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28 Cards in this Set
- Front
- Back
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Present Value
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The amount that would be needed today to yield that future sum at prevailing interest rates.
PV=FV/(1+r)^n |
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Future Value
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The amount the sum will be worth at a given future date, when allowed to earn interest at the prevailing rate.
FV=PV(1+r)^n |
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The rule of 70
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If a variable grows at a rate of x percent per year, that variable will double in about 70/x years.
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Diminishing Marginal Utility
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The more wealth a person has, the less extra utility he would get from an extra dollar, which is why people are risk averse.
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Adverse Selection
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A high risk person benefits more from insurance, so is more likely to purchase it.
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Moral Hazard
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People with insurance have less incentive to avoid risky behavior.
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Diversification
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The method of reducing risk with a large number of smaller, unrelated risk. It reduces firm specific risk, but does not reduce market risk.
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Diversification part 2
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Standard deviation goes down from 50 to 20, when you have 40 stocks in portfolio.
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Value of a share
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Present value of any dividends the stock will pay + Present value of the price you get when you sell the share
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Efficient Market Hypothesis
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Each asset price reflects all publicly available information about the value of the asset.
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Informational Efficiency
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Each stock price reflects all available information about the value of the company.
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Random Walk
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The path of a variable whose changes are impossible to predict
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Labour Force
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Employed and Unemployed
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Unemployed
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People not working who have looked for work during previous 4 weeks.
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Unemployment Rate
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(# of unemployed/labour force) x 100
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Labour Force Participation Rate
(% of adult population that is in the labour force) |
(labour force/adult population) x 100
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Why is the unemployment rate not a perfect indicatior of joblessness?
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1.) it excludes discouraged workers
2.) it does not distinguish between full time and part time work. 3.) Doesn't account for underemployment. |
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Natural Rate of Unemployment
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The normal rate of unemployment around which the actual unemployment rate fluctuates.
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Cyclical Unemployment
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The deviation of unemployment from its natural rate, which is associated with business cycles.
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Frictional Unemployment
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Occurs when the worker spends time searching for the jobs that best suit their skills and tastes.
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Structural unemployment
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Occurs when there are fewer jobs than workers. It occurs when there is a mismatch between the worker's skills and the job.
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Job Search
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Process of matching workers with appropriate jobs.
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Sectoral Shifts
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Changes in the composition of demand across industries or regions of the country.
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Government employment agencies
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Give out information about job vacancies to speed up the matching of workers with jobs.
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Public training programs
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Aim to equip workers displaced from declining industries with the skills needed in growing industries.
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Unemployment Insurance
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A government program that partially protects workers' incomes when they become unemployed. This increases frictional unemployment because UI benefits end when a worker takes a job, so the workers have less incentive to find a job.
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Reasons for Structural Unemployment (imbalance between supply and demand)?
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1.) Minimum wage laws.
2.) Unions 3.) Efficiency Wages (firms voluntarily pay above equilibrium wages to boost productivity) |
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Reasons for Efficiency Wages
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1.) Worker health
2.) Worker turnover 3.) Worker quality 4.) Worker effort |
