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Economincs Final (Micro: study at and individual, group, or company level,…

- - - - Positive Incentives: offered to influence good behavior. Rewards
      - Negative Incentives: penalize people for acting a certain way. Punishments
      - Preverse Incentive: when an incentive created an unintended and undesirable result. accidentally encourage bad behavior.
    - - Graph: curve depicting all maximum output possibilities for two goods
        
        Point inside: inefficient combinations not all resources utilized fully
        
        Point outside: output combination that is not yet attainable
    - - Land: natural resources untouched by humans
      - Labor: human effort to produce goods
      - Capital: tools of production (goods used to produce other goods)
      - Entrapenour: someone who brings factors of production together
    - - Micro: study at an individual level, group, or company
      - Macro: study of national economy as a whole
  - - - marginal tax rates/brackets: The Federal Income Tax Brackets. The U.S. currently has seven federal income tax brackets, with rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%
    - - Mandatory: deduct certain amount of pay and send to government.
      - Voluntary: employee pucks how much from gross pay goes into other accounts or savings. EX: insurance, savings healthcare.
  - - - 2080 Rule: The Pareto principle (also known as the 80/20 rule, the law of the vital few, or the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes.
    - - Demand Shifters
        
        A change in the population of available consumers/market EX: school lunches, size of school - how many lunches sold
        
        change in income (normal vs. inferior good) if the demand curve for a good shifts to the right, the consumers income increases -- that good = normal good.
        
        Change in expectations about future price- most people react to expectation out price changes in an incredible way
        
        change in consumer information: amount of information available to consumer when they make their purchase is a part of demand decisions EX: chipotle and ecoli outbreak
        
        change in taste and preference: as consumers come to know and like a product, demand for it will increase shifting the demand current to the right.
        
        as taste/preferences change, old products will often go out of flavor (Bad Wagon Effect)
    - - Normal Good: if the demand curve for a good shifts to the right, the consumers income increases -- that good = normal good.
      - Inferior Good: if the demand curve shifts tot he left as consumers income increases then that good is considered inferior.
    - - Substitute: demand for a goods that can be effected by product that can be used in place of another. EX: pepsi vs. cola
      - Complementary: an increase in the price of one compliment leads to a decline in demand for the other compliment. Ex: PB+J
    - - good elastic demand: price or factors have big effect on quantity consumers buy
      - good inelastic demand: quantity demanded of a good or service to change prices web nothing but prices change.
      - FORMULA: % change in quantity demanded/original demand x100+ PED
        
        if calculations = # >1 = NEGATIVE demand
        
        if calculations equal a # <1 = POSITIVE demand
        
        if calculations = exactly 1 = unitary
    - - Price Ceilings: government enforced price control or limit on how high a price is charged for a product.
      - Price Floors: lowest legal price a commodity can be sold at.
- - - - Expansionary Phases : used to fight recessions and up employment.
      - Contradictory Phases : used to fight inflation precent economy from "overheating"
    - - Marginal Propensity to Consume (MPC): amount of money you will spend when its given to you. EX. young people MPC= 1 (give them an extra dollar and it's spent) Middle ages MPC= .85% (some of that money if saved into college funds, insurance, retirement , etc. )
      - Fiscal Policy multipliers : MPC Multiplier = 1/(1-MPC) .... EX: (1)(1/1-.8)=1/.2=5... MPC=8 and multiplier=5
      - Expansionary vs. contractionary fiscal policy
        
        Expansionary: used to fight recession, up employment.
        
        Contractionary : used to fight inflation rising prices.
      - Debt vs. Deficit : a budget deficit is the difference between what the federal government spends (called outlays) and what it takes in (called revenue or receipts). The national debt, also known as the public debt, is the result of the federal government borrowing money to cover years and years of budget deficits.
    - - contractionary vs. expansionary
        
        Contractionary monetary policy is a form of economic policy used to fight inflation which involves decreasing the money supply in order to increase the cost of borrowing which in turn decreases GDP and dampens inflation.
        
        Expansionary monetary policy is when a central bank uses its tools to stimulate the economy. That increases the money supply, lowers interest rates, and increases aggregate demand.
      - Fiat money vs. gold standard
        
        Fiat currency is legal tender whose value is backed by the government that issued it. The U.S. dollar is fiat money, as are the euro and many other major world currencies. This approach differs from money whose value is underpinned by some physical good such as gold or silver, called commodity money.
        
        A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. Three types can be distinguished: specie, bullion, and exchange.
      - Functions of money : medium of exchange, as a store of value, and as a unit of account. Medium of exchange. Money's most important function is as a medium of exchange to facilitate transactions.
      - Fractional reserve banking & money supply
        
        Fractional Reserve banking: common practice by commercial banks of accepting deposits, and making loans or investments, while holding reserves at least equal to a fraction of the bank's deposit liabilities.
        
        Money Supply: the money supply is the total value of monetary assets available in an economy at a specific time.
      - Federal Reserve
        
        what is the Fed?: The Federal Reserve System is the central banking system of the United States of America.
        
        How is it organized?: The Fed is run by a seven-member board of governors headed by a chair and vice chair. An important part of he Fed is the Federal Open Markets Committee, which sets monetary and interest rate policy. The Fed is designed to be politically independent.
        
        what is the dual mandate : Since 1977, the Federal Reserve has operated under a mandate from Congress to "promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates"
        
        tools used to control money supply
        
        Reserve Requirement : Reserve requirements are the amount of cash that banks must have, in their vaults or at the closest Federal Reserve bank, in line with deposits made by their customers. Something between 10% of deposits.
        
        Discount rate : the minimum interest rate set by the Federal Reserve for lending to other banks.
        
        Open market operations : Open market operations (OMO) refer to the buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system.
        
        Paying interest on excess reserves : The authority to pay interest on reserve balances provided the Fed an important tool for implementing monetary policy. ... That is, by raising or lowering the rate paid on excess reserves, the Fed can alter the value banks place on reserves and influence rates in the federal funds market.
    - - Mortgage Backed Security : is a type of asset-backed security that is secured by a mortgage or collection of mortgages.
      - Credit Default Swap : financial swap agreement that the seller of the CDS will compensate the buyer in the event of a debt default or other credit event. That is, the seller of the CDS insures the buyer against some reference asset defaulting.
    - - Keynes vs Hayek : John Maynard Keynes and Friedrich August Hayek were two prominent economists of the Great Depression era with sharply contrasting views. The arguments they had in the 1930s have been revived in the wake of the latest global financial crisis.
        
        Keynesian economics is an economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed by the British economist John Maynard Keynes during the 1930s in an attempt to understand the Great Depression.
        
        Hayek promoted the idea that private investment, rather than government spending, would promote sustainable growth. In 1974 Hayek won the Nobel Prize for Economics for his pioneering work in the theory of money and economic fluctuations.
      - Animal Spirits AKA Fear and Confidence Fairy : Animal Spirits is a term used by the famous British economist, John Maynard Keynes, to explain financial and buying decisions in conditions of uncertainty. In Keynes' 1936 publication, The General Theory of Employment, Interest and Money, animal spirits describes the human emotion that drives consumer confidence.
        
        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.
      - Paradox of thrift : The paradox states that an increase in autonomous saving leads to a decrease in aggregate demand and thus a decrease in gross output which will in turn lower total saving.
      - Fiscal and monetary policy : Monetary policy is primarily concerned with the management of interest rates and the total supply of money in circulation and is generally carried out by central banks such as the U.S. Federal Reserve. Fiscal policy is the collective term for the taxing and spending actions of governments.