Economics
Macro-Economics
Micro-Economics
Basics of Economics/Economic Thinking
Price Theory
Scarcity: an idea that there is only a limited amount of everything that can be produced
Marginal Analysis: analysis comparing additional benefits to additional costs, used to decide how much of something to produce.
Law of Diminishing Marginal Utility: the more of something you buy the less satisfied you become with it, ex: the first donuts makes you happy but the third makes you wanna puke
Incentives
Perverse: an unintended consequence of either positive or negative incentives, such as a child becoming unwilling to do simple chores as a result of their allowance
Positive: encouraging specific behaviors with something generally money, ex: bonuses are a monetary example of a positive incentive
Negative: negative incentives are stuff we use to discourage certain behaviors, such as jail time for breaking the law
Production Possibility Curves: shows the maximum that can be produced from available time and recourse constraints
Factors of Production
Land: the resources required to produce a good, the space the factory is on, the raw materials needed to produce said good.
Labor: the people who make the machines work and running.
Capitol: monetary investment, such as direct currency infusions and machinery crucial to the manufacturing process
Demand
Supply: The total amount of any product or service at any moment in time
The 20:80 rule: 20% of the consumer consume 80% of the product. ex alcoholics consume 80% of the alcohol while only making up 20% of consumers.
Law of Demand: the law of demand states that as prices fall the quantity of a demanded good will rise
Law of Supply: an increase in price will increase the quantity supplied. price and supply are directly related.
Surpluss: Having extra of something once expectations have been met, a grocery buying to many watermelons than will be purchased for the month.
Shortage not having enough of a substance, an alcohol store not having enough beer on the day the super bowl happens
Shifters: change in population, Change in income, Change in price of related good, Change in expectation, change in taste and preferences.
Shifters: # of producers and sellers in an area, Cost of production, Cost of labor,technological change, expectations about future preformance
Goods
Normal Goods: Something that you would normally buy, it it the product that you would generally grab off the shelf at the super market
Inferior Goods: A good with generally lower quality or quantity, generally the value brand goods, or products such as gas station sushi compare to japango
Complementary Goods; products that generally go well together, such as cheese and wine, meat and beer, chocolate and strawberry.
Substitute Goods: a product that can be subbed out for one another, examples include powerade and Gatorade, redbull and monster.
Price Elasticity of Demand= Δ price/ Δ quantity
Flexible pe>1: small price changes will lead to huge changes in the quantity demanded, stuff like candy and food in general
Non-flexible pe<1: changes in price will not change the demand of a good or it will change a small amount, examples include medicine and gasoline
Price Controlls
Practical Personal financial info
Behavioral Economics
Measuring the Health of the Economy
Recession
net pay: the amount you get payed after Uncle Sam takes his hands out of your pockets
gross pay
The total amount of money you have before Uncle Sam puts his filthy fingers in your pockets
GDP
Inflation: the overall loss in purchasing power of currency and the over all increase in prices because of the loss of purchasing power, a little bit is okay but in large amounts you can tank an economy in no time
Unemployment
Federal tax
Marginal tax rates and brackets: income based taxation, the more you earn the more you are taxed generally speaking, there are some off shore loopholes
State taxes: state level mandatory taxes, used for paying for projects in the area
FICA Taxes: social security and medicare taxes which are mandatory federal taxes
Deductions
Manditory: mandatory deductions are deductions that are required by law. (federal taxes, State taxes)
Voluntary: deductions which are made voluntarily, like insurance and dental plans offered from the employer
Loans
Payday:loans for small amounts of money with extraordinarily high interest rates. (basically loan sharks)
Fixed Rate(prime) Loans: the type of loan you want when you buy a house, fixed interest rates , generally for amounts larger than 1,000$
Adjustable Rate (subprime) loans, Similar to fixed rate in the monetary sense, difference is that the interest rate changes when the fed changes rates.
Choice Architecture
Libertarian Paternalism: pointing people towords the right choice but still letting them make a decision
Nudges: something that can be done to make an object seem more appealing, like placing it at eye level
Definition of an economy
A group of people who use a myth called money to exchange goods and services
Definition
The total amount of production in a country during a period of time generally three months or a quarter
Equation
GDP=C+I+G+Nx
C: Consumption: The amount of goods Consumed by people in a quarter( excluding re-selling goods)
I: Investment(not done by the government) from the private sector in a quarter
G; Government Spending and investment in a quarter (does not include transfer payments)
Nx: Net Exports for a country or how much goods and resources they sold outside the country in a quarter
Consumer Price Index: used to measure inflation, it is a measure of the average price paid by consumers for goods.
Types of Unemployment
Unemployment Rate: The total amount of people who are willing and able to work but cant find jobs. generally aground 4% as maintained by the federal reserve
Frictional: unemployment caused from people changing vocation.
Cyclical: the type of unemployment everyone is worried about, this type of unemployment is caused by economic downturn, such as shutting down factories. where thousands of people work every day.
Structural: unemployment that is caused by a change in the system, automation. ex: truck divers are facing structural unemployment due to self driving cars.
Economic Sectors
Primary: farming and agriculture, producing raw materials
Secondary: transforming raw materials into usable goods.
Tertiary: The service industry is a part of the tertiary economic sector providing services for people and businesses
Business Cycle
Expansionary Phase
Contractionary phase
Definition of a recession: A decline in GDP for 2 or more consecutive quarters.
Fiscal Policy
The great recession
Economic philosophy
Keynes
Hayek
Paradox of thrift
"sugar high"
Fiscal policy is how much the government decides to tax and who to tax more, how much money they should spend and when
Marginal Propensity to consume (MPC)
Multipliers: the amount of money that gets multiplied through the system based upon the mpc Multiplier=1/(1-MPC)
if you give someone a dollar and they spend 80 cents their MPC is 0.8
Contractionary fiscal policy
Expansionary
Debt vs. Deficit
The deficit is a number for the total amount of money the govt borrowed during that fiscal year. Debt is every deficit the us govt has ever run and adding it all together into one gigantic anxiety causing number.
Contractionary fiscal policy include; increasing taxes, lowering government spending, or both. ( generally used during the expansionary period of the business cycle to prevent the economy from crashing and to keep the good times rolling)
Expansionary fiscal policy includes; lowering taxes and increasing govt spending(generally used during the contractionary phase of the business cycle to help economy out of a hole)
a period of economic growth and expansion of the economy, usually low unemployment and relatively higher inflation
A period of economic decline, and economic contraction, (high unemployment low inflation)
Monetary policy
Contractionary: used when the economy is booming, kind of like cooling off after running a mile, includes tactics like increasing interest rates, and increasing the minimum reserve requirements.
Expansionary: used when the economy is in trouble, lowering reserve requirements, lowering interest rates
Fiat Money vs Gold standard
Fiat: essential fake, has no real value in the sense that it is not a directly linked to the value of a recourse, much easier to control inflation, assigned value by law and the belief that it has value
Gold/Recourse based Standard; Directly linked to the value of a precious recourse such as oil, or gold, much more difficult to control,
Functions of money
Unit of common exchange/ Common traceable entity, Store of value
The Federal Reserve Bank of America: The bank to rule all banks, the bank that sets, controls the interest rates for the money that large banks need to borrow in order for the economy to function. their only job is to keep unemployment around 4%, and inflation around 2% this is called the dual mandate of the federal reserve. it is an independent entity from the us govt and for good reason, run by seven board members called, governors, a chairman or the leader of the fed, and their vice chairman
Fractional Reserve Banking: Banks are required to keep a certain amount of every money equivalent to 10 percent of any deposit, they are allowed to loan out the rest and the cycle repeats its self magically creating money out of thin air
Mortage backed securitys
Credit Default Swaps
A bunch of mortgages bundled up in a pretty bow, that the debt from those mortgages is then sold on the open market and when the debt is payed off the person who bought it gets payed, generally very safe investment if everyone pays their mortgage, which didn't happen in 2009
This was betting against the housing market in 2008. You sell off your risky credit to someone willing to accept the risk and you pay them to hold on to it and if the person who owes you money defaults the person who you sold the credit to pays you, its like fancy insurance for money.
Believed that the government should interfere with the markets
Believed that the markets should be left to their own devices
an increase in savings leads to a decrease in demand. used by keynes to prove govt intervention is the way to go in terms of macro-economics
The govt adding money to the economy during the recessions acts as a sugar high it only temporarily would help the economy, but make it worse in the long run.
animal spirits
Bear
Bull
a period of falling stocks, generally times when everyone is selling, low economic confidence
A period of time where the prices in stocks are increasing, everyone is buying, high economic confidence
Ceiling: used to limit the maximum price of a good that can be purchases legally. ex: Rent price control.
Floor: the minimum price that something can be. Ex: minimum wage