesdecided by individuals; command are by gov't; mixed econ are by a combination of markets and gov't
Compensating wage differential
A difference in the wage rateâ€"negative or positiveâ€"that reflects the attractiveness of a job's working conditions.
Competition
Attempts by two or more individuals or organizations to acquire the same goods, services, or productive and financial resources. Consumers compete with other consumers for goods and services. Producers compete with other producers for sales to consumers.
Competitiveness
The ability of a country to sell its goods to other countries.
compound tariff?
A TARIFF for a good that combines both a SPECIFIC TARIFF plus an AD VALOREM TARIFF.
Concentration Ratio
The value of sales by the topfirms of an industry stated as a percnetage of total industry sales.
Conglomerate FDI?"
Investing in business overseas that has no relationship to your core business.
Conglomerate Merger
The merging of relatively unrelated businesses.
Consider the following scenario. The Netherlands exports tulip bulbs to almost every country in the world except Japan. The reason is that Japanese customs inspectors insist on checking every tulip bulb by cutting it down the middle (which destroys the bulb). The insistence on the part of the Japanese to inspect the bulbs in this manner (which makes it impractical for the Netherlands to export to Japan) is an example of a(n)
administrative trade policy.
Conspicuous Consumption
The onsumption of goods not for one's direct pleasure, but simply to show off to others.
Consumption expenditure
Spending by households on goods and services such as food, clothing, and entertainment.
Consumption function
The relationship between consumption spending and its determinants, in particular, disposable (after-tax) income.
consumption goods
goods purchase by households for immediate satisfaction or to use up (ex. food, movies)
Consumption possibilities
The combination of goods and services that a country's citizens might feasibly consume.
Contractual Intermediary
A financial institution that holds and stores individuals' financial assets.
convertible bonds?
They carry a provision that the bond can be converted into shares of common stock under certain circumstances. Convertible bonds can be more attractive that bonds with no conversion provision, depending on the price of the underlying stock.
Core rate of inflation
The rate of increase of all prices except energy and food.
Corporate Takeover
An action in which another firm or a group of individuals issues a tender offer (that is, offers to buy yup the stock of a company) to gain control and to install its own managers.
Corporation
A business that is treated as a person, legally owned by its stockholders. Its stockholders are not liable for the actions of the corporate "person."
Costly-to-fake principle
To communicate information credibly to a potential rival, a signal must be costly or difficult to fake.
Cost-plus regulation
A method of regulation under which the regulated firm is permitted to charge a price equal to its explicit costs of production plus a markup to cover the opportunity cost of resources provided by the firm's owners.
Cournot model
Oligopoly model in which firms prdouce a homogenoues good, each firm treates the output of its competitors as fixed, and all firms decide simultaneously how much to produce
Credentialism
When the academic degrees, or credentials, become more important than the knowledge learned.
Credibility of monetary policy
The degree to which the public believes the central bank's promises to keep inflation low, even if doing so may impose short-run economic costs.
Credible promise
A promise to take an action that is in the promiser's interest to keep.
Credible threat
A threat to take an action that is in the threatener's interest to carry out.
currency drains
when deposits increase, public will want to hold more currency (currency in a person's wallet reamins outside banking system and cannot be held by banks as reserves from which to make loans)
Currency Stabilization
Buying and selling of a currency by the gobernment to offset temporary fluctuations in supply and demand for currencies.
Customer discrimination
The willingness of consumers to pay more for a product produced by members of a favored group, even if the quality of the product is unaffected.
Customs Union
characterized by common external tariffs.
Deacquisition
One company's sale of either parts of another company it has bought or parts of itself.
debt utilization ratio?
Debt utilization ratios measure how well the firm is utilizing debt and XYZ company's ability to repay the debt. Many novice investors believe that a company with no debt is superior. Having little debt on the balance sheet is generally very safe. But most companies assume debt to finance operations so the company can grow. General finance textbooks state that the ideal ratios is around 30%, due to leveraged buyouts the ratio of debt to assets or equity has been increasing.
Decision tree (or game tree)
A diagram that describes the possible moves in a game in sequence and lists the payoffs that correspond to each possible combination of moves.
Degree of economies of scope
Percentage of cost savings resulting when two or more products are produced jointly rather than individually
Demand Conditions" in Porter's Theory?
#NAME?
Demand for money
The amount of wealth an individual or firm chooses to hold in the form of money.
Demand is unit elastic where on the demand curve?
Demand is unit elastic at the MIDPOINT of the demand curve.
Demand tends to become more or less elastic over time?
More Elastic, because consumers have more time to adjust to a price change.
Demand-Pull Inflation
Inflation that o curs when the economy is at or above potential output.
depository institutions
financial institutions that accept deposits from savers and lend funds from those deposits out at interest
Despository Institution
A financila institution whose primary financial liability is deposits in checking or savings accounts.
development banks?
There are a few multilateral development banks throughout the world. Their purpose is to assist nations in economic development though loans etc.
direct expenditure offsets
actions on the part of the private sector in spending income that offset government fiscal policy actions; any increase in government in an area that competes with the private sector will have some direct expenditure offset
Direct Regulation
A kprogram in which the amount of a good people are allowed to use is directly limited by the government.
Direct Relationship
A relationship in which when one variable goes up, the other goes up too.
dirty float in economics?
It is when a country tries to manipulate the value of its floating currency.
Disappearing political discourse
The theory that people who support a position may remain silent, because speaking out would create a risk of being misunderstood.
Discount rate
The interest rate that the Fed charges commercial banks to borrow reserves.
Discount window lending
The lending of reserves by the Federal Reserve to commercial banks.
Diseconomies of scope
"means that there can be gains from trade, even when production possibilities frontier are identical"
Disinflation
A substantial reduction in the rate of inflation.
dissaving
a negative saving: a situation in which spending exceeds income; can occur when a household is able to borrow or use up existing assets
Distorted assett allocation, black markets, and shortages can result from what economic regulation?
Price controls.
Distribution
The allocation or dividing up of the goods and services a society produces
domestic firm?
A firm that has little or no international business activity.
Dominant Firm
irm with a large share of total sales that sets price to maximize profits, taking into account the supply response of smaller firms
Dual Economy
The existence of two sectors: a traditional sector and an internationally oriented modern market sector.
Dunnings Eclectic theory?
Monopolistic/Ownership Specific Advantage (OSA) explained why firms invested overseas, Internalization explained Which form of entry the firm should take and explained Where the firm should invest through Location Specific Advantage (LSA).
Duration
The length of an unemployment spell.
duration gap?
The duration gap is an accounting term for the difference between the duration of assets and liabilites. The duration gap measures how well cash flows for assets and liabilities are matched. When the duration of assets exceeds the duration of liabilities the duration gap is positive. A positive duration gap means greater exposure to rising interest rates; if interest rates go up then the price of assets fall more than the price of liabilities. Conversely, when the duration of assets is less than the duration of liabilities the duration gap is negative; if interest rates fall then the price of assets goes up less than the price of liabilities. Duration has a double-facet view. While a positive duration gap means greater risk, it also means that, on average, payables became due before receivables.
Earned-income tax credit (EITC)
A policy under which low-income workers receive credits on their federal income tax.
E-commerce
Buying and selling over the Internet.
Economic Decision Rule
If the marginal benefits of doing something exceed the marginal costs, do it. If the marginal costs of doing something exceed the marginal benefits, don't do it.
Economic Efficiency
Maximization of aggregate consumer and producer surplus
Economic Force
The necessary reaction to scarcity.
Economic Functions of Government
In a market economy, government agencies establish and maintain a legal system to regulate both commercial and social behavior, promote competition, respond to market failures by providing public goods and adjusting for externalities, redistribute income, and establish macroeconomic stabilization policies. To perform these functions, governments must shift resources from private uses by taxing and/or borrowing.
Economic Growth
An increase in real output as measured by real GDP or per capita real GDP.
Economic Incentives
Factors that motivate and influence the behavior of individuals and organizations, including firms and government agencies. Prices, profits, and losses are important economic incentives in a market economy.
Economic loss
An economic profit that is less than zero.
Economic Policy
an action (or inaction) taken by government to influence economic actions.
Economic Principle
A commonly held economic insight stated as a law or general assumption.
Economic profit
The difference between a firm's total revenue and the sum of its explicit and implicit costs; also called excess profit.
Economic rent
That part of the payment for a factor of production that exceeds the owner's reservation price, the price below which the owner would not supply the factor.
Economic surplus
The economic surplus from taking any action is the benefit of taking the action minus its cost.
Economic System
the combination of social and individual decision making a society uses to answer the 3 economic questions
Economic Takeoff
A stage when the development process becomes self-sustaining.
Economic Union
characterized by harmonization of economic policies of member nations, including introducing a common currency.
Economically Efficient
A method of production that produces a fiven level or output at the lowest possible cost.
Economies of Scope
Joint outuput of a single firm is greater than output that could e achieved by two different firms when each produces a single product
effect time lag
the time that elapses between the implementation of a policy and the results of that policy
Efficiency
Achieving a goal as cheaply as possible. Also: using as few inputs as possible.
Efficiency Seeking?"
Seeking to minimizing unit delivered cost to market, for both production and delivery (transportation, insurance, marketing, tariffs etc), to establish a portfolio of production sources reducing risk, obtaining knowledge including technology and skills.
Efficiency wages
"above-equilibrium wages paid by firms in order to increase worker productivity"
Efficient (or Pareto-efficient)
A situation is efficient if no change is possible that will help some people without harming others.
Efficient Market
A market where the quantity supplied=quantity demanded & the price of goods is set at the equilibrium price.
Efficient markets hypothesis
The theory that the current price of stock in a corporation reflects all relevant information about its current and future earnings prospects.
Efficient point
Any combination of goods for which currently available resources do not allow an increase in the production of one good without a reduction in the production of the other.
Efficient quantity
The efficient quantity of any good is the quantity that maximizes the economic surplus that results from producing and consuming the good.
Effluent Fees
Charges imposed by government on the level of pollution created.
Embargo
A total restriction on the import or export of a good.
Employer discrimination
An arbitrary preference by an employer for one group of workers over another.
entitlements
guarenteed benefits under a government program such as social security, medicare, or medicaid (often called noncontrollable expenditures)
Entrepreneur
an individual who sees an opportunity to sell an item at a price higher than the average cost of producing it.
equation of exchange
the formula indicating that the number of monetary units (Ms) times the number of times each unit is spent on final goods and services (V) is identical to the price level (P) times real GDP (Y)
Equilibrate
Describes the movement of the factors of a market set at the equilibrium price.
Equilibrium Income
The level of income toward which the economy gravitates in the short run.
Euribor?
Euribor (Euro Interbank Offered Rate) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the euro wholesale (or "interbank") money market. The Euro reference rates are based on this.
excess reserves leakages
depository institutions may wish to maintain excess reserves greater than zero (greater the excess reserves, the smaller the money multiplier)
Excise Tax
A tax that is levied on a specific good, such as tobacco.
Expansion Path
Curve passing through points of tangency between a firm's isocost lines and its isquants
Expected value of a gamble
The sum of the possible outcomes of the gamble multiplied by their respective probabilities.
Explicit costs
The actual payments a firm makes to its factors of production and other suppliers.
Factor Endowments" in Porter's Theory?
#NAME?
Factor of production
An input used in the production of a good or service.
FACTOR PROPORTIONS THEORY?
HECKSCHER & OHLIN - the pattern of international trade is based on differences in factor endowments rather than differences in productivity.
Fair gamble
A gamble whose expected value is zero.
Fed Funds
Loans of excess reserves banks make to one another.
Federal Funds Interest Rate
The discount interest rate at which the branch banks of the Fed loan money to other banks.
Federal Funds Market
a private market (made up mostly of banks) in which banks can borrow reserves from other banks that want to lend them (usually lent for overnight use)
Federal Reserves notes
largest component of U.S. currency (paper bills); distributed by the Fed
fedwire
electronic payments transfer system operated by the Federal Reserve System (about 2,000 U.S. depository institutions use to process interbank payments)
Feudalism
An economic system in which traditions rule.
Fiat Money
Money that has no intrinsic value, that is, its only value comes from the fact that a governing body backs & regulates the currency. This system only works if a gov't backs the money & regulates its production.
fiduciary
comes from the latin fiducia, which means "trust" or "confidence"
fiduciary monetary system
a system in which money is issued by the government and its value is based uniquely on the public's faith that the currency represents command over goods and services
Financial Assets
Assets such as stocks or bonds, whose benefit to the owner depends on the issuer of the asset meeting certain obligations.
Financial Institution
A business whose primary activity is buying, selling, or holding financial assets.
Firm
An economic institution that transforms factors fo production into goods and services.
Firm's structure, strategy, and rivalry" imply in Porter's Theory?
"Different nations are characterized by different management ideologies help or hinder the evolution of national competitiveness. Competition in an industry also tends to breeds rivalry and innovation, improved quality, cost reduction and investment in upgrading same."
First degree price discrimination
Practice of charging each customer her reservation price
First-dollar insurance coverage
Insurance that pays all expenses generated by the insured activity.
Fisher effect
The tendency for nominal interest rates to be high when inflation is high and low when inflation is low.
Fitch Ratings?
An international credit rating agency dual-headquartered in New York City and London. It is one of the three Nationally Recognized Statistical Rating Organizations (NRSRO) designated by the U.S. Securities and Exchange Commission in 1975, together with Moody's and Standard & Poor's.
five levels of integration of a Trading Group?
a. Free Trade Area b. Customs Union c. Common Market d. Economic Union e. Political Union
fixed investment
expenditures by firms on new machines and buildings (capital goods) that are expected to yield a future stream of income
Flow
A measure that is defined per unit of time.
For COMPLEMENTS, the cross-price elasticity of demand is - or +?
For COMPLEMENTS, the cross-price elasticity of demand is NEGATIVE?
For INFERIOR GOOD, the income elasticity of demand is - or +?
NEGATIVE
For NORMAL GOODS, the income elasticity of demand is - or +?
POSITIVE
For Substitutes, the cross-price elasticity of demand is - or +?
For substitutes, the cross-price elasticity of demand is POSITIVE
Foreign Business?
domestic business operating in foreign countries
Formula for Total Earnings
Total Earnings = Wage x Quantity of Labor Demanded
Forward Vertical FDI?"
choosing to invest in economic activity downstream from the core business activity of the business unit.
four primary motives for engaging in FDI?
a. Resource seeking b. market Seeking c.Efficiency Seeking d.Responding to Competitive dynamics
Free Trade Association
A group of countries that have reduced or eliminated trade barriers among themselves.
Full Convertibility
An exchange rate system in which individuals may change dollars into any currency they want for whatever legal purpose they want.
Function of the Federal Reserve System #1
supplies the economy with fiduciary currency (paper currency known as Federal Reserve notes); changes throughout the yr (ex. demands for paper currency are largers during the holiday seasons)
Function of the Federal Reserve System #2
provides payment-clearing systems: long operated systems for transmitting and clearing payments
Function of the Federal Reserve System #3
holds depository institutions' reserves
Function of the Federal Reserve System #4
acts as the government's fiscal agent (helps the government collect certain tax revenues and aids in the purchase and sale of government securities)
Function of the Federal Reserve System #5
supervises depository institutions: Fed periodically and without warning examine depository institutions to see what kinds of loans have been made, what has been used as security for the loans, and who has recieved them
Function of the Federal Reserve System #6
acts as the "lender of last resort" (the Federal Rserve's role as an institutions that is willing and able to lend to a temporarily illiquid bank that is otherwise in good financial condition to prevent the bank's illiquid position from lending to a general loss of confidence in that banks or in others)
Function of the Federal Reserve System #7
regulates the money supply
Function of the Federal Reserve System #8
intervenes in foreign currency markets (attempts to keep the value of the dollar from changing by buying and selling U.S. dollars in foreign exchange markets)
Gains from specialization and trade are always possible as long as .................
Gains from specialization and trade are always possible as long as OPPORTUNITY COSTS DIVERGE
Galton's Fallacy
"higher growth rates imply eventual `convergence' i.e. While the poor countries might have higher percentage growth rates, this does not mean that they are closing the absolute output gap with rich countries"
Game tree
See Decision tree.
generic definition for globalization?
the trend towards a more integrated and interdependent global Economic systems
Global Corporation
Corporation with substantial operations on bothe the production and sales sides in more than one country.
Global firm?
A globally integrated company that tries to achieve and experience curve economies. Products tend to be largely undifferentiated and location of production is chosen to achieve "Minimized unit delivered cost to Market" with largely centralized operations.
Globalization results in a greater degree of __________ across markets than would be present otherwise.
homogeneity
Gold Specie Flow Mechanism
The long-run adjustment mechanism that maintained the gold standard.
Goods
Tangible objects that satisfy economic wants
Government Action" in Porter's Theory?
actions by government that could have a positive or negative effect of foreign business...
Government Bonds
Bonds issued by the gov't & bought & sold by the Fed as a form of monetary policy to manipulate the money supply.
graduated income tax?
An income tax that takes proportionately more from higher wage earners
greenfield investment?
This is foreign direct investment that builds new factories or infastructure. It is the type of FDI most sought by host countries because it leads to infastructure and knowledge transfers.
Head tax
A tax that collects the same amount from every taxpayer.
Health maintenance organization (HMO)
A group of physicians that provides health services to individuals and families for a fixed annual fee.
holding co mpany?
Business owning a majority of stock in member companies and therefore able to dictate common policy. Warren Buffett's Berkshire Hathaway is one of the largest publicly traded holding companies; it owns numerous insurance companies, manufacturing businesses, retailers, and other companies.
Horizontal FDI?"
Investing in the same economic activity abroad as one does at home.
Horizontal Merger
The combining of two companies in the same industry.
horizontal short-run aggregate supply curve
there is excessive unemployment and unused capacity in the economy (classical assumptino of everlasting full employment no longer holds)
Hostile Takeover
A merger in which the firm being taken over doesn't want to be taken over.
How can firms acheive "first mover advantage?"
Investing in becoming a first mover requires a large allocation of cash.
How does the Bureau of Labor Statistics calculate unemployment?
egularly gathers data from 60,000 households to compute the unemployment rate.
How often do treasury bills pay interest?
Never. Only T-notes and T-bonds pay interest twice a year. T-bills are simply sold at a discounted price.
Human capital theory
A theory of pay determination that says a worker's wage will be proportional to his or her stock of human capital.
Hurdle method of price discrimination
The practice by which a seller offers a discount to all buyers who overcome some obstacle.
If General Electric, a U.S. based corporation, purchased a 50% interest in a company in Italy, that purchase would be an example of
foreign direct investment.
Imperfectly competitive firm
A firm that has at least some control over the market price of its product.
Implicit Collusion
A typd of collusion in which multiple firms make the same pricing decisions even though they have not explicitly consulted with one another.
Implicit costs
All the firm's opportunity costs of the resources supplied by the firm's owners.
In accounting, what is used for inventory: FIFO or LIFO?
LIFO in the United States.
In his study dealing with the competitive advantage of nations, Porter argued that in regard to demand conditions, a nation's firms' gain competitive advantage if their domestic consumers are __________ and __________.
sophisticated, demanding
Incentive
Any reward or benefit, such as money or good feeling, that motivates choices and behaviors.
Incentive Effect
How much a person will change his or her hours worked in response to ta change in the wage rate.
Income
Payments earned by households for selling or renting their productive resources. For example, workers receive wage or salary payments in exchange for their labor.
income velocity of money (V)
the number of times per year a dollar is spent on final goods and services; identically equal to nominal GDP divided by the money supply
Income-expenditure multiplier
The effect of a one-unit increase in autonomous expenditure on short-run equilibrium output.
Indexing
The practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specified price index. Indexing prevents the purchasing power of the nominal quantity from being eroded by inflation.
indirect effect of an increase in the money supply
banks lower interest rates that they charge on loans-->encourages people to take out those loans-->businesses engage in new investment with the funds loaned-->individuals will engage in more consumption of durable goods (housing, autos, and home entertainment centers)-->generates a rise in aggregate demand--->more people involved in more spending
Induced aggregate demand
The portion of aggregate demand that is determined within the model.
Induced Expenditures
Expenditures that change a s income changes.
Inflation dove
Someone who is not strongly committed to achieving and maintaining low inflation.
Inflation hawk
Someone who is committed to achieving and maintaining low inflation, even at some short-run cost in reduced output and employment.
Inflation shock
A sudden change in the normal behavior of inflation, unrelated to the nation's output gap.
Inflation Tax
An implicit tax on the holders of cash and the holder of any obligations specified in nominal terms.
In-kind transfer
A payment made not in the form of cash but in the form of a good or service.
Inside lag (of macroeconomic policy)
The delay between the date a policy change is needed and the date it is implemented.
Internal Debt
Government debt owed to other fovernmental agencies or to its own citizens.
International Business:
private or governmental business that involves activities crossing national boundaries
International capital flows
Purchases or sales of real and financial assets across international borders.
International reserves
Foreign currency assets held by a government for the purpose of purchasing the domestic currency in the foreign exchange market.
Intertemporal price discrimination
Practice of separating consumers with different demand functions into different groups by charging different prices at different points in time.
inventory investment
changes in business inventories
Investment
Spending by firms on final goods and services, primarily capital goods. (also a flow concept): expenditures on new machines and buildings (capital goods) that are expected to yield a future stream of income
investment companies
institutions that manage portfolios of financial instruments called mutual funds on behalf of shareholders; exist largely because of cost savings from their greater scale of operations
investment function
represented bas an inverse relationship between the rate of interest and the value of planned real investment (as interest rates fall planned investment spending increases)
Is goodwill a basis for the theory of Monopolistic Advantage?
NO
Isocost line
Graph showing all possible combinations of labor and capital that can be purchased for a given total cost
junk" bonds?
Companies with less-than-investment-grade (Ba and below) ratings issue bonds. These securities, known as high-yield, or "junk," bonds, are generally too speculative for the average investor, but they can provide spectacular returns.
Labor Productivity
The average output per worker.
labor-force participation rate
the percentage of the adult population that is in the labor force
Land Bank Program
A program in which government supports prices by fiving farmers economic incentives to reduce supply.
Laspeyres Index
An index where the basket of goods is fixed.
leakages
the entire loan from one bank is not always desposited in another bank (two types)
Lemons model
George Akerlof's explanation of how asymmetric information tends to reduce the average quality of goods offered for sale.
Lerner Index of Monopoly Power
Measure of monopoly power calculated as excess of price over marginal cost as a fraction of price
Life-cycle saving
Saving to meet long-term objectives, such as retirement, college attendance, or the purchase of a home.
liquidity approach
a method of measuring the money supply by looking at money as a tempory store of value
Liquidity Preference of Interest?
It was originally Keynes' idea. The hypothesis is that people prefer to have their money be liquid, and must have a reason for it not to be liquid. So, lowering interest rates on low liquidity investment items (30 year bonds, etc...) will make them less attractive to invest in. So, when long term interest rates drop, the demand for money rises.
liquidity ratio?
A measure of how quickly a firm can convert its assets into cash to settle debts.
Local standards and laws?"
administrative instruments or trade policies
Logrolling
The practice whereby legislators support one another's legislative proposals.
Long Run Competitive Equilibrium
All firms in an industry are maximizing profit, no firm has an incentive to enter or exit, and price is such that quantity supplied equals quantity demanded.
lump-sum tax
a tax that does not depend on income
M1
Sum of currency outstanding and balances held in checking accounts.
M2
M1 plus savings deposits, small-demonimation time deposits, and money market mutual fund shares, along with some esoteric financial instruments.
main determinant of saving (classical model)
the rate of interest (the higher the rate of interest, the more peole wante to save, and therefore the less people wanted to consume)
main determinant of saving (Keynes)
income: Keynes argued that real saving and consumption decisions depend primarily on a household's present real disposable income
major theories of FDI?
1. Monopolistic Advantage theory 2. Strategic Behavior (Following competitors) 3. Horizontal FDI (FDI in the same industry abroad as at home) 4. Dunnings Eclectic theory (Location Theory)
Managing an international business is different from managing a purely domestic business for all of the following reasons except:
the range of problems confronted by a manager in an international business are narrower than those confronted by a manager in a domestic business
Marginal Physical Product (MPP)
The additional units of output that hiring an additional worker will bring about.
Marginal Value
Additional benefit derived from purchaisn on more unit of a good
market definition for globalization?
The merging of historically distinct and separate national markets into one huge global marketplace
Market Failure
Situation in which an unregulated competitive market is inefficient because prices fail to provide proper signals to consumers and producers
Market screening eliminates:
environmental forces.
Market Seeking?"
explore new market opportunities, to circumvent prohibitive protectionist policies and actions such as tariffs and quotas, to establish a local presence to ensure product and customer service availability, to meet buy national requirements, to become more visible locally by hiring many local staff, paying local taxes and to serve a wider range (portfolio) of markets.
Market-Clearing Level
The level, price, or quantity where supply and demand are equal.
Maturation date
The date at which the principal of a bond will be repaid.
Means-tested
A benefit program is means-tested if its benefit level declines as the recipient earns additional income.
Merger
The act of combining two firms.
Mixed Strategy
Strategy in which a player makes a random choice among two or more possible actiosn based on a set of chosen probabilities.
Monetarist Theory
A macroeconomic theory holding that the main cause of changes in the business cycle are changes in money supply.
money market mutual funds
funds obtained from the public that investment companies hold in common and use to acquire short-maturity credit instruments, such as certificates of deposit and securities sold by the U.S. government
Money Multiplier
The number that describes the change in the money supply given an initial deposit and a reserve requirement.
Monitoring Costs
costs incurred by the organizer of production in seeing to it that the emplooyees do what they're supposed to do.
monopolistic advantage theory?
based on the premise that a firm has obtained a monopolistic advantage through domestic competition that would enable it to be successful internationally.
multi-domestic firm?
Multi-domestic firm is one that focuses on local responsiveness! Product offerings are customized and a complete set of value creating activities are developed in each country/region, with largely autonomous decentralized organizations.
multiplier
the number by which a change in autonomous real investment or autonomous real consumption, for example, is multiplied to get the change in equilibrium real GDP
multiplier formula
=1/1-MPC or 1/MPS
NATIONAL COMMERCIAL POLICY?
THE INFLUENCE OF GOVERNMENT IMPOSED AND OTHER DISTORTIONS IN THE MARKETPLACE
National Output
The total value of goods and services produced by an economy in a specified time period. Also known as GDP.
National Resources
Gifts of nature” that can be used to produce goods and services; for example, oceans, air, mineral deposits, virgin forests, and actual fields of land. When investments are made to improve fields of land or other natural resources, those resources become, in part, capital resources.
National saving
The saving of the entire economy, equal to GDP less consumption expenditures and government purchases of goods and services, or Y âˆ' C âˆ' G.
neoliberalism?
Neoliberalism is widely used as a description of the revived form of economic liberalism that became increasingly important in international economic policy discussions from the 1970s onwards. In its dominant international use, neoliberalism refers to a political-economic philosophy that de-emphasizes or rejects government intervention in the domestic economy. It focuses on free-market methods, fewer restrictions on business operations, and property rights. In foreign policy, neoliberalism favors the opening of foreign markets by political means, using economic pressure, diplomacy, and/or military intervention.
Net capital inflows
Capital flows that are equal to foreign purchases of domestic assets (which bring funds into the country) minus domestic purchases of foreign assets (which send funds out of the country); that is, capital inflows minus capital outflows.
Net Domestic Product (NDP)
The sum of consumption expenditures, government expenditures, net exports, and invetment less depreciation.
net public debt
gross public debt minus all government interagency borrowing
New Growth Theory
a theory that emphasizes the role of technology rather than capital in the growth process.
noncontrollable expenditures
government spending that changes automatically without action by Congress
Normal profit
The opportunity cost of the resources supplied by the firm's owners; Normal profit = Accounting profit âˆ' Economic profit.
Normal Rate of Profit
Profits just high enough to compensate producers for the explicit and implicit costs (including opportunity costs) they incur in producing a particular good or service, without leading to any net entry or exit by producers in that market. Also called normal profits. Normal profits are an economic cost of production; they mark a point at which any lower level of profit would lead a producer to pursue some other use of his or her resources.
North American Industry Classification System (NAICS)
An industry classification that categorizes industries by type of economic activity and groups firms with like production processes.
Official Reserves
Government holdings of foreign currencies.
Okun's Law
This details the inverse relationship between unemployment and real GDP.
oligarchy
Govn't by the few, especially despotic power exercised by a small and privileged group for corrupt or selfish purposes. It's also a form of monopoly, but by more than one business.
On a straight-line demand curve, elasticity decreases as the price ______ and the quantity _______ increases.
On a straight-line demand curve, elasticity decreases as the price FALLS and the quantity demanded INCREASES.
One cultural problem a researcher faces when doing primary research is:
the overuse of up-to-date maps.
operating budget
expenditures for current operations, such as salaries and interest payments
Opportunity benefit
What is gained by making a particular choice
Optimal combination of goods
The affordable combination that yields the highest total utility.
Optimal Comparative Advantage (Crusoe/Friday)
"for each to be completely specialised in produc-tion, and will then trade in order to get some of the other's good"
Out of the Labor Force
Describes people who are not employed and are not currently looking for employment. This includes children and retirees.
Outflows of FDI?"
the flow of FDI out of the country
Outside lag (of macroeconomic policy)
The delay between the date a policy change is implemented and the date by which most of its effects on the economy have occurred.
Paasche Index
An index based upon a flexible basket of goods and services.
Paper Balances
Deposits that exist on paper but are not backed by physical currency.
Parallel Conduct
Form of implicit collusion in which one firm consistently follows actions of another
Parameter
See Constant.
Pareto-efficient
See Efficient.
Participation rate
The percentage of the working-age population in the labor force (that is, the percentage that is either employed or looking for work).
Partnership
A business with two or more owners.
Passive Deficit
The part of the deficit that exists because the economy is operating below its potential level of output.
payment intermediaries
institutions that facilitate transfers of funds between depositors who hold transactions deposits with those institutions
Peak
The beginning of a recession, the high point of economic activity prior to a downturn.
Peak-load Pricing
Practice of charging higher prices during peak periods when capacity constraints cause marginal costs to be high.
People respond to ......
People respond to incentives
Per Capita Growth
Producing more goods and services per person.
Perfect hurdle
One that completely segregates buyers whose reservation prices lie above some threshold from others whose reservation prices lie below it, imposing no cost on those who jump the hurdle.
Perfectly discriminating monopolist
A firm that charges each buyer exactly his or her reservation price.
Personal Consumption Expenditure (PCE) Deflator
A measure of prices of goods that consumers buy that allows yearly changes in the basket of goods that reflect actual consumer purchasing habits.
Personal Responsibility Act
The 1996 federal law that transferred responsibility for welfare programs from the federal level to the state level and placed a five-year lifetime limit on payment of afdc benefits to any given recipient.
Phillips Curve
Describes the general inverse relationship between unemployment and inflation.
Planned aggregate expenditure (PAE)
Total planned spending on final goods and services.
Policy reaction function
Describes how the action a policymaker takes depends on the state of the economy.
Political Union
"the evolution of a complete political entity cf: U.S.A. vs the European Union."
PORTER'S DIAMOND OF NATIONAL ADVANTAGE?
Porter's notion is that 6 sets of variables shape the environment in which firms compete: -Factor endowments -Demand conditions -Related and supporting industries -Firm's structure, strategy, and rivalry -Chance -Government Actions
Portfolio allocation decision
The decision about the forms in which to hold one's wealth.
Positional arms control agreement
An agreement in which contestants attempt to limit mutually offsetting investments in performance enhancement.
Positional arms race
A series of mutually offsetting investments in performance enhancement that is stimulated by a positional externality.
Positional externality
Occurs when an increase in one person's performance reduces the expected reward of another's in situations in which reward depends on relative performance.
Positive analysis
Addresses the economic consequences of a particular event or policy, not whether those consequences are desirable.
Positive economic principle
One that predicts how people will behave.
potental money multiplier
the reciprocal of the required reserve ratio, assuming no leakages into currency and no excess reserves
precautionary demand
holding money to meet unplanned expenditures and emergencies
Precautionary saving
Saving for protection against unexpected setbacks, such as the loss of a job or a medical emergency.
Present value of a perpetual annual payment
For an annual interest rate r, the present value (PV) of a perpetual annual payment (M) is the amount that would have to be deposited today at that interest rate to generate annual interest earnings of M: PV = M / r.
Price leadership
Pattern of pricing in which one firm regularly announces price changes that other firms then match
Price level
A measure of the overall level of prices at a particular point in time as measured by a price index such as the CPI.
Price Rigidity
Characteristics of oligopolistic markets by which firms are reluctant to change prices even if costs or demands change
Price setter
A firm with at least some latitude to set its own price.
Price Signaling
Form of implicit collusion in which a firm announces a price increase in the hope that other firms will follow suit
Price Support
Price set by government above free-market level and maintatined by governmental purchases of excess supply
Principal amount
The amount originally lent.
Principal-Agent problem
Problem arising when agents purseue their own goals frather than the goals of principals
Principle
The initial amount of money given as a loan.
Private saving
The saving of the private sector of the economy is equal to the after-tax income of the private sector minus consumption expenditures (Y âˆ' T âˆ' C); private saving can be further broken down into household saving and business saving.
Producers
People and firms that use resources to make goods and services.
Product Life-Cycle Theory?"
Raymond Vernon... Proposed that in the life-cycle of products that their production is moved from more developed to lesser developed countries in order to lower costs.
Production
The transformation of factors into goods and services.
Production Function
Y = A f (L,K,H,N) sets out the relationship between the quantity of inputs used in production and the quantity of output from production
Productive Efficiency
Achieving as much output as possible from a given amount of inputs or resources.
Productivity
Output per unit of input.
properties of the multiplier
the smaller the marginal propensity to save, the larger the multiplier; the larger the marginal propensity to consume, the larger the multiplier
Public Assistance
Means-testeed social programs targeted to the poor and providing financial, nutritional, medical, and housing assistance.
Public Choice Analysis
The study of decision making as it affects the organization and operation of government and other collective organizations. Involves the application of economic principles to political science topics.
public debt
the total value of all outstanding federal government securities
Public Finance
Grovernment's taxing and spending policies.
Public saving
The saving of the government sector is equal to net tax payments minus government purchases (T âˆ' G).
Purchasing Power
The amount of goods and services that a unit of currency can buy.
Pure commons good
One for which nonpayers cannot easily be excluded and for which each unit consumed by one person means one less unit available for others.
Pure Strategy
Strategy in which a player makes a specific choice or takes a specific action
Quantity equation
Money times velocity equals nominal GDP: M × V = P × Y.
Quantity Theory of Money
The theory that says that the value of money is based on the amount of money in circulation, that is, the money supply.
Rate of Return regulation
The maximum price allowed by a regulatory agency is based on the rate of return that a firm will earn
Rational spending rule
Spending should be allocated across goods so that the marginal utility per dollar is the same for each good.
Rationing function of price
Changes in prices that distribute scarce goods to those consumers who value them most highly.
Real quantity
A quantity that is measured in physical termsâ€"for example, in terms of quantities of goods and services.
REGIONAL ECONOMIC INTEGRATION (TRADING GROUPS)?
Groups of Countries come together in order to improve economic conditions in their countries.
Related and supporting industries" in Porter's Theory?
Presence of supplier and related industries
relating income to saving and consumption
saving = disposable income - consumption; or consumption + saving = disposable income
relationship between the price of existing bonds and the rate of interest
the market price of existing bonds (and all fixed-income assets) is inversely related to the rate of interest prevailing in the economy
Relative price
The price of a specific good or service in comparison to the prices of other goods and services.
Rent
The income from a factor of production that is in fixed supply.
Reserve
Money not given out in loans that is available for repaying depositors.
Resource seeking?"
to ensure that a firm can always access resources that are essential to a firm's long run survival.
Resources
The three (or four) basic kinds of resources used to produce goods and services: land or natural resources, human resources (including labor and entrepreneurship), and capital.
Responding to Competitive dynamics?"
achieving First Mover Advantages or to responding to a rival's behavior in entering a new geographic market
retaliation?
A tool that some Governments use to try to force other governments to play by the rules.
Revaluation
An increase in the official value of a currency (in a fixed-exchange-rate system).
Reverse Engineering
The process of a firm buying other firms' products, disassembling them, figuring out what;s special about them, and then copying them within the limits of the law.
Rise
See Slope.
Robert Reich's suggestion about the global economy?
economic national identity is becoming increasingly superfluous, increases in outsourcing is leading to the emergence of Global Products rather than defining products with a "National identity"
Rule of 70'
if something grows at a rate of x% a year, it will double in approximately 70/x years.
Rule of 72
The number of years it takes for a certain amount to double in value is equal to 72 divided by its annual rate of interest.
Run
See Slope.
saving function
the complement of the consumption function
savings deposits
interest-earning funds that can be withdrawn at any time without payment of a penalty
Say's Law
A law that staes that supply creates its own demand.
Second Degree price discrimination
Practice of chargin diferent prices per unit for different quanitities of the same good or service
Secure Debt
Credit with collateral (a house or a car, e.g.) for the lender
Sequential game
Game in which players move in turn, responding to each other's actions and reactions
Services
Activities performed by people, firms, or government agencies to satisfy economic wants.
Share Distribution of Income
The relative division of total income amoung income groups.
Shared consumption
A property of a good or service such that it can be used by many without diminishing another’s ability to consume the same good; examples include street lights or radio broadcasts.
Sherman Antitrust Act
A U.S. law designed to regulate the competitive process.
Shoeleather Cost of Inflation
Costs of expected inflation caused by people having to make more trips to the bank to make withdrawals because they do not want to keep cash on hand.
Side-effects from taxes
Inefficiency Prevention of some mutually beneficial transactions from occurring.
Signaling
An action taken by an infomed party that reveals information to an uninformed party and thereby partially offsets adverse selection.
simplifying assumptions of Keynesian model
businesses pay no indirect taxes (ex. sales taxes); businesses distribute all of their profits to shareholders; there is no depreciations (capital consumption allowance), so gross private domestic investment = net investment; the economy is closed (there is no foreign trade)
Sin Tax
A tax that discourages activities society believes are harmful (sinful).
Since the 1960s, there have been two notable trends in the demographics of the multinational enterprise. These two trends have been:
the rise of non-U.S. multinationals and the growth of mini-multinationals
Skill-biased technological change
Technological change that affects the marginal products of higher-skilled workers differently from those of lower-skilled workers.
Slope
In a straight line, the ratio of the vertical distance the straight line travels between any two points (rise) to the corresponding horizontal distance (run).
Social Capital
The habitual way of doing things that guides people in how they approach production.
Social Security System
A social insurance program that provides financial benefits to the elderly and disabled and to their eligible dependents and/or survirors.
Socialism
an economic system based on individuals' goodwill toward others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce.
Socially optimal quantity
The quantity of a good that results in the maximum possible economic surplus from producing and consuming the good.
Specific Tax
Tax of a certain amount of money per unit sold
Specil Interest Group
An organization of people with a particular legislative concern. They work together to gather information, lobby politicians, and publicize their concern.
Speculative attack
A massive selling of domestic currency assets by financial investors.
Stabilization policies
Government policies that are used to affect planned aggregate expenditure, with the objective of eliminating output gaps.
Stackelberg Model
Oligopoly model in which one firm set its output before other firms do.
Statistical discrimination
The practice of making judgments about the quality of people, goods, or services based on the characteristics of the groups to which they belong.
Stock of FDI?"
total value of FDI at a given point in time
store of value
the ability to hold value over time (a function of money), also known as purchasing power
Strategic Behavior theory?
In the case of oligopolistic industries, the theory is that if one firm engages in FDI in another country (region), then others should follow.
STRATEGIC(NEW) TRADE THEORY?
Paul Krugman. many industries where the world market can only support a certain number of firms. Firms which enter the industry at the beginning, capture: first mover advantages to achieve: economies of scale and scope, benefit from learning curve effects. Firms develop a competitive advantage over any potential rivals. This creates barriers to entry for other prospective firms.
Structural policy
Government policies aimed at changing the underlying structure, or institutions, of the nation's economy.
subsidies?
Government payments to domestic producers. They take the form of cash grants, low interest loans, tax breaks, and government equity participation
Substitution effect
The change in the quantity demanded of a good that results because buyers switch to or from substitutes when the price of the good changes.
Supplemental Security Income (SSI)
A federal program that pays benefits, based on need, to the elderly, blind and disabled.
sweep acount
a despository institutions account that entails regular shifts of funds from transactions deposits that are subject to reserve requirements to savings deposits that are exempt from reserve requirements
Takeover
The purchase of one firm by a shell firm that then takes direct control of all the putchased firm's operations.
Tax Incentive Program
A progrma using a tax to create incentives for individuals to structure their activites in a way that is consistent with the desired ends.
Technological Agglomeration
The tendency of technological advances to spawn further technological advances, creating a concentration of new technologies in a specific location.
term of most bonds?
1 to 30 years. Under 1 year, they are usually referred to as money market instruments.
The "Real Cost" of something is ......
The "Real Cost" of something is what you must give up to get it.
The _______ is a theory of foreign direct investment that combines two other perspectives into a single holistic explanation of FDI.
eclectic paradigm promoted by John Dunning... focused on location specific advantages.
The __________ of foreign direct investment refers to the amount of FDI undertaken over a given period (normally a year). The __________ of foreign direct investment refers to the total accumulated value of foreign-owned assets at any time.
flow, stock
The classical dichotomy
holds that the `real' and `monetary' sides of the economy can be analyzed separately
The conditions governing how companies are created, organized, and managed and he nature of domestic rivalry is referred to as
demand conditions.
the correct opportunity cost of holding money is
nominal interest rate i
The establishment of a wholly new operation in a foreign country is referred to as a(n):
green-field investment.
The foreign direct investment by non-U.S. firms was motivated primarily by the following two factors:
the desire to disperse production activities to optimal locations; and the desire to build a direct presence in major foreign markets
The main gains from subsidies accrue to __________, whose international competitiveness is increased as a result of them.
domestic producers
The main tasks of the Federal Reserve are:
Supervise and regulate banks, Implement monetary policy by open market operations, setting the discount rate, and setting the reserve ratio, Maintain a strong payments system. Control the amount of currency that is made and destroyed on a day to day basis (in conjunction with the Mint and Bureau of Engraving and Printing). Other tasks include: economic research, economic education, community outreach.
The market rewards ______
SCARCITY
The most common marketing research technique in developing nations is still:
a combination of cluster analysis and multiple regression analysis.
The most global of markets are not markets for __________, where national differences in tastes and preferences are still often important enough to act as a break on globalization.
consumer goods
The new trade theorists argue that the United States leads in exports of commercial jet aircraft not because it is better endowed with the factors of production required to manufacture aircraft, but because:
one of the first movers in the industry were U.S. firms
The quantity equation
MV=PY, M is the amount of money in the economy, V is the velocity of money, P is the aggregate price level, Y is the real value of the goods and services traded
The two main components of globalization are:
the globalization of markets and the globalization of production
The U.S. has been an attractive target for FDI for all of the following reasons except:
the lack of competition.
Third Degree Price Discrimination
Practice of dividing consumers into tow or more groups with separrate demand curves and charging different prices to each group
Third-Party-Payer Market
A market in which the person who receives the good differs from the person paying for the good.
three main Globalization Drivers?
i. Declining Trade and Investment Barriers. ii. The role of technological change iii. Competition
Three problems with the CPI
The substitution bias, the introduction of new items, and quality changes.
thrift institutions
financial institutions that receive most of their funds from the savings of the public; they include savings banks, savings and loan associations, and credit unions
time deposit
a deposit in a financial institution that requires notice of intent to withdraw or must be left for an agreed period; withdrawal of funds prior to the end of the agreed period may result in a penalty
Time preference?
Time preference is the economist's assumption that a consumer will place a premium on enjoyment nearer in time over more remote enjoyment. A high time preference means a person wants to spend their money now and not save it, whereas a low time preference means a person might want to save their money as well. The time preference theory of interest is an attempt to explain interest through the demand for accelerated satisfaction. This is particularly important in microeconomics. The Austrian School sees time as the root of uncertainty within economics.
Traditional Economy
An economy in which customs and habits from the past are used to resolve most economic issues of production and distribution.
Tragedy of the commons
The tendency for a resource that has no price to be used until its marginal benefit falls to zero.
transaction deposits
checkable and debitable account balances in commercial banks and other types of financial institutions, such as credit unions and savings banks; any accounts in financial institutions from which you can easily transmit debit-card and check payments without many restrictions
transactions approach
a method of measuring the money supply by looking at money as a medium of exchange
transactions demand
holding money as a medium of excahnge to make payments (the level varies directly with nominal GDP)
Transfer payments
Payments the government makes to the public for which it receives no current goods or services in return.
Transnational Corporation?
is a firm that strives to be Global and Multi-domestic! ie: It must strive to achieve economies of scale whilst locally responsive.
two primary ways tha government intervenes in international trade?
Tarrif and Non-Tarrif Barriers
Two types of "Absolute Advantages?"
NATURAL ADVANTAGE (climate, resource availability, eg: abundant labor) ADVANTAGE (technology or developed skills eg: training).
Two-part tariff
Form of pricining in which consumers are charged both an entry and a usage fee.
Tying
Practice of requiring a customer to purchase on good in order to purchase another
Unemployment spell
A period during which an individual is continuously unemployed.
Union Shop
A firm in which all workers must join the union.
Unions
"Workers' associations that bargain with employers over wages, benefits and working conditions"
Unit of Account
Something that is used universally in the description of money matters such as prices. The unit of account most commonly used in the US is the dollar.
unit of accounting
way of placing a specific price on economic goods and services (it serves as a standard of value (yardstick) that allows people to compare the relative worth of various goods and services)
User cost of capital
The annual cost of owning and using a capital asset, equal to economic depreciation plus forgone interest
Utilitarianism
A moral theory in which the right course of action is the one that results in the highest total utility.
Utility
An abstract measure of the satisfaction consumers derive from consuming goods, services, and leisure activities.
Variable profit
Sum of prifts on each increamental unit produced by a firm
VER's and VEA's?
Voluntary export restraints (VER’S) and voluntary export agreements (VEA'S).
Vertical FDI?"
choosing to invest in economic activity upstream (Backward Vertical FDI), or Downstream (Forward Vertical FDI) from the core business activity of the business unit.
Vertical intercept
The value taken by the dependent variable when the independent variable equals zero.
Vertical Merger
A combination of two companies that are involved in different phases of producing a product.
Vickrey Auction
A sealed-bid auction where the highest bidder wins pays the price bid by the next-highest bidder.
Wage
Payments for labor services that are directly tied to time worked, or to the number of units of output produced.
Wealth Accounts
A balance sheet of an economy's stock of assets and liabilities.
What accounting system did merchants of Venice in the late 1400s use?
Double entry bookkeeping.
What are two primary objectives of government intervention in international trade?
1. To help domestic firms achieve first mover advantages. 2. Help domestic firms compete against firms who have first mover advantages.
what does it mean by capital intensive?
Is a country relying on machinery, rather than labor.
What happens if the fed interest rate goes too high?
Unemployment and low economic growth.
What happens if the fed interest rate goes too low?
Inflation.
What important policy implications evolve from an understanding of Porter's Diamond of National Advantage?
it is in the best interest of a firm to upgrade its advanced factors of production: eg: employee training and R & D. Equally, firms should lobby the government to urge them to increase investment in education, infrastructure, and R & D, and to promote strong competition in domestic markets.
What is the effect of a "Protectionist policy" on the global economy?
Protectionism is often shortsighted and fails in the long run.
What is the largest denomination of US money ever created?
100,000 in 1934.
What is the life span for a US treasury note?
Commonly used bills such as the 1,5,10, and 20 dollar bills last about 2 years. For the 2, 50 and 100, it can be over 4 years.
What is the relationship between a nation's capital and current accounts?
Inverse if a neutral balance of payments is to be obtained.
What is the total cumulative value of foreign investments is referred to as?
stock of foreign direct investments
What makes up a nation's Balance of Payments?
The current, capital, and reserve accounts.
What options do corporations have for raising capital?
Generally speaking, companies have three choices when they want to raise cash. They can issue shares of stock, they can borrow from the bank, or they can borrow from investors by issuing bonds.
What publishes the CPI every month?
The Bureau of Labor Statistics
What tend to be the riskiest type of bonds?
Corporate bonds.
What theory did Leontief promote?
Leontief Paradox: Leontief performed empirical tests on the "factor endowment" idea and found that it does not predict real world scenarios.
What theory did Micheal Porter promote?
National Competative Advantage (Porter's Diamond): Combination of the following give competative advantage in the Global Economy: 1. Factor Endowments 2. Demand Conditions 3. Relating and Supporting Industries 4. Firm Strategy, structure, and rivalry.
What theory did Raymond Vernon promote?
The product life-cycle theory: the idea that products are intially produced in countries with a supporting market size. Then the are filtered down to the developing world after time as costs increase in the originating country.
What trade theory did Adam Smith promote?
Absolute advantage: A country has an absolute advantage in the production of a product when it is more efficient than other countries.
What trade theory did David Ricardo promote?
Comparitive Advantage: The theory that countries can specialize in the production of goods in which they are more efficient.
Where should firms locate their various production facilities?
where they can be performed most efficiently
Which of the following two statements accurately reflects the trend in foreign direct investments over the past 20 years?
There has been a rapid increase in the total volume of FDI undertaken and there has been a change in the importance of various countries as sources for FDI
Which of the following two theories justify some limited and selective government intervention to support the development of certain export-oriented industries?
The new trade theory and theory of national competitive advantage
Who is most affected by per unit taxes?
The cost of per unit taxes is split between the buyer and the seller.
Who is on the $10 bill?
Alexander Hamilton.
Who is on the $2 bill?
Thomas Jefferson.
Who is on the $20 bill?
Andrew Jackson.
Who is on the $5 bill?
Lincoln.
Who is on the $50 bill?
Ulysses S. Grant .
Why is the price elasticity of demand almost always a negative number?
Because the law of demand says that the demand curves slope downward.
WILLINGNESS TO BUY
The maximum price at which he or she would buy a good
Winner-take-all labor market
One in which small differences in human capital translate into large differences in pay.
WOS?
wholly owned subsidiary
Yield Curve
A curve that shows the relationship between interest rates and bonds' time to maturity.
Zero Economic Profit
A frim is earning a normal return on its investment i.e. it is doing as well as it could by investing its money elsewhere