Deflation
…can’t fall below zero, the central bank can’t use expansionary fiscal policy. 5. Exports However, exports become more competitive abroad, so net exports increases. Example of Deflation in the United…
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Durable & Non-Durable Goods
…This results in the monopolist charging the competitive price. Solutions Destroy the leftover or in this example, donate the land ‘Break the mold’, limits the reproduction of the durable good…
Equimarginal Principle
…equimarginal principle states that consumers choose combinations of various goods in order to achieve maximum total utility. In other words, consumers will allocate spending their incomes across goods/services so that…
The Demographic Transition Model
…decline as compared to the second stage. As an example, Mexico began to arrive at stage three at the beginning of the 21st century. Additionally, China used its One-Child Policy…
Bonds
…face value (at par). Example of a coupon bond: Ex: $1000 coupon bond sells at approximately $1000 Coupon rate = Dollar value of yearly coupon payments/face value of the bond…
Availability Bias
…known as the “availability heuristic.” Availability Bias Examples Here are several common and notable examples of availability bias, to help you better understand how it manifests in everyday life: 1….
Progressive Tax
…just 33 cents of demand. This demonstrates that progressive taxes help the economy. Progressive Tax Examples Here are a few examples of highly prevalent progressive taxes: 1. Estate Taxes If…
Theory of Production: Cost Theory
…A. Fixed Cost Fixed costs are costs that do not vary with different levels of production and fixed costs exist even if the output is zero. Example: rent or salaries….
Intrinsic Value Theory
…at the process of producing an item. They determine the costs involved in that production process to measure the item’s intrinsic value. Intrinsic Value Theory Example The actual value of…
Inheritance Tax
…an income tax). Inheritance Tax Explained Since there is a difference between an inheritance tax and an estate tax, most people commonly refer to them as death taxes. Inheritance Tax…
Marginal Analysis
…Example Here’s one example that’s pretty easy to understand. Consider that it costs a great deal of money to fly a plane across the United States—for instance, from New York…
Economic Development
…For example, through training and education. There is an increase in capital and machinery. There is an improvement in technology. Economic Development Occurs When Measures of economic development will look…
The Accelerator Effect
…the firm will buy 3 more machines. Example of the Accelerator Effect In 2021, there was a significant shortage of computer chips. This was largely due to COVID-19 where demand…
Demand Side Policies
…and less predictable as compared to monetary contractions. For example, if the Central Bank is concerned about weak economic growth or relatively high rates of unemployment. The policy reaction would…
Cost-Push Inflation
…production costs and further upward pressure on prices. Cost-Push Inflation Example In the early 1970s, the Organization of Petroleum Exporting Counties (OPEC) took steps to decrease global oil supply in…
The Financial System
The Securities and Exchange Commission (SEC) in the United States financial system is a regulatory body that monitors the financial system, exchange, and securities market. Securities are types of financial…
Money Supply
…commodities, stocks & bonds. An MMMF holds only money market asset like treasury bills, commercial papers (short-term loans). For example, $100m from checking to MMMF If M1 goes down by…
Theory of Efficiency
…outcome is considered more efficient if a Pareto optimal outcome can be reached by arranging sufficient compensation from those who are made better off to those who are made worse…
The McFadden Act
…political because local banks pushed for laws protecting them from competition from the larger banks. There was public hostility towards the large banks. Technology had already made banking more competitive….
Circular Flow Model
…Economic Actors, Markets, and Cycles Within this model, all economic actors are placed into one of two categories: households or companies (firms). Likewise, markets are placed in two categories: markets…
Quota
…compete against lower-priced foreign goods. 3. Unfair Trade Some countries apply quotas to protect local industries from dumping. Dumping occurs when producers in foreign countries have unfair advantages to lower…
Banking Regulations in the United States
…Insurance Commission (FDIC) guarantees all bank deposit accounts up to $250,000. 2. Bank Panics Bank panics is the plural of bank runs (because there is a fear of contagion across…
Peak Oil: Will We Ever Run Out?
…Demand tell us, the price of oil will continue to rise. To combat this, on the demand side, we can try to find substitutes to use instead of oil. While…
Say’s Law
…flexibly consequence-free—workers will undermine efforts to lower their wages. High levels of savings (when people and businesses hoard money) mean lower consumption. They may do so due to low economic…
Theory of Asset Demand
…1. Wealth As wealth increases, the demand for financial assets also increases. There are two types of financial assets: Necessity assets: For example, cash & checking accounts – demand grows…
Nominal Interest Rate
…bonds, and the like. It is the rate “as advertised,” which will not necessarily reflect the reality of how the interest rate will actually manifest as influenced by inflation, compounding…
Equitable Distribution of Income
…percent tower stunningly higher. They average over 39 times more income than the bottom 90 percent. But that gap pales in comparison to the divide between the nation’s top 0.1…
Interest Rate Risk
…risk-less asset since investors demand compensation for taking on higher risk. Interest Rate Risk Structure Highly rated investment-grade bonds are those with the lowest risk of default. Junk Bonds have…
Pricing Stocks
…PDV Approach to Pricing Stocks Nobody knows for sure what a company’s future earnings and future dividends will be. Stocks and bonds do not carry equal risk. Bonds are considered…
Foreign Aid
…extraction from the recipient country, or to gain other kinds of commercial access. US Aid may often time buy assistance for American citizens in that nation, alter the course of…
Wealth Effect
…when their portfolios increase in value. In other words, increases in the value of their assets cause consumers to feel more comfortable spending their money. Mentally, they conflate their increased…
Objectives of Central Banks
…central bank has to be clear in communicating with financial markets & the public. This helps build trust with the public. The decision-making process has to be made by a…
Indirect Tax
…a sales tax of 10%. For example, cities in California have a sales tax that ranges from 7.25% to 10.50%. Indirect taxes discourage the consumption of goods and services and…
Aggregate Demand and Aggregate Supply Equilibrium
The Aggregate Demand and Aggregate Supply Equilibrium provides information on price levels, real GDP, and changes to unemployment, inflation, and growth as a result of new economic policy. For example,…
Direct Finance
…it to a borrower against a higher interest rate. This enables the borrower to take advantage of lower interest rates. For example, in a household that buys a newly issued…
The Environmental Kuznets Curve
…and what time frame. For example, economies often require regulation and government intervention to ensure that the environment is being protected, even as income levels rise. As Economists conduct more…