Macroecon FINAL

When were income taxes introduced?

1913

How can you end a boom-bust cycle?

cut spending, cut taxes, allow labor markets to adjust, allow full liquidation and adjustment (allow final market price), stop every form of credit expansion

unit elasticity

1

Which of the following BEST explains the foundations of sound macroeconomic policy A. The acknowledgement that the boom and bust cycle is caused by monetary policy B. The acknowledgement that the boom and bust cycle is caused by greed C. The acknowledgement that the boom and bust cycle is caused by income inequality D. The acknowledgement that the boom and bust cycle is caused by stock speculators

A. The acknowledgement that the boom and bust cycle is caused by monetary policy

What's the main reason money is important to the entrepreneur?

Allows him to make profit and loss calculations

Whats the moral imperative surrounding consumer or producer sovereignty?

Both are stewards, neither is sovereign

Is the relationship between marketability and demand positive or negative?

Positive

What are the 3 pillars of economic development?

Capital accumulation Division of labor Entrepreneurship

Describe the outcomes of quality standards

Claims to protect consumers, but actually raises prices and stifles innovation.

Debasement types (all lower PPM)

Clipping Dilution (adding other metals into coins to lessen value) Renaming it (not clear on value)

Taxes

Coerced levy paid by citizens to the states

What are capital goods?

Produced Means of Production (Factors), Intermediate stages, combination of Land, Labor, and Time

What are the three types of epistemology?

Empiricism, relativism, skepticism

Formula for the price elasticity of demand?

Ep^d = % change in quantity demanded / % change in price

What are some fraudulent tactics used in money production?

Freud and counterfeiting Fractional reserve banking (bank itself counterfeiting)

Communism socialism:

Global socialism of the Soviets

Describe the outcomes of production controls

Grants privilege to particular firms Can produce 'legal' monopoly Protects some from competition Blocks and harms possible new firms Customers pay higher prices, with fewer alternatives Invites corruption

What are the problems found in barter economies?

Indivisibility Double Coincidence of Wants Trade can be stifled Neither party is better off

Describe the 3 key ways that governments obtain revenue

Inflation Taxation Borrowing

Malinvestment

Investments which are not economically sound, but are taken on due to an artificial expansion in credit. Loans at low interest, bid up housing, when don't meet consumers needs

How is economics a social science?

It studies how people interact

How does the Federal Reserve manipulate money stock?

Open market operations Committee (buy and sell bonds) Discount rate (interest rate feds charged bank to borrow) (increase rate = decrease money supply) Reserve requirement (10% keep of deposit)

Which of the following is false about sound macroeconomic policy? Knows what causes the business cycle: macroeconomic policy (gov interference) It's smart to have the government intervene Allows unsound decisions to run its course and bear its losses (don't intervene more) Prevent government spending and taxing that destroys savings

It's smart to have the government intervene

Why must recessions be monetary in nature?

Its the rise and crash of money, and money is the only good that is traded in ALL markets

Who invented GDP?

John Keynes

What is the root cause of recession and depression?

Manipulation of money supply (macroeconomic policy), result of gov intervention like Monetarist and Keynesianism

Socialism's view on humanity vs Christian

Material conditions will create a 'new man' vs. election and regeneration will create a 'new man'

Fascism socialism:

National socialism of the Nazis, allow owners to retain their business names but production is directed by the state, gov official runs it.

Direct effect of market intervention

Necessarily creates partiality and conflict. One benefits on the expense of others.

Harmed class

Net payers "tax payers" Middle class pay most

Describe the outcomes of safety standards

OSHA creates and enforces workplace safety Favors firms that can afford the increased cost Disfavors workers blocked from employment Higher prices or lower profits Little safety improvement

What are the three definitions of monopoly?

One seller Government granted privilege Market power

What is the role of unions?

Organized workers who bargain collectively with employers

Describe the outcomes from free market exchange

Producers MUST keep old customers while attracting new ones Customers demand quality and safety Misrepresentations are punished in the market Or in courts!

Define truth

Something that is factually correct and corresponds to reality.

Definition of the study of economics

Study of how humans act to solve the two big problems of aggravated scarcity and diminished capacity

3 central problems with socialism

The Incentive Problem: people don't want to work hard anymore, no incentive The Knowledge Problem: central planners cannot know everything people know, can't grasp all of society's wants, subj values, etc. The Calculation Problem: no prices so don't know how much work is worth, etc. No prices — Profit/Loss can't be calculated — No rational direction of resources

What's Mises definition of human action?

The application of means to achieve an end

Socialism

The means of production are controlled or owned by the state.

What is the role of cartels?

They are firms that act in concert to maximize profits Reduce competition between themselves Create Inelastic Demand

What was Marx's view on "classes and races that are too weak"?

They must perish in the revolutionary holocaust

How do banks use bank notes?

They trust a person, issue more notes than gold/silver available. Creates increase in supply, decrease in PPM

Why did bank notes emerge?

To replace gold

Marx's polylogism

Used it against critics of his ideas, different classes have different logics.

Define free markets

a system of voluntary exchange. Allows everyone to achieve more of their ends.

Which statement best describes the role of civil authorities according to Romans 13? a. Punish evil actions in society b. Punish evil thoughts in society c. To set prices, wages, and quality standards for goods and services d. To impose high taxes on the wealthy

a. Punish evil actions in society

Which statement best describes why and how Christians should pray for civil authorities according to 1 Timothy 2? a. That they would leave God's people alone to live godly, peaceful, and dignified lives b. That they would be victorious in every military campaign c. That they would make war against every non-believing nation until they accept Christ d. That they would adopt the Old Testament law in order to ensure military success

a. That they would leave God's people alone to live godly, peaceful, and dignified lives

Which of the following does NOT apply to the role of the entrepreneur in society? a. The entrepreneur is inherently deceitful and greedy for their own gain b. The entrepreneur is a part of the division of labor c. The entrepreneur wisely coordinates the use of land, labor, and capital d. The entrepreneur takes on risks that others are unable or unwilling to take on

a. The entrepreneur is inherently deceitful and greedy for their own gain

Keynesianism claimed that recession results from a lack of ____________ _______________

aggregate demand

Which of the following does NOT reflect the implications of division of labor? a. It allows more goods to emerge from the same amount of resources b. It allows for the exploitation of the weak at the hand of the more productive c. It highlights the geographic differentiation and diversity of the earth d. It highlights the reality that people have received different abilities from God

b. It allows for the exploitation of the weak at the hand of the more productive

What statement best defines the Free Market? a. The use of regulation and controls to establish just economic outcomes b. The use of voluntarism that allows everyone to achieve more of their own ends c. The use of wealth to redistribute money to all in a way the keeps leaders in power d. The use of money to keep democratically elected officials in their positions

b. The use of voluntarism that allows everyone to achieve more of their own ends

What statement best describe the impact of market intervention? a. It always creates increased harmony, unity, and brotherhood in society b. It always creates a decreased gap between the rich and the poor c. It always benefits one party at the expense of another d. It always creates national prosperity and security

c. It always benefits one party at the expense of another

Which of the following does NOT apply to the role of capital in society? a. Capital can either be accumulated, maintained, or consumed b. Its accumulation relies on people having low time preferences c. Its accumulation relies on people having high time preferences d. It is an inherently international phenomenon

c. Its accumulation relies on people having high time preferences

Income tax creates disincentives for...

production and labor, land use, investment

if PPM increases, prices ______

decrease

increase supply of money causes ___________ PPM

decreased

What is a lower order good?

downstream, finished good, ready (subway sandwich)

What's the cause of boom-bust cycles?

excessive credit production

What happens to overall demand when there is a change in expected prices?

expect price to go up in the future, demand would go up now (so to the right, increase)

Describe the outcomes of government licensing

favors those who can actually afford it, form of barrier to entry for business Required for operation or supply of good or service Decreases the potential for voluntary exchange

What is fiat currency?

government-issued currency that isn't backed by a commodity such as gold

if PPM decreases, people will want to...

hold their money, save it (value goes down)

Whats the flaw with monetarism?

idea of precise ability to steer economy

what's a price ceiling?

impose maximum price, favored by buyer

what's a price floor?

impose minimum price, favored by seller

What happens to overall supply when there are investments in production?

increase in investment in business, (to the RIGHT), increase (+)

What happens to overall demand when there are changes in consumer income?

increase income = increase demand for a good (+ relationship) (inferior good = decrease demand) (left is decreasing) (normal good (rich ppl stuff) = increase demand) (right is increasing)

if the demand for goods decreases, PPM _________, prices ___________ in stores

increases, decreases

Keynesianism believed that ___________ is the sole determinant of present and future income and production

investment

What is relativism?

knowledge is relative to one's culture, different types of logic

What is empiricism?

knowledge originates in experience and relies on science

inelastic

less than 1 (small change in demand, loyal buyers, ex: gas)

Monetarists believed that inflation would fix itself, why is this a problem?

malinvestment, different investments, production may cease

Keynesianism believed that income is consumed again by "_____________ ____________ __ _____________" (how much would you spend of a certain amount)

marginal propensity to consume

What's a good example of price floor?

minimum wage

if a consumer has less confidence in the value of his money, this will cause them to spend _______.

more

Decreasing time preferences leads to..

more savings

Increased time preferences leads to..

more spending

elastic

more than 1 (large change, luxury items)

Monetarists saw money as _____________

neutral

Keynesianism was a rejection of economic __________________

orthodoxy

In Monetarism, one key claim was that PPM is _____________ of price level meaning that when PPM increases, prices decrease automatically.

reciprocal (inverse)

What's a good example of price ceiling?

rent control

DMRP?

rental cost

What is Keynesians "paradox of thrift"

save more now, less saving later

Keynesianism basically was the belief that...

savings don't drive the economy, consumption does

Capital goods require what?

savings!

What happens to overall supply when there are changes in prices of factors of production?

shift right (increase), less regulation, more supply

Setting a price maximum (ceiling) leads to what?

shortage and excess demand

if PPM increase, people will want to...

spend their money, get rid of it (value goes up)

Setting a price minimum (floor) leads to what?

surplus and excess supply

What is skepticism?

the idea that nothing can ever be known for certain

What is praxeology?

the study of human action using verbal deduction

What is epistemology?

the study of knowledge

What is a higher order good?

upstream, basic goods to make something (wood, nail, etc)