Please enable JavaScript.

Coggle requires JavaScript to display documents.

Economics (Micro (Practical Personal Financial Info (Mandatory Deductions:…

- - - - Law of Diminishing Marginal Utility: The more you do something the less satisfaction you will get from it
      - Opportunity Cost:The next best alternative that people give up when they make a choice. (you can't choose all things)
    - - Positive Incentives- Rewards
      - Negative Incentives- Punishments
      - Perverse Incentives- Accidentally encouraging bad behavior
        
        Unintended Consequences: when an incentive creates and unintended result, these come from Perverse Incentives
  - - - 3. Capital-Goods used to produce other goods
      - 4. Entrepreneur-Someone who brings all factors together (Not really a factor)
      - 2. Labor-Human effort used to produce goods and services
      - 1. Land-Natural resources before they are changed by humans
  - - - Federal Taxes:All taxes going to federal stuff
        
        Marginal Tax Rates: first little bit of your money is taxed say 10%, once you've made enough for the next bracket the money in that bracket gets taxed say 12%, and on and on. In Colorado we have fixed rate(4.63%).
        
        FICA Taxes: Pay for 2 most important and expensive fed. programs
        
        Medicare & Medicaid - Health care for old people
        
        Social Security: Income for old people, current workers money going to current old retired people
      - Total Gross: Pay before deduction
        
        Net Pay: Amount of money you get after deductions
    - - Retirement plan: An example of a voluntary deduction
      - Insurance premiums: An example of a voluntary deduction
    - - How are They Predatory: They are predatory because they make money off of people who are already down financially, many people who take out one payday loan often have to take out another one to pay off the first one.
      - How They Work: They advertise as a loan that people with bad credit scores can get, they give people loans and charge a high interest rate which they must pay by their next payday.
    - - Fixed Rate Mortgage: A mortgage loan that has a fixed interest rate for the entire term of the loan
      - Sub-prime, Adjustable Rate Mortgage: A loan offered to borrowers with an impaired credit score, there is a higher interest rate because the lender is taking a higher risk lending to them.The interest rate can rise significantly over time.
  - - - 20:80 Rule: "Pareto Principle", A rule stating that 20% of people buying a specific product buy 80% of that product
      - Demand Shifters: when demand changes due to something special, results in a new demand curve. If just price changes it ain't a shifter that just causes movement on line. New curve to the right of old curve means demand is increasing, new curve to the left means demand is decreasing.
        
        3. Change in Price of Related Good: Demand for a good can be affected by change in price of other products that are used along with that good or instead of that good.
        
        Complementary Goods: A good that goes along with another good, example: Peanut Butter and Jelly if price for jelly goes up then the demand for peanut butter (A complimentary good) will go down.
        
        Substitute Goods: something you can buy in place of something else, example: If the price of wine goes up then I will buy/drink beer instead
        
        4. Change in Expectation about Future Prices: Most people react top expectation about price change in a predictable way, say you go to buy a couch and hear couches are gonna be 50% off tomorrow on the radio you'll wait till tomorrow.
        
        2. Change in Income (Normal and Inferior Goods): If demand curve for a good shifts right as consumers income increases that good is considered a normal good, if demand curve shifts left as income increases its a inferior good
        
        5. Change in Consumer Info: Amount of info available to consumers when they make their purchases is a part of their demand decisions, an example can be when everyone freaks out about E. coli
        
        1. Change in the population of available consumers: More people in an area means more people buying things means more demand for the goods. EX: when it's CU parents weekend theres a shit ton of people at farmers market.
        
        6. Change in Tastes and Preferences: People prefer certain products or services over others based on trends going around, beards, checkered vans, IPhones
    - - Supply Shifters: Things that changes the supply for certain goods or services.
        
        2. Costs of Production: The resources that are used to produce a good affects it's cost. (Increased costs of production shift supply curve left, and opposite way for decrease). Also has to do with factors of production.
        
        3. Technological Change: good tech can make production easier and faster, shifts S curve right, something like a virus can screw tech up shifting S curve left.
        
        1. Number of Producers/ Sellers in an Area: If # of producers or sellers rises, supply will rise, if # decreases, supply will decrease.
        
        4. Future Expectation About Price: If supplier expects the price of their good to rise in the future they will store more of todays supply to sell when price goes up. Price gonna go up, stockpile, price gonna go down, sell it asap.
    - - Surplus: Price above equilibrium on a S&D graph, can't sell nothing when in surplus
      - Shortage: Price below equilibrium, sell out of product- could've sold more and made more $.
    - - Elastic Demand: Price changes and people buy a different amount of stuff, flatter demand curve, example: plastic bags.
      - Inelastic Demand: When people buy about the same amount of a good or service regardless of change in price, example: drugs. Has a steep demand curve
      - Calculating PED: PED= % change in quantity demanded/ % change in price
        
        % Change= (original price-new price) / original price
        
        Unit Elastic: PED=1
        
        Inelastic Demand: PED= less than 1
        
        Elastic Demand: PED= greater than 1
    - - Price Ceiling: A government imposed price control on how high of a price can be charged for that good. Example- Rent control to lower rent prices in California. Dryed up # of rentals cause no one wants to rent out house for cheap. Creates some shortage.
      - Price Floor: A government imposed control on how low of a price can be charges for a product. Example: Minimum wage, cause owners could pay employees barely anything so government comes in makes a minimum amount people must pay their employees. Creates some surplus.
- - - - Expansionary Phase: When economy is growing
      - Contractionary Phase: Real GDP in decline
    - - Marginal Propensity to Consume (MPC): How much money someone will spend out of an extra dollar. For young people their MPC is usually about 1. If someone saves $0.15 of every extra dollar their MPC would be .85
      - Fiscal Policy Multiplier: Multiplier = 1(1-MPC). If someones MPC is .8 their multiplier is 5
        
        Change in Real GDP = initial change in spending (times) multiplier
      - Expansionary Fiscal Policy: Fights recession and high unemployment, increases spending, lowers taxes. Forces government to run up a deficit.
      - Contractionary Fiscal Policy: Fights inflation to prevent economy from over heating, decreases spending increases taxes. Lowers government deficit to reduce govt. debt.
      - Debt vs. Deficit: Debt is everything over all time that government owes, deficit is how much owed over one year.
    - - Contractionary Policy: Done to prevent inflation, contractionary monetary policy is when banks raise interest rates and decrease their money supply.
      - Expansionary Policy: Done to prevent or fight recession, expansionary policy is when fed, banks, and those guys expand the money supply and boost economic activity, they do this by keeping interest rates low to encourage borrowing.
      - Fiat Money vs. Gold Standard: Fiat money is the type of money system we use in America, its basically just some unbacked piece of paper that only holds value cause we say it does. Gold standard is when a countries currency has value directly linked to gold.
      - Money and it's Functions:
        
        Unit of exchange: spending money makes it a unit of exchange
        
        Unit of Account: the fact that we can compare or measure value of our money makes it a unit of account
        
        Store of value: Money has a value at a store
        
        Fractional Reserve Banking & The Money Supply: Banks basically accept deposits, make loans, and invest but they still must hold a fraction of this money in reserve because the FED said so
        
        Federal Reserve: America's central bank, controls supply of money and supervises banks, independent from politics, there are 7 members on the Board of Governors. Banks can borrow from the FED at a low rate and change people more. Banks can store excess cash at FED
        
        How is it organized: there are 12 different regions (regional FED Branches)
        
        The Dual Mandate: The FED has 2 goals these are the dual mandate. Doing both at the same time is hard.
        
        1. Maximize sustainable employment
        
        2. Maintain stable prices
        
        What Tools Does the FED Use to Control the Money Supply
        
        Reserve Requirement: The FED can determine how much money banks must keep in reserve. Low reserve requirements is expansionary, High requirements are contractionary.
        
        Discount Rate: The interest rate that banks have to pay to borrow from the FED. Setting discount rent low is expansionary cause it lets banks charge consumers less for loans. Setting it high is contractionary and is used to fight inflation.
        
        Open Market Ops (Highest Used): Involves the FED buying and selling treasury bonds, they are how the govt. borrows money, they just IOU's, If the FED buys back treasury bonds from who has them is expansionary cause it puts more $ in circulation and fights unemployment by giving you money. When they sell treasury bonds its contractionary cause it takes your money and takes it out of circulation.
        
        Paying Interest on Excess Reserves: Banks are required to hold a certain amount of money in reserves, but they usually keep more in reserves than required these are "excess reserves". By paying banks interest for money in these excess reserves they are doing contractionary policy cause they are encouraging banks to take money out of circulation
  - - - How is it measured?
        
        GDP: Total market value of all goods and services produced in a country in a year. GDP=C(consumer spending) + I (Business Investments + G (Government making stuff) + NX (Net Exports X-I)
        
        Where's it lacking: Doesn't include illegal stuff, non-market stuff (unpaid house work), used stuff, and Transactions that are purely financial. Intermediate goods and services- Things used in process of production don't count just the ultimate goods count, they don't count the thread just the # of shirts.
      - Sectors of the Economy
        
        Secondary Sector: These activities deal with processing raw materials acquired through primary activities into finished products of greater value (Factories/magnification)
        
        Tertiary Sector: Focuses on moving, selling, and trading products made in primary and secondary activities. (Retail, waiter, includes services such as banks, carpet cleaning, food stuff)
        
        The Primary Sector: The part of the economy in which activities revolve around getting raw material from the earth. (Farming, mining, fishing)
        
        Underground Sector: All illegal production of goods and services (drug dealing, prostitution, sports betting)
        Also includes legal stuff that doesn't pass through a legit market, like baby sitting or lawn mowing.
    - - Consumer Price Index: a measure that examines the weighted average of prices of a basket of consumer goods and services. It's calculated by taking price changes for each item in the basket of goods and averaging them
    - - How Is Unemployment Rate Calculated: Calculated as a percentage by dividing the # of unemployed individuals by all individuals currently in labor force.
      - Frictional Unemployment: unemployment when a worker is searching for jobs or transitioning jobs
      - Structural Unemployment: Unemployment caused by a gap between the skills workers in economy can offer and the skills demanded by employers
      - Cyclical Unemployment: Overall unemployment that relates to the business cycle. When business cycle is at it's peak cyclical unemployment should be low.
  - - - Pros: Allows investors to benefit off of the mortgage business without having to buy or selling an actual home loan. Mortgage backed securities have allowed people without the funds only banks have to enter the mortgage business.
      - Cons:
  - - - "Animal Spirits": Also known as fear and confidence fairies, these are the little guys on your shoulder in cartoons. Animal spirits describes the phycological factors that drive investors to take action when faced with high volatility in capital markets. If spirits are low, then confidence levels will be low, which will drive a promising market down even though the fundamentals of the market or economy remain strong. Likewise, if spirits are high, confidence will be high among participants in the economy and market prices will soar. For example, the 2008 market was rife with financial innovation, which was initially assumed to a positive outcome until the financial instruments were found to be deceptive and fraudulent. At this point, investor confidence plummeted, a sell-off ensued, and the markets plunged.
      - Paradox of Thrift: This states that individuals try to save more during economic recession, this leads to a fall in aggregate demand and economic growth.
    - - Fiscal and Monetary "Sugar High": A "sugar high" is the word for the artificial boom caused by government intervention, its called at "sugar high" cause it helps boost some consumption and stuff for a bit but it won't fix the problem.