ECONOMICS

Macroeconomics: big picture- scaled and more general economic factors like interest rates and national productivity

Behavioral Economics

Anchoring Heuristic: influences the way people assess probabilities. people start with an anchor (something they are comfortable or familiar with) and then make adjustments from there

choice architecture: the design of different ways choices can be presented to consumers and the impact that the decisions have on consumer decision making

Ability Heuristics: mental shortcut that relies on immediate examples that come to a given person's mind when evaluating a specific topic, concept, method or decision

Loss Aversion Bias: refers to people's tendency to prefer avoiding losses to acquiring equivalent gains. (ex. it's better to not loose $20 than to find it)

Status Quo Bias: a preference for the current state of affairs

Overconfidence/Optimism Bias: a person's subjective confidence in his or her judgment is reliably greater than the objective accuracy of those judgement, especially when confidence is relatively high.

Libertarianism: people should be free to opt out of things they don't support

Paternalism: Influencing choices to protect them

Nudging: arranging choices in a way that will help people make a good choice. This can alter one's behavior, but keeps the aspect of freedom. It significantly changes someone's economic thinking. (No mandates)

Recession and responses: two consecutive quarters of declining GDP (6 months)-boom and bust cycle

The Federal Reserve System,: controls money supply and supervises all depository institutions in the country. Both sides create money. 7 governors get to decide how much money in 14 year term. They are nominated by president, and the senate confirms.

Dual Mandate: Practice in which elected officials serve in more than one elected or other public position simultaneously.

Fractional Reserve Banking: a bank accepts deposits, makes loans or investments, but is required to hold reserves equal to only a fraction of its despite liabilities. Currency in the bank , or as balances in the bank's accounts at the central bank.

Money Supply: the total amount of money in circulation or in existence in a country.

FED: operates as banks of the banks. If you have too much money, it goes to bank and then bank transfers into the FED. twelve branches. adjusts to the supply of money in order to accomplish these goals.

  1. Stable prices (no inflation or deflation)
  1. Moderate long term interest rates
  1. Maximum employment

3 tools

  1. Adjust interest rates
  1. Open Market Operations: buying or selling treasury bonds. Anyone can buy them. you pay us, we pay you back BUT with interest
  1. Reserve Requirement for institutions: If it is lowered, banks have more money to loan/inverst. To decrease money supply, FED would rise the requirements

Federal Funds: amount of rate they charge each other (other banks). Sets the interest rates.

Discount Rate: rate of interest that the FED charges when it makes loans to banks. LOW rate of interest. Lowers the rate= more banks borrow money

$80 billion a month of treasury bonds

Bonds: a government bond issued by the US treasury.

Credit Default Swap: where a buyer is in debt in the form of bonds tries to eliminate possible loss that could arise from default by the issuer of the bonds.

Fiscal Policy: changes the way government taxes and spends money. Congress and the president passed a spending bill including roads, projects, buildings

Unemployment insurance

Increasing food stamps

KEYNES VS> HAYEK

Hayek

Keynes

Fear and Confidence Fairies: "animal spirits"

Boost demands

cheap money

Recession caused by "animal spirits"

Paradox of thrift: individuals try to save more during an economic recession, which essentially leads to a fall in aggregate demand and hence in economic growth

bull vs bear. paradox of thrift: markets steered by government (boom and bust)

emotional paths we go on

borrowing money is cheap

government actions Fiscal and monetary) make recessions worse. They want to prevent natural functioning of markets

government needs to Get out!

Confidence: criticism that cutting government spending will lead to renewed confidence and economic recovery.

Fear: cutting the number of public employees would send highly skilled workers job hunting in the private sector, which in turn would lead to lower labor costs and increased employment

Practical personal financial

ECONOMY: system of production, consumption, and distribution of goods and services in a particular geographic region

3 Main Macromeasurments

Effects

consumption goes down

production

less income

employment

business investment goes down

Causes

Government (sets interest rates

Sectors

Cyclical Unemployment: rise and fall. Boom and bust cycle. NOT GOOD

Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items.

Structural Unemployment: when you don't have job because it goes away (not part of economy anymore). No more demand for labor

Human Development Index: statistics on life expectancy, education, and per capita income indicators. Used to rank countries into 4 sections

Unemployment rate calculation: rate= number of unemployed persons/labor force

Inflation: a general increase in prices and fall in purchasing value of money

B) The secondary sector: processing raw materials acquired through primary activities into finished products of greater values

C) The tertiary Sector: moving selling, trading products made in primary and secondary activities

A) The primary Sector: activities revolving around getting RAW materials from the earth

D) The Underground Sector (not all illegal activities) the illegal production of goods and services

mining

fishing

Farming

Factories

Manufacturing

Service jobs

banks

fast food

Stores

drug dealing

prostitution

sports betting

foods/services

babysitting

lawn mowing

Federal Tax: goes to the government and doesn't include schools, bridges, military, roads, health care, etc...

Net Pay: final pay

Money: anything that society generally accepts in payment for a good or service

Gross Pay: the amount of money you start with

Deductions

Pay Day loans: a small amount of money that is lent at a high rate of interest

What gives it value: fiat money (paper money made by government decree. Backed by strength of the doc that issued it)

Gold Standard: money value of currency that was backed by gold and silver

Marginal Tax rates/Brackets: can fall into seven different brackets depending on their taxable income

FICA taxes: three separate taxes from the wages you pay your employees

state taxes: 4.63%

Fixed rate mortgage: interest rate on the note remains the same throughout the term of the loan

70% goes to medicare, military, and social security

FICO Score: a person's credit score

FICA: federal insurance care act: creates a payroll tax requiring a deduction from the paychecks of employees as well as a contribution from employers to fund...

Social security

Medicare

Sub-Prime and Adjustable Rate Mortgage: lending institution to borrowers with low credit ratings

Mortgage backed Security: secured by a mortgage or collect of mortgages. Sold to groups of individuals that packages the loans together that investors can then buy.

Sub-Prime: is a type of loan granted to individuals with poor credit scores. Below a score of 600

Adjustable rate: mortgage loan with the interest rate periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets

Collaterilzed Debt Obligation: developed as instruments for the corporate debt markets. Promise to pay investors in a prescribed sequence

2) unemployment: how many people can't find a job who are looking for one

3) prices: what are they doing?

1) GDP: gross domestic products

click to edit

production-growth

per capita

Nominal and Real GDP

the total market value of all goods and services PRODUCED in a country over the period of 1 year

Voluntary

mandatory

Inflation is making costs go UP

Consumer Price Index: monthly measure

secondary sales

transaction that are financial

the value of non marker activities

intermediate goods and services- used in process of production

illegal activities

Basics

Scarcity: when there is a shortage in products and supply

Factors of production

Production possibilites Frontiers: a curve that shows all maximum output possibilities for two goods

click to edit

Pint outside graph: an impossible point to reach with resources

Point inside the graph:inefficiency given available resources

  1. LAND: natural resources: before changed by hyman effort
  1. Labor: any human effort
  1. Capital: tools of production. Goods sed to produce other goods

Entrepreneur: person who brings the factors together and organizes production

Assumptions that people make when buying something

  1. people are rational decision makers
  1. people are utility maximizers

OUTCOMES

  1. Markets are always the best mechanism for allocating scarce resources

Contracitctionary: a reduction in government spending, particularly deficit spending, or a reduction in the rate of monetary expansion by a central bank

Central Bank

Monetary Policy: change to the supply of money

Expansionary

Positive: something you gain

good practical outcomes

incentives

better behavior

consent

Negative: consequences

inequality/fairness

valuing things in the wrong way

Perverse incentives

exploration/power unbalanced

Marginal Analysis: you will engage in more of an activity if the additional benefit fro engaging in that activity an additional time exceeds the additional cost

Utility Maximization: when making a purchase or decision about a product, a consumer wants to get the greatest value possible for the least amount of money. How satisfied you are with a product

Marginal cost curve: the change in the opportunity cost that happens when the quantity produced goes up by 1 unit

Opportunity cost: the loss of potential gain from other alternatives when one alternative is chosen

Utility: our satisfaction with a product or how we feel when making a decision

Diminishing marginal utility: as a person increases consumption of a product while still keeping consumption of other products

Microeconomics: concerned with single factors and effects of individual decisions

Prices

Government Price Controls

Positive Externalities: marginal social benefit exceeds the marginal private benefit.

negative Externalities: when certain goods are consumed, such as demerit good.

Price Ceilings: how high the price can get. below the equilibrium

Price floors: above the equilibrium. Lowest price something can be sold at

Supply and Demand

Price Elasticity of Demand: measures the sensitivity of the quantity demanded to changes in the price.

Values exactly 1- Unit Elasticity

% change in quantity= original #- new#/ original #

Calculating Price (PED): PED= %change Q/% change P

Any number that is greater than 1

Any number less than 1

Market Equilibrium: when there is o surplus or shortage. A good balance and in the middle.

Supply/demand Shifters

Law of Demand: at lower prices, people choose to buy more. At higher prices, people choose to buy less. (somebody's willingness and ability to buy something)

Law of Supply: At higher prices, people choose to produce more. At lower prices, people choose to produce less.

Price equilibrium: quantity of goods supplied is equal to the quantity of goods demanded

Shortage: the area below the equilibrium. when there is not enough

Surplus: the area above the equilibrium. when there is too much

supply shifters

  1. costs of production: how much you are willing to supply

decrease cost: shift right

resources and ingredients used to produce a good

increased costs: shift to the left

government

shortages

subsidies

labor

  1. Technological Change: improves technology can make produciron easier and faster. More can be produced at each cost.

Increase supply: shift to the right

Decreased supply: shifts to the left

  1. Number of producers/sellers in an area: if the number of seller rises, supply will rise. If the number of sellers decrease, supply will also decrease
  1. Future expectations about prices

Stock piling: if supplier expects the price of their good to rise in the future, they want to store some supply to then sell it later and reap a higher profit (decreasing supply now, increasing later)

Demand Shifters

  1. Prices of other goods
  1. Future Expectations about Price: most people react to expectations about price changes in a predictable way
  1. Change in income
  1. Consumer Information: The amount of information available to consumers when they make their purchases is a part of their demand decisions
  1. A change in the population of available consumers- the price doesn't change, but the consumer does
  1. Tastes and Preferences: as consumers come to know and like a product, demand for it will increase. Shifts to the right

Normal Goods: if demand curve shifts to the right as income increases. They want more

Inferior Goods: when you don't want a product anymore. Demand falls as income increases

Complementary goods: an increase in price of one complement leads to a decline in demand for another

Substitute goods: demand for a good can be affected by products that can be used instead of that good

Good reviews: curve to the right

Bad Reviews: curve to the Left

As tastes and preferences change, old products will go out of favor and it will shift to the left