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Definitions |
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Financial Assets
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Assets such as stocks or bonds, whose benefit to the owner depends on the issuer of the asset meeting certain obligations.
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What is the total cumulative value of foreign investments is referred to as?
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stock of foreign direct investments
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International capital flows
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Purchases or sales of real and financial assets across international borders.
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action time lag
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time between recognizing an economic problem and implementing policy to sole it; particularly long for fiscal policy (requires congressional approval)
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Tying
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Practice of requiring a customer to purchase on good in order to purchase another
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board of Governors of the Federal Reserve System
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appointed by the president with the approval of the U.S. senate
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asset utilization ratio?
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A measure of how well a firm uses its assets to generate $1 in sales.
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Cost-plus regulation
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A method of regulation under which the regulated firm is permitted to charge a price equal to its explicit costs of production plus a markup to cover the opportunity cost of resources provided by the firm's owners.
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If General Electric, a U.S. based corporation, purchased a 50% interest in a company in Italy, that purchase would be an example of
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foreign direct investment.
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Skill-biased technological change
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Technological change that affects the marginal products of higher-skilled workers differently from those of lower-skilled workers.
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Since the 1960s, there have been two notable trends in the demographics of the multinational enterprise. These two trends have been:
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the rise of non-U.S. multinationals and the growth of mini-multinationals
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junk" bonds?
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Companies with less-than-investment-grade (Ba and below) ratings issue bonds. These securities, known as high-yield, or "junk," bonds, are generally too speculative for the average investor, but they can provide spectacular returns.
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unit of accounting
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way of placing a specific price on economic goods and services (it serves as a standard of value (yardstick) that allows people to compare the relative worth of various goods and services)
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Where should firms locate their various production facilities?
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where they can be performed most efficiently
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The new trade theorists argue that the United States leads in exports of commercial jet aircraft not because it is better endowed with the factors of production required to manufacture aircraft, but because:
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one of the first movers in the industry were U.S. firms
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Share Distribution of Income
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The relative division of total income amoung income groups.
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The main gains from subsidies accrue to __________, whose international competitiveness is increased as a result of them.
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domestic producers
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Comparable Worth Laws
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Laws mandating comparable pay for comparable work.
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What are two primary objectives of government intervention in international trade?
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1. To help domestic firms achieve first mover advantages. 2. Help domestic firms compete against firms who have first mover advantages.
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investment companies
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institutions that manage portfolios of financial instruments called mutual funds on behalf of shareholders; exist largely because of cost savings from their greater scale of operations
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Classical Growth Model
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A model of growth that focuses on the role of capital accumulation in the growth process.
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Positional arms race
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A series of mutually offsetting investments in performance enhancement that is stimulated by a positional externality.
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Is goodwill a basis for the theory of Monopolistic Advantage?
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NO
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In-kind transfer
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A payment made not in the form of cash but in the form of a good or service.
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Balance-of-payments surplus
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The net increase in a country's stock of international reserves over a year.
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Price leadership
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Pattern of pricing in which one firm regularly announces price changes that other firms then match
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Productivity
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Output per unit of input.
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Compensating wage differential
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A difference in the wage rateâ€"negative or positiveâ€"that reflects the attractiveness of a job's working conditions.
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Expansion Path
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Curve passing through points of tangency between a firm's isocost lines and its isquants
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Closed Shop
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A firm where unions control the hiring.
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Economic Decision Rule
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If the marginal benefits of doing something exceed the marginal costs, do it. If the marginal costs of doing something exceed the marginal benefits, don't do it.
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Fed Funds
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Loans of excess reserves banks make to one another.
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two primary ways tha government intervenes in international trade?
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Tarrif and Non-Tarrif Barriers
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Full Convertibility
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An exchange rate system in which individuals may change dollars into any currency they want for whatever legal purpose they want.
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Indexing
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The practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specified price index. Indexing prevents the purchasing power of the nominal quantity from being eroded by inflation.
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Decision tree (or game tree)
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A diagram that describes the possible moves in a game in sequence and lists the payoffs that correspond to each possible combination of moves.
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On a straight-line demand curve, elasticity decreases as the price ______ and the quantity _______ increases.
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On a straight-line demand curve, elasticity decreases as the price FALLS and the quantity demanded INCREASES.
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Conspicuous Consumption
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The onsumption of goods not for one's direct pleasure, but simply to show off to others.
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For NORMAL GOODS, the income elasticity of demand is - or +?
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POSITIVE
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Social Capital
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The habitual way of doing things that guides people in how they approach production.
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Bilateral Monopoly
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Market with only one seller and one buyer
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dirty float in economics?
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It is when a country tries to manipulate the value of its floating currency.
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Collective good
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A good or service that, to at least some degree, is nonrival but excludable.
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Stock of FDI?"
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total value of FDI at a given point in time
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inventory investment
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changes in business inventories
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Economic System
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the combination of social and individual decision making a society uses to answer the 3 economic questions
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Above the mid-point on a straight-line demand curve, demand is ___________
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Elastic
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dissaving
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a negative saving: a situation in which spending exceeds income; can occur when a household is able to borrow or use up existing assets
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Function of the Federal Reserve System #1
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supplies the economy with fiduciary currency (paper currency known as Federal Reserve notes); changes throughout the yr (ex. demands for paper currency are largers during the holiday seasons)
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Cournot model
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Oligopoly model in which firms prdouce a homogenoues good, each firm treates the output of its competitors as fixed, and all firms decide simultaneously how much to produce
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Slope
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In a straight line, the ratio of the vertical distance the straight line travels between any two points (rise) to the corresponding horizontal distance (run).
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Efficient Market
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A market where the quantity supplied=quantity demanded & the price of goods is set at the equilibrium price.
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duration gap?
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The duration gap is an accounting term for the difference between the duration of assets and liabilites. The duration gap measures how well cash flows for assets and liabilities are matched. When the duration of assets exceeds the duration of liabilities the duration gap is positive. A positive duration gap means greater exposure to rising interest rates; if interest rates go up then the price of assets fall more than the price of liabilities. Conversely, when the duration of assets is less than the duration of liabilities the duration gap is negative; if interest rates fall then the price of assets goes up less than the price of liabilities. Duration has a double-facet view. While a positive duration gap means greater risk, it also means that, on average, payables became due before receivables.
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Economic Incentives
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Factors that motivate and influence the behavior of individuals and organizations, including firms and government agencies. Prices, profits, and losses are important economic incentives in a market economy.
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Head tax
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A tax that collects the same amount from every taxpayer.
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Market-Clearing Level
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The level, price, or quantity where supply and demand are equal.
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assumption # 1 for balance sheets
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required reserve ratio is 10% for all transaction deposits
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graduated income tax?
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An income tax that takes proportionately more from higher wage earners
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Equilibrate
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Describes the movement of the factors of a market set at the equilibrium price.
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Feudalism
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An economic system in which traditions rule.
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FACTOR PROPORTIONS THEORY?
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HECKSCHER & OHLIN - the pattern of international trade is based on differences in factor endowments rather than differences in productivity.
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Vertical FDI?"
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choosing to invest in economic activity upstream (Backward Vertical FDI), or Downstream (Forward Vertical FDI) from the core business activity of the business unit.
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Isocost line
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Graph showing all possible combinations of labor and capital that can be purchased for a given total cost
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sweep acount
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a despository institutions account that entails regular shifts of funds from transactions deposits that are subject to reserve requirements to savings deposits that are exempt from reserve requirements
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National Output
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The total value of goods and services produced by an economy in a specified time period. Also known as GDP.
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Efficiency wages
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"above-equilibrium wages paid by firms in order to increase worker productivity"
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Inside lag (of macroeconomic policy)
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The delay between the date a policy change is needed and the date it is implemented.
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Demand is unit elastic where on the demand curve?
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Demand is unit elastic at the MIDPOINT of the demand curve.
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Labor Productivity
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The average output per worker.
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Peak-load Pricing
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Practice of charging higher prices during peak periods when capacity constraints cause marginal costs to be high.
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Bretton Woods triangle trade?
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Bretton Woods, then, created a system of triangular trade: the United States would use the convertible financial system to trade at a tremendous profit with developing nations, expanding industry and acquiring raw materials. It would use this surplus to send dollars to Europe, which would then be used to rebuild their economies, and make the United States the market for their products. This would allow the other industrialized nations to purchase products from the Third World, which reinforced the American role as the guarantor of stability. When this triangle became destabilized, Bretton Woods entered a period of crisis which lead ultimately to its collapse.
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leakages
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the entire loan from one bank is not always desposited in another bank (two types)
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Shared consumption
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A property of a good or service such that it can be used by many without diminishing another’s ability to consume the same good; examples include street lights or radio broadcasts.
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How often do treasury bills pay interest?
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Never. Only T-notes and T-bonds pay interest twice a year. T-bills are simply sold at a discounted price.
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Globalization results in a greater degree of __________ across markets than would be present otherwise.
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homogeneity
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The market rewards ______
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SCARCITY
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Local standards and laws?"
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administrative instruments or trade policies
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Takeover
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The purchase of one firm by a shell firm that then takes direct control of all the putchased firm's operations.
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Productive Efficiency
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Achieving as much output as possible from a given amount of inputs or resources.
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investment function
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represented bas an inverse relationship between the rate of interest and the value of planned real investment (as interest rates fall planned investment spending increases)
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assumption #5 for balance sheets
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depository institutions seek to keep zero excess reserves because reserves do not earn interest
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depository institutions
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financial institutions that accept deposits from savers and lend funds from those deposits out at interest
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Business
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A private producing unit in our society.
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relationship between the price of existing bonds and the rate of interest
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the market price of existing bonds (and all fixed-income assets) is inversely related to the rate of interest prevailing in the economy
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The classical dichotomy
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holds that the `real' and `monetary' sides of the economy can be analyzed separately
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Logrolling
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The practice whereby legislators support one another's legislative proposals.
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Economic loss
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An economic profit that is less than zero.
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Who is on the $50 bill?
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Ulysses S. Grant .
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Okun's Law
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This details the inverse relationship between unemployment and real GDP.
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The foreign direct investment by non-U.S. firms was motivated primarily by the following two factors:
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the desire to disperse production activities to optimal locations; and the desire to build a direct presence in major foreign markets
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Better-than-fair gamble
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A gamble whose expected value is positive.
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Inflation dove
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Someone who is not strongly committed to achieving and maintaining low inflation.
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Function of the Federal Reserve System #5
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supervises depository institutions: Fed periodically and without warning examine depository institutions to see what kinds of loans have been made, what has been used as security for the loans, and who has recieved them
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operating budget
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expenditures for current operations, such as salaries and interest payments
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Economic surplus
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The economic surplus from taking any action is the benefit of taking the action minus its cost.
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Disinflation
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A substantial reduction in the rate of inflation.
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Marginal Physical Product (MPP)
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The additional units of output that hiring an additional worker will bring about.
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E-commerce
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Buying and selling over the Internet.
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Factor Endowments" in Porter's Theory?
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#NAME?
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Participation rate
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The percentage of the working-age population in the labor force (that is, the percentage that is either employed or looking for work).
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Incentive
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Any reward or benefit, such as money or good feeling, that motivates choices and behaviors.
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neoliberalism?
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Neoliberalism is widely used as a description of the revived form of economic liberalism that became increasingly important in international economic policy discussions from the 1970s onwards. In its dominant international use, neoliberalism refers to a political-economic philosophy that de-emphasizes or rejects government intervention in the domestic economy. It focuses on free-market methods, fewer restrictions on business operations, and property rights. In foreign policy, neoliberalism favors the opening of foreign markets by political means, using economic pressure, diplomacy, and/or military intervention.
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Price Rigidity
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Characteristics of oligopolistic markets by which firms are reluctant to change prices even if costs or demands change
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Block Pricing
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Practice of Chargin different prices for different quanitites or "block" of a good.
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Time preference?
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Time preference is the economist's assumption that a consumer will place a premium on enjoyment nearer in time over more remote enjoyment. A high time preference means a person wants to spend their money now and not save it, whereas a low time preference means a person might want to save their money as well. The time preference theory of interest is an attempt to explain interest through the demand for accelerated satisfaction. This is particularly important in microeconomics. The Austrian School sees time as the root of uncertainty within economics.
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Reserve
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Money not given out in loans that is available for repaying depositors.
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According to the textbook, FDI is expensive because
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a firm must establish production facilities in a foreign country or acquire a foreign enterprise.
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Federal Funds Interest Rate
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The discount interest rate at which the branch banks of the Fed loan money to other banks.
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The _______ is a theory of foreign direct investment that combines two other perspectives into a single holistic explanation of FDI.
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eclectic paradigm promoted by John Dunning... focused on location specific advantages.
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Optimal combination of goods
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The affordable combination that yields the highest total utility.
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thrift institutions
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financial institutions that receive most of their funds from the savings of the public; they include savings banks, savings and loan associations, and credit unions
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Equilibrium Income
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The level of income toward which the economy gravitates in the short run.
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In his study dealing with the competitive advantage of nations, Porter argued that in regard to demand conditions, a nation's firms' gain competitive advantage if their domestic consumers are __________ and __________.
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sophisticated, demanding
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Diseconomies of scope
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"means that there can be gains from trade, even when production possibilities frontier are identical"
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NATIONAL COMMERCIAL POLICY?
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THE INFLUENCE OF GOVERNMENT IMPOSED AND OTHER DISTORTIONS IN THE MARKETPLACE
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Income-expenditure multiplier
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The effect of a one-unit increase in autonomous expenditure on short-run equilibrium output.
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Run
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See Slope.
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Incentive Effect
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How much a person will change his or her hours worked in response to ta change in the wage rate.
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accelerator effect in economics?
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The accelerator effect in economics refers to a positive effect on private fixed investment of the growth of the market economy (measured e.g. by Gross Domestic Product). Rising GDP (an economic boom or prosperity) implies that businesses in general see rising profits, increased sales and cash flow, and greater use of existing capacity. This usually implies that profit expectations and business confidence rise, encouraging businesses to build more factories and other buildings and to install more machinery. (This expenditure is called fixed investment.) This may lead to further growth of the economy through the stimulation of consumer incomes and purchases, i.e., via the multiplier effect.
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Fitch Ratings?
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An international credit rating agency dual-headquartered in New York City and London. It is one of the three Nationally Recognized Statistical Rating Organizations (NRSRO) designated by the U.S. Securities and Exchange Commission in 1975, together with Moody's and Standard & Poor's.
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Strategic Behavior theory?
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In the case of oligopolistic industries, the theory is that if one firm engages in FDI in another country (region), then others should follow.
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The main tasks of the Federal Reserve are:
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Supervise and regulate banks, Implement monetary policy by open market operations, setting the discount rate, and setting the reserve ratio, Maintain a strong payments system. Control the amount of currency that is made and destroyed on a day to day basis (in conjunction with the Mint and Bureau of Engraving and Printing). Other tasks include: economic research, economic education, community outreach.
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Revaluation
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An increase in the official value of a currency (in a fixed-exchange-rate system).
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assumption #2 for balance sheets
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transaction deposits are the bank's only liabilities; reserves at a Federal Reserve district bank and loans are the bank's only assets
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PORTER'S DIAMOND OF NATIONAL ADVANTAGE?
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Porter's notion is that 6 sets of variables shape the environment in which firms compete: -Factor endowments -Demand conditions -Related and supporting industries -Firm's structure, strategy, and rivalry -Chance -Government Actions
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Technological Agglomeration
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The tendency of technological advances to spawn further technological advances, creating a concentration of new technologies in a specific location.
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monopolistic advantage theory?
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based on the premise that a firm has obtained a monopolistic advantage through domestic competition that would enable it to be successful internationally.
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Political Union
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"the evolution of a complete political entity cf: U.S.A. vs the European Union."
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Second Degree price discrimination
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Practice of chargin diferent prices per unit for different quanitities of the same good or service
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Horizontal Merger
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The combining of two companies in the same industry.
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Adverse Selection
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Form of market failure resulting when products of different qualities are sold at a signle price because of asymmetric information, so that too much of the low-uality product and too little of the igh-quality product are sold. An example: The pattern in which insurance tends to be purchased disproportionately by those who are most costly for companies to insure.
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Rationing function of price
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Changes in prices that distribute scarce goods to those consumers who value them most highly.
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four primary motives for engaging in FDI?
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a. Resource seeking b. market Seeking c.Efficiency Seeking d.Responding to Competitive dynamics
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Sequential game
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Game in which players move in turn, responding to each other's actions and reactions
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Income
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Payments earned by households for selling or renting their productive resources. For example, workers receive wage or salary payments in exchange for their labor.
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Social Security System
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A social insurance program that provides financial benefits to the elderly and disabled and to their eligible dependents and/or survirors.
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store of value
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the ability to hold value over time (a function of money), also known as purchasing power
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Consumption expenditure
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Spending by households on goods and services such as food, clothing, and entertainment.
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the correct opportunity cost of holding money is
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nominal interest rate i
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Foreign Business?
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domestic business operating in foreign countries
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savings deposits
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interest-earning funds that can be withdrawn at any time without payment of a penalty
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Quantity Theory of Money
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The theory that says that the value of money is based on the amount of money in circulation, that is, the money supply.
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Despository Institution
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A financila institution whose primary financial liability is deposits in checking or savings accounts.
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Side-effects from taxes
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Inefficiency Prevention of some mutually beneficial transactions from occurring.
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Rule of 70'
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if something grows at a rate of x% a year, it will double in approximately 70/x years.
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Function of the Federal Reserve System #3
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holds depository institutions' reserves
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Outflows of FDI?"
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the flow of FDI out of the country
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Direct Regulation
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A kprogram in which the amount of a good people are allowed to use is directly limited by the government.
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term of most bonds?
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1 to 30 years. Under 1 year, they are usually referred to as money market instruments.
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Market screening eliminates:
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environmental forces.
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Intertemporal price discrimination
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Practice of separating consumers with different demand functions into different groups by charging different prices at different points in time.
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Excise Tax
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A tax that is levied on a specific good, such as tobacco.
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Hurdle method of price discrimination
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The practice by which a seller offers a discount to all buyers who overcome some obstacle.
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Dunnings Eclectic theory?
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Monopolistic/Ownership Specific Advantage (OSA) explained why firms invested overseas, Internalization explained Which form of entry the firm should take and explained Where the firm should invest through Location Specific Advantage (LSA).
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transaction deposits
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checkable and debitable account balances in commercial banks and other types of financial institutions, such as credit unions and savings banks; any accounts in financial institutions from which you can easily transmit debit-card and check payments without many restrictions
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Forward Vertical FDI?"
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choosing to invest in economic activity downstream from the core business activity of the business unit.
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VER's and VEA's?
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Voluntary export restraints (VER’S) and voluntary export agreements (VEA'S).
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callable" bond?
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A bond that can be paid back early, thus forcing the buyer to find another place to put his money.
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What is the largest denomination of US money ever created?
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100,000 in 1934.
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Capital outflows
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Purchases of foreign assets by domestic households and firms.
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Price Support
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Price set by government above free-market level and maintatined by governmental purchases of excess supply
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Carl Menger?
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Founder of Austrian school of economics. Started the neoclassical revolution.
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New Growth Theory
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a theory that emphasizes the role of technology rather than capital in the growth process.
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Deacquisition
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One company's sale of either parts of another company it has bought or parts of itself.
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Basic Needs
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Qdequate food, clothing, and shelter.
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domestic firm?
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A firm that has little or no international business activity.
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Dual Economy
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The existence of two sectors: a traditional sector and an internationally oriented modern market sector.
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Implicit costs
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All the firm's opportunity costs of the resources supplied by the firm's owners.
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excess reserves leakages
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depository institutions may wish to maintain excess reserves greater than zero (greater the excess reserves, the smaller the money multiplier)
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Acquisition
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A transaction in which a company buys another company and the purchaser has the right of direct control over the resulting operation.
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5 functions of the Fed?
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The Federal Reserve Board controls the supply of money, sets the discount rate, performs open market operations, regulates banks and other financial institutions, and supervises the FDIC.
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Who is on the $20 bill?
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Andrew Jackson.
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public debt
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the total value of all outstanding federal government securities
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fiduciary monetary system
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a system in which money is issued by the government and its value is based uniquely on the public's faith that the currency represents command over goods and services
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Maturation date
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The date at which the principal of a bond will be repaid.
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For INFERIOR GOOD, the income elasticity of demand is - or +?
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NEGATIVE
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assumption #3 for balance sheets
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an individual bank can lend as much as it is legally allowed
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What theory did Raymond Vernon promote?
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The product life-cycle theory: the idea that products are intially produced in countries with a supporting market size. Then the are filtered down to the developing world after time as costs increase in the originating country.
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Balance of Payments (BOP)?
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A measure of how much money is going into or out of a country. If it is coming in, it is a positive balance. The BOP consists of the current, capital, and reserve accounts.
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liquidity approach
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a method of measuring the money supply by looking at money as a tempory store of value
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Real quantity
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A quantity that is measured in physical termsâ€"for example, in terms of quantities of goods and services.
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According to Smith, countries should specialize in the production of goods for which they have an absolute advantage and then:
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prohibit the import of these goods from other countries
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People respond to ......
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People respond to incentives
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Average benefit
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Total benefit of undertaking n units of an activity divided by n.
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Core rate of inflation
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The rate of increase of all prices except energy and food.
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fixed investment
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expenditures by firms on new machines and buildings (capital goods) that are expected to yield a future stream of income
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Positive economic principle
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One that predicts how people will behave.
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Rise
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See Slope.
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Production
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The transformation of factors into goods and services.
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What options do corporations have for raising capital?
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Generally speaking, companies have three choices when they want to raise cash. They can issue shares of stock, they can borrow from the bank, or they can borrow from investors by issuing bonds.
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Distribution
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The allocation or dividing up of the goods and services a society produces
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Lerner Index of Monopoly Power
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Measure of monopoly power calculated as excess of price over marginal cost as a fraction of price
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Free Trade Association
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A group of countries that have reduced or eliminated trade barriers among themselves.
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relating income to saving and consumption
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saving = disposable income - consumption; or consumption + saving = disposable income
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Long Run Competitive Equilibrium
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All firms in an industry are maximizing profit, no firm has an incentive to enter or exit, and price is such that quantity supplied equals quantity demanded.
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Function of the Federal Reserve System #4
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acts as the government's fiscal agent (helps the government collect certain tax revenues and aids in the purchase and sale of government securities)
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greenfield investment?
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This is foreign direct investment that builds new factories or infastructure. It is the type of FDI most sought by host countries because it leads to infastructure and knowledge transfers.
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Earned-income tax credit (EITC)
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A policy under which low-income workers receive credits on their federal income tax.
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Substitution effect
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The change in the quantity demanded of a good that results because buyers switch to or from substitutes when the price of the good changes.
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Anchored inflationary expectations
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When people's expectations of future inflation do not change even if inflation rises temporarily.
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Phillips Curve
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Describes the general inverse relationship between unemployment and inflation.
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oligarchy
|
Govn't by the few, especially despotic power exercised by a small and privileged group for corrupt or selfish purposes. It's also a form of monopoly, but by more than one business.
|
|
Unions
|
"Workers' associations that bargain with employers over wages, benefits and working conditions"
|
|
Below the mid-point on a straight-line demand curve, demand is ___________
|
Inelastic.
|
|
Public Choice Analysis
|
The study of decision making as it affects the organization and operation of government and other collective organizations. Involves the application of economic principles to political science topics.
|
|
Yield Curve
|
A curve that shows the relationship between interest rates and bonds' time to maturity.
|
|
Product Life-Cycle Theory?"
|
Raymond Vernon... Proposed that in the life-cycle of products that their production is moved from more developed to lesser developed countries in order to lower costs.
|
|
assumption #4 for balance sheets
|
every time a loan is made to an individual (consumer or business), all the proceeds from the loan are put into a transaction deposit account; no cash is withdrawn
|
|
Balance-of-payments deficit
|
The net decline in a country's stock of international reserves over a year.
|
|
Winner-take-all labor market
|
One in which small differences in human capital translate into large differences in pay.
|
|
Quantity equation
|
Money times velocity equals nominal GDP: M × V = P × Y.
|
|
Discount rate
|
The interest rate that the Fed charges commercial banks to borrow reserves.
|
|
For COMPLEMENTS, the cross-price elasticity of demand is - or +?
|
For COMPLEMENTS, the cross-price elasticity of demand is NEGATIVE?
|
|
Partnership
|
A business with two or more owners.
|
|
First-dollar insurance coverage
|
Insurance that pays all expenses generated by the insured activity.
|
|
Means-tested
|
A benefit program is means-tested if its benefit level declines as the recipient earns additional income.
|
|
Parameter
|
See Constant.
|
|
currency drains
|
when deposits increase, public will want to hold more currency (currency in a person's wallet reamins outside banking system and cannot be held by banks as reserves from which to make loans)
|
|
The most common marketing research technique in developing nations is still:
|
a combination of cluster analysis and multiple regression analysis.
|
|
market definition for globalization?
|
The merging of historically distinct and separate national markets into one huge global marketplace
|
|
fiduciary
|
comes from the latin fiducia, which means "trust" or "confidence"
|
|
Consider the following scenario. The Netherlands exports tulip bulbs to almost every country in the world except Japan. The reason is that Japanese customs inspectors insist on checking every tulip bulb by cutting it down the middle (which destroys the bu
|
administrative trade policy.
|
|
compound tariff?
|
A TARIFF for a good that combines both a SPECIFIC TARIFF plus an AD VALOREM TARIFF.
|
|
Capital
|
Resources and goods made and used to produce other goods and services. Examples include buildings, machinery, tools, and equipment.
|
|
direct expenditure offsets
|
actions on the part of the private sector in spending income that offset government fiscal policy actions; any increase in government in an area that competes with the private sector will have some direct expenditure offset
|
|
Austrian school of economics?
|
It is is a school of economic thought that rejects opposing economists' reliance on methods used in natural science for the study of human action, and instead bases its formalism of economics on relationships through logic or introspection called "praxeology". It is a subset of classical liberal school of economics. Friedrich Hayek was a famous member.
|
|
Implicit Collusion
|
A typd of collusion in which multiple firms make the same pricing decisions even though they have not explicitly consulted with one another.
|
|
As the market in the U.S. and other advanced nations matures, the product becomes more standardized and price becomes:
|
the main competitive weapon.
|
|
Customer discrimination
|
The willingness of consumers to pay more for a product produced by members of a favored group, even if the quality of the product is unaffected.
|
|
Cash on the table
|
Economic metaphor for unexploited gain from exchange.
|
|
Outside lag (of macroeconomic policy)
|
The delay between the date a policy change is implemented and the date by which most of its effects on the economy have occurred.
|
|
entitlements
|
guarenteed benefits under a government program such as social security, medicare, or medicaid (often called noncontrollable expenditures)
|
|
Specil Interest Group
|
An organization of people with a particular legislative concern. They work together to gather information, lobby politicians, and publicize their concern.
|
|
Transnational Corporation?
|
is a firm that strives to be Global and Multi-domestic! ie: It must strive to achieve economies of scale whilst locally responsive.
|
|
main determinant of saving (Keynes)
|
income: Keynes argued that real saving and consumption decisions depend primarily on a household's present real disposable income
|
|
Currency Stabilization
|
Buying and selling of a currency by the gobernment to offset temporary fluctuations in supply and demand for currencies.
|
|
Liquidity Preference of Interest?
|
It was originally Keynes' idea. The hypothesis is that people prefer to have their money be liquid, and must have a reason for it not to be liquid. So, lowering interest rates on low liquidity investment items (30 year bonds, etc...) will make them less attractive to invest in. So, when long term interest rates drop, the demand for money rises.
|
|
Global firm?
|
A globally integrated company that tries to achieve and experience curve economies. Products tend to be largely undifferentiated and location of production is chosen to achieve "Minimized unit delivered cost to Market" with largely centralized operations.
|
|
Union Shop
|
A firm in which all workers must join the union.
|
|
Function of the Federal Reserve System #6
|
acts as the "lender of last resort" (the Federal Rserve's role as an institutions that is willing and able to lend to a temporarily illiquid bank that is otherwise in good financial condition to prevent the bank's illiquid position from lending to a general loss of confidence in that banks or in others)
|
|
Credentialism
|
When the academic degrees, or credentials, become more important than the knowledge learned.
|
|
Expected value of a gamble
|
The sum of the possible outcomes of the gamble multiplied by their respective probabilities.
|
|
Concentration Ratio
|
The value of sales by the topfirms of an industry stated as a percnetage of total industry sales.
|
|
calculation of change in equilibrium real GDP
|
multiplier X change in autonomous spending
|
|
Contractual Intermediary
|
A financial institution that holds and stores individuals' financial assets.
|
|
Efficient point
|
Any combination of goods for which currently available resources do not allow an increase in the production of one good without a reduction in the production of the other.
|
|
The establishment of a wholly new operation in a foreign country is referred to as a(n):
|
green-field investment.
|
|
Relative price
|
The price of a specific good or service in comparison to the prices of other goods and services.
|
|
Accounting cost
|
Actual expense plus depreciation charges for capital equipment
|
|
Economic profit
|
The difference between a firm's total revenue and the sum of its explicit and implicit costs; also called excess profit.
|
|
Paper Balances
|
Deposits that exist on paper but are not backed by physical currency.
|
|
Traditional Economy
|
An economy in which customs and habits from the past are used to resolve most economic issues of production and distribution.
|
|
Private saving
|
The saving of the private sector of the economy is equal to the after-tax income of the private sector minus consumption expenditures (Y âˆ' T âˆ' C); private saving can be further broken down into household saving and business saving.
|
|
causes of shifts in the consumption function
|
a change in any other relevant economic variable (besides real disposable income); # of such determinants is unlimited
|
|
Policy reaction function
|
Describes how the action a policymaker takes depends on the state of the economy.
|
|
Vickrey Auction
|
A sealed-bid auction where the highest bidder wins pays the price bid by the next-highest bidder.
|
|
Capital good
|
A long-lived good that is used in the production of other goods and services.
|
|
Induced Expenditures
|
Expenditures that change a s income changes.
|
|
Zero Economic Profit
|
A frim is earning a normal return on its investment i.e. it is doing as well as it could by investing its money elsewhere
|
|
Autonomous expenditure
|
The portion of planned aggregate expenditure that is independent of output.
|
|
Efficient markets hypothesis
|
The theory that the current price of stock in a corporation reflects all relevant information about its current and future earnings prospects.
|
|
Accounting profit
|
The difference between a firm's total revenue and its explicit costs.
|
|
M1
|
Sum of currency outstanding and balances held in checking accounts.
|
|
Planned aggregate expenditure (PAE)
|
Total planned spending on final goods and services.
|
|
Public Finance
|
Grovernment's taxing and spending policies.
|
|
Variable profit
|
Sum of prifts on each increamental unit produced by a firm
|
|
Efficiency
|
Achieving a goal as cheaply as possible. Also: using as few inputs as possible.
|
|
Supplemental Security Income (SSI)
|
A federal program that pays benefits, based on need, to the elderly, blind and disabled.
|
|
Price level
|
A measure of the overall level of prices at a particular point in time as measured by a price index such as the CPI.
|
|
Allocative function of price
|
Changes in prices direct resources away from overcrowded markets and toward markets that are underserved.
|
|
Money Multiplier
|
The number that describes the change in the money supply given an initial deposit and a reserve requirement.
|
|
Public Assistance
|
Means-testeed social programs targeted to the poor and providing financial, nutritional, medical, and housing assistance.
|
|
Firm
|
An economic institution that transforms factors fo production into goods and services.
|
|
Government Action" in Porter's Theory?
|
actions by government that could have a positive or negative effect of foreign business...
|
|
Horizontal FDI?"
|
Investing in the same economic activity abroad as one does at home.
|
|
Euribor?
|
Euribor (Euro Interbank Offered Rate) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the euro wholesale (or "interbank") money market. The Euro reference rates are based on this.
|
|
Bundling
|
Practice of selling two or more products as a package
|
|
Shoeleather Cost of Inflation
|
Costs of expected inflation caused by people having to make more trips to the bank to make withdrawals because they do not want to keep cash on hand.
|
|
Who is on the $2 bill?
|
Thomas Jefferson.
|
|
Utility
|
An abstract measure of the satisfaction consumers derive from consuming goods, services, and leisure activities.
|
|
Unit of Account
|
Something that is used universally in the description of money matters such as prices. The unit of account most commonly used in the US is the dollar.
|
|
One cultural problem a researcher faces when doing primary research is:
|
the overuse of up-to-date maps.
|
|
The __________ of foreign direct investment refers to the amount of FDI undertaken over a given period (normally a year). The __________ of foreign direct investment refers to the total accumulated value of foreign-owned assets at any time.
|
flow, stock
|
|
Speculative attack
|
A massive selling of domestic currency assets by financial investors.
|
|
Function of the Federal Reserve System #7
|
regulates the money supply
|
|
What theory did Micheal Porter promote?
|
National Competative Advantage (Porter's Diamond): Combination of the following give competative advantage in the Global Economy: 1. Factor Endowments 2. Demand Conditions 3. Relating and Supporting Industries 4. Firm Strategy, structure, and rivalry.
|
|
noncontrollable expenditures
|
government spending that changes automatically without action by Congress
|
|
Merger
|
The act of combining two firms.
|
|
Conglomerate FDI?"
|
Investing in business overseas that has no relationship to your core business.
|
|
Average Product
|
Output per worker.
|
|
Responding to Competitive dynamics?"
|
achieving First Mover Advantages or to responding to a rival's behavior in entering a new geographic market
|
|
National Resources
|
Gifts of nature†that can be used to produce goods and services; for example, oceans, air, mineral deposits, virgin forests, and actual fields of land. When investments are made to improve fields of land or other natural resources, those resources become, in part, capital resources.
|
|
Socialism
|
an economic system based on individuals' goodwill toward others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce.
|
|
Unemployment spell
|
A period during which an individual is continuously unemployed.
|
|
Economic Force
|
The necessary reaction to scarcity.
|
|
Producers
|
People and firms that use resources to make goods and services.
|
|
Conglomerate Merger
|
The merging of relatively unrelated businesses.
|
|
time deposit
|
a deposit in a financial institution that requires notice of intent to withdraw or must be left for an agreed period; withdrawal of funds prior to the end of the agreed period may result in a penalty
|
|
Structural policy
|
Government policies aimed at changing the underlying structure, or institutions, of the nation's economy.
|
|
Paasche Index
|
An index based upon a flexible basket of goods and services.
|
|
Customs Union
|
characterized by common external tariffs.
|
|
Corporation
|
A business that is treated as a person, legally owned by its stockholders. Its stockholders are not liable for the actions of the corporate "person."
|
|
three main Globalization Drivers?
|
i. Declining Trade and Investment Barriers. ii. The role of technological change iii. Competition
|
|
Competition
|
Attempts by two or more individuals or organizations to acquire the same goods, services, or productive and financial resources. Consumers compete with other consumers for goods and services. Producers compete with other producers for sales to consumers.
|
|
Who is on the $10 bill?
|
Alexander Hamilton.
|
|
Credibility of monetary policy
|
The degree to which the public believes the central bank's promises to keep inflation low, even if doing so may impose short-run economic costs.
|
|
What tend to be the riskiest type of bonds?
|
Corporate bonds.
|
|
Imperfectly competitive firm
|
A firm that has at least some control over the market price of its product.
|
|
Formula for Total Earnings
|
Total Earnings = Wage x Quantity of Labor Demanded
|
|
Opportunity benefit
|
What is gained by making a particular choice
|
|
properties of the multiplier
|
the smaller the marginal propensity to save, the larger the multiplier; the larger the marginal propensity to consume, the larger the multiplier
|
|
Chance" in Porter's Theory?
|
wholly unpredictable occurances that you cannot mitigate
|
|
development banks?
|
There are a few multilateral development banks throughout the world. Their purpose is to assist nations in economic development though loans etc.
|
|
What publishes the CPI every month?
|
The Bureau of Labor Statistics
|
|
Consumption function
|
The relationship between consumption spending and its determinants, in particular, disposable (after-tax) income.
|
|
multiplier formula
|
=1/1-MPC or 1/MPS
|
|
Economic Growth
|
An increase in real output as measured by real GDP or per capita real GDP.
|
|
Economic Functions of Government
|
In a market economy, government agencies establish and maintain a legal system to regulate both commercial and social behavior, promote competition, respond to market failures by providing public goods and adjusting for externalities, redistribute income, and establish macroeconomic stabilization policies. To perform these functions, governments must shift resources from private uses by taxing and/or borrowing.
|
|
potental money multiplier
|
the reciprocal of the required reserve ratio, assuming no leakages into currency and no excess reserves
|
|
Managing an international business is different from managing a purely domestic business for all of the following reasons except:
|
the range of problems confronted by a manager in an international business are narrower than those confronted by a manager in a domestic business
|
|
Explicit costs
|
The actual payments a firm makes to its factors of production and other suppliers.
|
|
The "Real Cost" of something is ......
|
The "Real Cost" of something is what you must give up to get it.
|
|
Per Capita Growth
|
Producing more goods and services per person.
|
|
Mixed Strategy
|
Strategy in which a player makes a random choice among two or more possible actiosn based on a set of chosen probabilities.
|
|
Average expenditure
|
Price paid per unit of good
|
|
Which of the following two statements accurately reflects the trend in foreign direct investments over the past 20 years?
|
There has been a rapid increase in the total volume of FDI undertaken and there has been a change in the importance of various countries as sources for FDI
|
|
horizontal short-run aggregate supply curve
|
there is excessive unemployment and unused capacity in the economy (classical assumptino of everlasting full employment no longer holds)
|
|
Third Degree Price Discrimination
|
Practice of dividing consumers into tow or more groups with separrate demand curves and charging different prices to each group
|
|
REGIONAL ECONOMIC INTEGRATION (TRADING GROUPS)?
|
Groups of Countries come together in order to improve economic conditions in their countries.
|
|
Statistical discrimination
|
The practice of making judgments about the quality of people, goods, or services based on the characteristics of the groups to which they belong.
|
|
average propensity to consume (APC)
|
the proportion of total real disposable income that is consumed
|
|
In accounting, what is used for inventory: FIFO or LIFO?
|
LIFO in the United States.
|
|
Coase theorem
|
If at no cost people can negotiate the purchase and sale of the right to perform activities that cause externalities, they can always arrive at efficient solutions to the problems caused by externalities.
|
|
Signaling
|
An action taken by an infomed party that reveals information to an uninformed party and thereby partially offsets adverse selection.
|
|
The most global of markets are not markets for __________, where national differences in tastes and preferences are still often important enough to act as a break on globalization.
|
consumer goods
|
|
five levels of integration of a Trading Group?
|
a. Free Trade Area b. Customs Union c. Common Market d. Economic Union e. Political Union
|
|
M2
|
M1 plus savings deposits, small-demonimation time deposits, and money market mutual fund shares, along with some esoteric financial instruments.
|
|
Principle
|
The initial amount of money given as a loan.
|
|
Economic Union
|
characterized by harmonization of economic policies of member nations, including introducing a common currency.
|
|
what does it mean by capital intensive?
|
Is a country relying on machinery, rather than labor.
|
|
Backward Vertical FDI?"
|
choosing to invest in economic activity upstream from the core business activity of the business unit.
|
|
Pareto-efficient
|
See Efficient.
|
|
Factor of production
|
An input used in the production of a good or service.
|
|
What is the relationship between a nation's capital and current accounts?
|
Inverse if a neutral balance of payments is to be obtained.
|
|
Flow
|
A measure that is defined per unit of time.
|
|
Demand-Pull Inflation
|
Inflation that o curs when the economy is at or above potential output.
|
|
Secure Debt
|
Credit with collateral (a house or a car, e.g.) for the lender
|
|
Resources
|
The three (or four) basic kinds of resources used to produce goods and services: land or natural resources, human resources (including labor and entrepreneurship), and capital.
|
|
labor-force participation rate
|
the percentage of the adult population that is in the labor force
|
|
Health maintenance organization (HMO)
|
A group of physicians that provides health services to individuals and families for a fixed annual fee.
|
|
holding co mpany?
|
Business owning a majority of stock in member companies and therefore able to dictate common policy. Warren Buffett's Berkshire Hathaway is one of the largest publicly traded holding companies; it owns numerous insurance companies, manufacturing businesses, retailers, and other companies.
|
|
Galton's Fallacy
|
"higher growth rates imply eventual `convergence' i.e. While the poor countries might have higher percentage growth rates, this does not mean that they are closing the absolute output gap with rich countries"
|
|
Economic Takeoff
|
A stage when the development process becomes self-sustaining.
|
|
causes of inflation
|
decline in long-run aggregate supply (continual reductions in economywide production) and if aggregate demand curve shifts rightward over time at a faster pace then the rightward progression of the long-run aggregate supply curve
|
|
Federal Reserves notes
|
largest component of U.S. currency (paper bills); distributed by the Fed
|
|
The quantity equation
|
MV=PY, M is the amount of money in the economy, V is the velocity of money, P is the aggregate price level, Y is the real value of the goods and services traded
|
|
Tragedy of the commons
|
The tendency for a resource that has no price to be used until its marginal benefit falls to zero.
|
|
Capital inflows
|
Purchases of domestic assets by foreign households and firms.
|
|
Services
|
Activities performed by people, firms, or government agencies to satisfy economic wants.
|
|
multi-domestic firm?
|
Multi-domestic firm is one that focuses on local responsiveness! Product offerings are customized and a complete set of value creating activities are developed in each country/region, with largely autonomous decentralized organizations.
|
|
Induced aggregate demand
|
The portion of aggregate demand that is determined within the model.
|
|
According to our textbook, the growing integration of the world economy is:
|
increasing the intensity of competition in a wide range of manufacturing and service industries
|
|
Present value of a perpetual annual payment
|
For an annual interest rate r, the present value (PV) of a perpetual annual payment (M) is the amount that would have to be deposited today at that interest rate to generate annual interest earnings of M: PV = M / r.
|
|
45 degree reference line
|
the line along which planned real expenditures equal real GDP per year
|
|
Production Function
|
Y = A f (L,K,H,N) sets out the relationship between the quantity of inputs used in production and the quantity of output from production
|
|
Why is the price elasticity of demand almost always a negative number?
|
Because the law of demand says that the demand curves slope downward.
|
|
Passive Deficit
|
The part of the deficit that exists because the economy is operating below its potential level of output.
|
|
payment intermediaries
|
institutions that facilitate transfers of funds between depositors who hold transactions deposits with those institutions
|
|
Who is most affected by per unit taxes?
|
The cost of per unit taxes is split between the buyer and the seller.
|
|
Stackelberg Model
|
Oligopoly model in which one firm set its output before other firms do.
|
|
Precautionary saving
|
Saving for protection against unexpected setbacks, such as the loss of a job or a medical emergency.
|
|
For Substitutes, the cross-price elasticity of demand is - or +?
|
For substitutes, the cross-price elasticity of demand is POSITIVE
|
|
Purchasing Power
|
The amount of goods and services that a unit of currency can buy.
|
|
Economies of Scope
|
Joint outuput of a single firm is greater than output that could e achieved by two different firms when each produces a single product
|
|
Distorted assett allocation, black markets, and shortages can result from what economic regulation?
|
Price controls.
|
|
Pure Strategy
|
Strategy in which a player makes a specific choice or takes a specific action
|
|
Two types of "Absolute Advantages?"
|
NATURAL ADVANTAGE (climate, resource availability, eg: abundant labor) ADVANTAGE (technology or developed skills eg: training).
|
|
indirect effect of an increase in the money supply
|
banks lower interest rates that they charge on loans-->encourages people to take out those loans-->businesses engage in new investment with the funds loaned-->individuals will engage in more consumption of durable goods (housing, autos, and home entertainment centers)-->generates a rise in aggregate demand--->more people involved in more spending
|
|
First degree price discrimination
|
Practice of charging each customer her reservation price
|
|
Net capital inflows
|
Capital flows that are equal to foreign purchases of domestic assets (which bring funds into the country) minus domestic purchases of foreign assets (which send funds out of the country); that is, capital inflows minus capital outflows.
|
|
Rule of 72
|
The number of years it takes for a certain amount to double in value is equal to 72 divided by its annual rate of interest.
|
|
Vertical intercept
|
The value taken by the dependent variable when the independent variable equals zero.
|
|
Internal Debt
|
Government debt owed to other fovernmental agencies or to its own citizens.
|
|
Fair gamble
|
A gamble whose expected value is zero.
|
|
Commitment problem
|
A situation in which people cannot achieve their goals because of an inability to make credible threats or promises.
|
|
Inflation hawk
|
Someone who is committed to achieving and maintaining low inflation, even at some short-run cost in reduced output and employment.
|
|
Lemons model
|
George Akerlof's explanation of how asymmetric information tends to reduce the average quality of goods offered for sale.
|
|
What happens if the fed interest rate goes too low?
|
Inflation.
|
|
How does the Bureau of Labor Statistics calculate unemployment?
|
egularly gathers data from 60,000 households to compute the unemployment rate.
|
|
Compare the four basic types of economic systems.
|
Traditional, are ecomies decided by social customs; market economies, are economiesdecided by individuals; command are by gov't; mixed econ are by a combination of markets and gov't
|
|
Monitoring Costs
|
costs incurred by the organizer of production in seeing to it that the emplooyees do what they're supposed to do.
|
|
Benefit Budget
|
An element of financial planning where all income is listed and compared to all expenditures. Often expenditure decisions need to be made to hold spending less than or equal to income.
|
|
main determinant of saving (classical model)
|
the rate of interest (the higher the rate of interest, the more peole wante to save, and therefore the less people wanted to consume)
|
|
How can firms acheive "first mover advantage?"
|
Investing in becoming a first mover requires a large allocation of cash.
|
|
Economic Efficiency
|
Maximization of aggregate consumer and producer surplus
|
|
Specific Tax
|
Tax of a certain amount of money per unit sold
|
|
Optimal Comparative Advantage (Crusoe/Friday)
|
"for each to be completely specialised in produc-tion, and will then trade in order to get some of the other's good"
|
|
Perfect hurdle
|
One that completely segregates buyers whose reservation prices lie above some threshold from others whose reservation prices lie below it, imposing no cost on those who jump the hurdle.
|
|
Life-cycle saving
|
Saving to meet long-term objectives, such as retirement, college attendance, or the purchase of a home.
|
|
Government Bonds
|
Bonds issued by the gov't & bought & sold by the Fed as a form of monetary policy to manipulate the money supply.
|
|
Pure commons good
|
One for which nonpayers cannot easily be excluded and for which each unit consumed by one person means one less unit available for others.
|
|
Peak
|
The beginning of a recession, the high point of economic activity prior to a downturn.
|
|
Say's Law
|
A law that staes that supply creates its own demand.
|
|
3 core Classical Trade Theories?
|
Absolute advantage (natural and acquired) Comparative advantage (David Ricardo) Factor Proportions theory ( Heckscher & Ohlin). Some empirical contradictions (Leontif).
|
|
Federal Funds Market
|
a private market (made up mostly of banks) in which banks can borrow reserves from other banks that want to lend them (usually lent for overnight use)
|
|
benefit of municipal bonds?
|
They are always free from federal tax, and usually free from state and local tax. Because of this, their yields can be lower.
|
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Firm's structure, strategy, and rivalry" imply in Porter's Theory?
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"Different nations are characterized by different management ideologies help or hinder the evolution of national competitiveness. Competition in an industry also tends to breeds rivalry and innovation, improved quality, cost reduction and investment in upgrading same."
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Investment
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Spending by firms on final goods and services, primarily capital goods. (also a flow concept): expenditures on new machines and buildings (capital goods) that are expected to yield a future stream of income
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calculation of multiplier
|
1/1-MPC or 1/MPS
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Competitiveness
|
The ability of a country to sell its goods to other countries.
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Price setter
|
A firm with at least some latitude to set its own price.
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What theory did Leontief promote?
|
Leontief Paradox: Leontief performed empirical tests on the "factor endowment" idea and found that it does not predict real world scenarios.
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Market Seeking?"
|
explore new market opportunities, to circumvent prohibitive protectionist policies and actions such as tariffs and quotas, to establish a local presence to ensure product and customer service availability, to meet buy national requirements, to become more visible locally by hiring many local staff, paying local taxes and to serve a wider range (portfolio) of markets.
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multiplier
|
the number by which a change in autonomous real investment or autonomous real consumption, for example, is multiplied to get the change in equilibrium real GDP
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Efficiency Seeking?"
|
Seeking to minimizing unit delivered cost to market, for both production and delivery (transportation, insurance, marketing, tariffs etc), to establish a portfolio of production sources reducing risk, obtaining knowledge including technology and skills.
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Fisher effect
|
The tendency for nominal interest rates to be high when inflation is high and low when inflation is low.
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Corporate Takeover
|
An action in which another firm or a group of individuals issues a tender offer (that is, offers to buy yup the stock of a company) to gain control and to install its own managers.
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Related and supporting industries" in Porter's Theory?
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Presence of supplier and related industries
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money market mutual funds
|
funds obtained from the public that investment companies hold in common and use to acquire short-maturity credit instruments, such as certificates of deposit and securities sold by the U.S. government
|
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income velocity of money (V)
|
the number of times per year a dollar is spent on final goods and services; identically equal to nominal GDP divided by the money supply
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Market Failure
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Situation in which an unregulated competitive market is inefficient because prices fail to provide proper signals to consumers and producers
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WILLINGNESS TO BUY
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The maximum price at which he or she would buy a good
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Public saving
|
The saving of the government sector is equal to net tax payments minus government purchases (T âˆ' G).
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Efficient (or Pareto-efficient)
|
A situation is efficient if no change is possible that will help some people without harming others.
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Parallel Conduct
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Form of implicit collusion in which one firm consistently follows actions of another
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consumption goods
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goods purchase by households for immediate satisfaction or to use up (ex. food, movies)
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average propensity to save (APS)
|
the proportion of total real disposable income that is saved
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Resource seeking?"
|
to ensure that a firm can always access resources that are essential to a firm's long run survival.
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Stabilization policies
|
Government policies that are used to affect planned aggregate expenditure, with the objective of eliminating output gaps.
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The conditions governing how companies are created, organized, and managed and he nature of domestic rivalry is referred to as
|
demand conditions.
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Function of the Federal Reserve System #2
|
provides payment-clearing systems: long operated systems for transmitting and clearing payments
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Gains from specialization and trade are always possible as long as .................
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Gains from specialization and trade are always possible as long as OPPORTUNITY COSTS DIVERGE
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Degree of economies of scope
|
Percentage of cost savings resulting when two or more products are produced jointly rather than individually
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Monetarist Theory
|
A macroeconomic theory holding that the main cause of changes in the business cycle are changes in money supply.
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Comparative Business/Management?
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compared business practices/management in various countries that are different enough to justify study and separate treatment in the academic curriculum
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Economic Policy
|
an action (or inaction) taken by government to influence economic actions.
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Capital losses
|
Decreases in the value of existing assets.
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Hostile Takeover
|
A merger in which the firm being taken over doesn't want to be taken over.
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Which of the following two theories justify some limited and selective government intervention to support the development of certain export-oriented industries?
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The new trade theory and theory of national competitive advantage
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simplifying assumptions of Keynesian model
|
businesses pay no indirect taxes (ex. sales taxes); businesses distribute all of their profits to shareholders; there is no depreciations (capital consumption allowance), so gross private domestic investment = net investment; the economy is closed (there is no foreign trade)
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saving function
|
the complement of the consumption function
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capital budget
|
expenditures on investment items, such as machines, buildings, roads, and dams
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Rate of Return regulation
|
The maximum price allowed by a regulatory agency is based on the rate of return that a firm will earn
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Wage
|
Payments for labor services that are directly tied to time worked, or to the number of units of output produced.
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WOS?
|
wholly owned subsidiary
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Direct Relationship
|
A relationship in which when one variable goes up, the other goes up too.
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convertible bonds?
|
They carry a provision that the bond can be converted into shares of common stock under certain circumstances. Convertible bonds can be more attractive that bonds with no conversion provision, depending on the price of the underlying stock.
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Costly-to-fake principle
|
To communicate information credibly to a potential rival, a signal must be costly or difficult to fake.
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Normal Rate of Profit
|
Profits just high enough to compensate producers for the explicit and implicit costs (including opportunity costs) they incur in producing a particular good or service, without leading to any net entry or exit by producers in that market. Also called normal profits. Normal profits are an economic cost of production; they mark a point at which any lower level of profit would lead a producer to pursue some other use of his or her resources.
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Consumption possibilities
|
The combination of goods and services that a country's citizens might feasibly consume.
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Personal Responsibility Act
|
The 1996 federal law that transferred responsibility for welfare programs from the federal level to the state level and placed a five-year lifetime limit on payment of afdc benefits to any given recipient.
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Positional arms control agreement
|
An agreement in which contestants attempt to limit mutually offsetting investments in performance enhancement.
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asset demand
|
holding money as a store of value instead of other assets such as certificates of deposit, corporate bonds, and stocks
|
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Personal Consumption Expenditure (PCE) Deflator
|
A measure of prices of goods that consumers buy that allows yearly changes in the basket of goods that reflect actual consumer purchasing habits.
|
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Two-part tariff
|
Form of pricining in which consumers are charged both an entry and a usage fee.
|
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Disappearing political discourse
|
The theory that people who support a position may remain silent, because speaking out would create a risk of being misunderstood.
|
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Socially optimal quantity
|
The quantity of a good that results in the maximum possible economic surplus from producing and consuming the good.
|
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Commitment device
|
A way of changing incentives so as to make otherwise empty threats or promises credible.
|
|
Demand tends to become more or less elastic over time?
|
More Elastic, because consumers have more time to adjust to a price change.
|
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Utilitarianism
|
A moral theory in which the right course of action is the one that results in the highest total utility.
|
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Global Corporation
|
Corporation with substantial operations on bothe the production and sales sides in more than one country.
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|
According to former Secretary of Labor Robert Reich, the propensity of firms to outsource many of their productive activities to different suppliers around the world has resulted in the creation of __________ products.
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global
|
|
transactions approach
|
a method of measuring the money supply by looking at money as a medium of exchange
|
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Effluent Fees
|
Charges imposed by government on the level of pollution created.
|
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Economic Principle
|
A commonly held economic insight stated as a law or general assumption.
|
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Economically Efficient
|
A method of production that produces a fiven level or output at the lowest possible cost.
|
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debt utilization ratio?
|
Debt utilization ratios measure how well the firm is utilizing debt and XYZ company's ability to repay the debt. Many novice investors believe that a company with no debt is superior. Having little debt on the balance sheet is generally very safe. But most companies assume debt to finance operations so the company can grow. General finance textbooks state that the ideal ratios is around 30%, due to leveraged buyouts the ratio of debt to assets or equity has been increasing.
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Sherman Antitrust Act
|
A U.S. law designed to regulate the competitive process.
|
|
Gold Specie Flow Mechanism
|
The long-run adjustment mechanism that maintained the gold standard.
|
|
_______ are the two macro factors that seem to underlie the trend toward greater globalization.
|
The decline in barriers to the free flow of goods, services, and capital Technological change
|
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Positive analysis
|
Addresses the economic consequences of a particular event or policy, not whether those consequences are desirable.
|
|
Land Bank Program
|
A program in which government supports prices by fiving farmers economic incentives to reduce supply.
|
|
ad valorem tariff?
|
A Tariff based on a percentage of the price of a good.
|
|
Board of Governors
|
The leadership of the Fed, consisting of seven governors appointed by the president to staggered 14-year terms.
|
|
_______ theory of international trade suggests that the production of products is likely to switch from advanced countries to developing countries over time.
|
Product life-cycle
|
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Rent
|
The income from a factor of production that is in fixed supply.
|
|
Transfer payments
|
Payments the government makes to the public for which it receives no current goods or services in return.
|
|
calculation of potential money multiplier
|
1/required reserve ratio
|
|
Economic rent
|
That part of the payment for a factor of production that exceeds the owner's reservation price, the price below which the owner would not supply the factor.
|
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User cost of capital
|
The annual cost of owning and using a capital asset, equal to economic depreciation plus forgone interest
|
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Wealth Accounts
|
A balance sheet of an economy's stock of assets and liabilities.
|
|
Basic elements of a game
|
The players, the strategies available to each player, and the payoffs each player receives for each possible combination of strategies.
|
|
What trade theory did Adam Smith promote?
|
Absolute advantage: A country has an absolute advantage in the production of a product when it is more efficient than other countries.
|
|
Normal profit
|
The opportunity cost of the resources supplied by the firm's owners; Normal profit = Accounting profit âˆ' Economic profit.
|
|
Official Reserves
|
Government holdings of foreign currencies.
|
|
Entrepreneur
|
an individual who sees an opportunity to sell an item at a price higher than the average cost of producing it.
|
|
Bequest saving
|
Saving done for the purpose of leaving an inheritance.
|
|
effect time lag
|
the time that elapses between the implementation of a policy and the results of that policy
|
|
Demand Conditions" in Porter's Theory?
|
#NAME?
|
|
precautionary demand
|
holding money to meet unplanned expenditures and emergencies
|
|
transactions demand
|
holding money as a medium of excahnge to make payments (the level varies directly with nominal GDP)
|
|
Credible promise
|
A promise to take an action that is in the promiser's interest to keep.
|
|
International Business:
|
private or governmental business that involves activities crossing national boundaries
|
|
The U.S. has been an attractive target for FDI for all of the following reasons except:
|
the lack of competition.
|
|
equation of exchange
|
the formula indicating that the number of monetary units (Ms) times the number of times each unit is spent on final goods and services (V) is identical to the price level (P) times real GDP (Y)
|
|
Commodity Money
|
Money that has an intrinsic value, that is, value beyond any value given to it because it is money. An example of this would be a gold coin that has value because it is a precious metal.
|
|
calculation of required reserves
|
transaction deposits X required reserve ratio
|
|
Portfolio allocation decision
|
The decision about the forms in which to hold one's wealth.
|
|
What is the effect of a "Protectionist policy" on the global economy?
|
Protectionism is often shortsighted and fails in the long run.
|
|
liquidity ratio?
|
A measure of how quickly a firm can convert its assets into cash to settle debts.
|
|
Fiat Money
|
Money that has no intrinsic value, that is, its only value comes from the fact that a governing body backs & regulates the currency. This system only works if a gov't backs the money & regulates its production.
|
|
Principal amount
|
The amount originally lent.
|
|
Tax Incentive Program
|
A progrma using a tax to create incentives for individuals to structure their activites in a way that is consistent with the desired ends.
|
|
Perfectly discriminating monopolist
|
A firm that charges each buyer exactly his or her reservation price.
|
|
Dominant Firm
|
irm with a large share of total sales that sets price to maximize profits, taking into account the supply response of smaller firms
|
|
What accounting system did merchants of Venice in the late 1400s use?
|
Double entry bookkeeping.
|
|
Demand for money
|
The amount of wealth an individual or firm chooses to hold in the form of money.
|
|
Function of the Federal Reserve System #8
|
intervenes in foreign currency markets (attempts to keep the value of the dollar from changing by buying and selling U.S. dollars in foreign exchange markets)
|
|
North American Industry Classification System (NAICS)
|
An industry classification that categorizes industries by type of economic activity and groups firms with like production processes.
|
|
Three problems with the CPI
|
The substitution bias, the introduction of new items, and quality changes.
|
|
Sin Tax
|
A tax that discourages activities society believes are harmful (sinful).
|
|
Principal-Agent problem
|
Problem arising when agents purseue their own goals frather than the goals of principals
|
|
What makes up a nation's Balance of Payments?
|
The current, capital, and reserve accounts.
|
|
Human capital theory
|
A theory of pay determination that says a worker's wage will be proportional to his or her stock of human capital.
|
|
National saving
|
The saving of the entire economy, equal to GDP less consumption expenditures and government purchases of goods and services, or Y âˆ' C âˆ' G.
|
|
Duration
|
The length of an unemployment spell.
|
|
autonomous consumption
|
the part of consumption that is independent of the level of disposable income; changes in autonomous consumption shift the consumption function
|
|
automatic transfer accounts
|
funds are automatically transferred from savings deposits to transactions depsits whenever the account holder makes a debit-card transaction or writes a check that would otherwise cause the balance of transactions deposits to become negative
|
|
Cash Flow Accounting System
|
An accounting system entering expenses and revenues only when cash is received or paid out.
|
|
The two main components of globalization are:
|
the globalization of markets and the globalization of production
|
|
What happens if the fed interest rate goes too high?
|
Unemployment and low economic growth.
|
|
lump-sum tax
|
a tax that does not depend on income
|
|
What is the life span for a US treasury note?
|
Commonly used bills such as the 1,5,10, and 20 dollar bills last about 2 years. For the 2, 50 and 100, it can be over 4 years.
|
|
Who is on the $5 bill?
|
Lincoln.
|
|
What trade theory did David Ricardo promote?
|
Comparitive Advantage: The theory that countries can specialize in the production of goods in which they are more efficient.
|
|
Positional externality
|
Occurs when an increase in one person's performance reduces the expected reward of another's in situations in which reward depends on relative performance.
|
|
fedwire
|
electronic payments transfer system operated by the Federal Reserve System (about 2,000 U.S. depository institutions use to process interbank payments)
|
|
major theories of FDI?
|
1. Monopolistic Advantage theory 2. Strategic Behavior (Following competitors) 3. Horizontal FDI (FDI in the same industry abroad as at home) 4. Dunnings Eclectic theory (Location Theory)
|
|
STRATEGIC(NEW) TRADE THEORY?
|
Paul Krugman. many industries where the world market can only support a certain number of firms. Firms which enter the industry at the beginning, capture: first mover advantages to achieve: economies of scale and scope, benefit from learning curve effects. Firms develop a competitive advantage over any potential rivals. This creates barriers to entry for other prospective firms.
|
|
Inflation shock
|
A sudden change in the normal behavior of inflation, unrelated to the nation's output gap.
|
|
actual change in money supply
|
actual money multiplier X change in total reserves
|
|
Inflation Tax
|
An implicit tax on the holders of cash and the holder of any obligations specified in nominal terms.
|
|
Efficient quantity
|
The efficient quantity of any good is the quantity that maximizes the economic surplus that results from producing and consuming the good.
|
|
retaliation?
|
A tool that some Governments use to try to force other governments to play by the rules.
|
|
Embargo
|
A total restriction on the import or export of a good.
|
|
Game tree
|
See Decision tree.
|
|
What important policy implications evolve from an understanding of Porter's Diamond of National Advantage?
|
it is in the best interest of a firm to upgrade its advanced factors of production: eg: employee training and R & D. Equally, firms should lobby the government to urge them to increase investment in education, infrastructure, and R & D, and to promote strong competition in domestic markets.
|
|
Vertical Merger
|
A combination of two companies that are involved in different phases of producing a product.
|
|
Laspeyres Index
|
An index where the basket of goods is fixed.
|
|
International reserves
|
Foreign currency assets held by a government for the purpose of purchasing the domestic currency in the foreign exchange market.
|
|
Financial Institution
|
A business whose primary activity is buying, selling, or holding financial assets.
|
|
Credible threat
|
A threat to take an action that is in the threatener's interest to carry out.
|
|
assumption #6 for balance sheets
|
depository institutions have zero net worth
|
|
Common Market
|
Characterized by free movement of factors of production.
|
|
Reverse Engineering
|
The process of a firm buying other firms' products, disassembling them, figuring out what;s special about them, and then copying them within the limits of the law.
|
|
subsidies?
|
Government payments to domestic producers. They take the form of cash grants, low interest loans, tax breaks, and government equity participation
|
|
Employer discrimination
|
An arbitrary preference by an employer for one group of workers over another.
|
|
generic definition for globalization?
|
the trend towards a more integrated and interdependent global Economic systems
|
|
Third-Party-Payer Market
|
A market in which the person who receives the good differs from the person paying for the good.
|
|
Price Signaling
|
Form of implicit collusion in which a firm announces a price increase in the hope that other firms will follow suit
|
|
Bertrand model
|
Oligopoly model in which firms produce a homogeneous good, each firm treats the price of its competitors as fixed, and all frims decide simultaneously what price to charge
|
|
Marginal Value
|
Additional benefit derived from purchaisn on more unit of a good
|
|
Net Domestic Product (NDP)
|
The sum of consumption expenditures, government expenditures, net exports, and invetment less depreciation.
|
|
net public debt
|
gross public debt minus all government interagency borrowing
|
|
Out of the Labor Force
|
Describes people who are not employed and are not currently looking for employment. This includes children and retirees.
|
|
Discount window lending
|
The lending of reserves by the Federal Reserve to commercial banks.
|
|
Goods
|
Tangible objects that satisfy economic wants
|
|
Robert Reich's suggestion about the global economy?
|
economic national identity is becoming increasingly superfluous, increases in outsourcing is leading to the emergence of Global Products rather than defining products with a "National identity"
|
|
Rational spending rule
|
Spending should be allocated across goods so that the marginal utility per dollar is the same for each good.
|
