Tariffs
…imposed on each unit, i.e., $0.50 on a pack of cigarettes, while an ad valorem tax (or percentage tax) is a percentage of the price like a sales tax of…
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Principles of Money And Banking
…compensation. Usually higher risk opportunities have higher interest rates (i.e., higher reward). People are will to pay to avoid risk and that those who assume certain risks will demand compensation…
The Glass-Steagall Act
…deposits and making loans are now a smaller portion of a bank’s activities. 3. Off-Balance Sheet There is more activity of loan sales, fees and derivates trading (off-balance sheet activities)….
Quota
…supply curves. So quantity imported = Q2 – Q1 or the line Q1Q2. Quota If the government decides to impose a quota, i.e., limit the quantity a foreign firm can…
Risk Strategies for Farmers in Developing Economies
…2. Labor Labor migration to other farms or villages can occur ex-post or ex-ante. 3. Savings Savings (ex-ante) and dis-savings (ex-post). Farmers keep liquid assets that you can sell quickly….
Producer Surplus
…= 1/2 base x height. Let’s plug the specific numbers into that equation: 1/2 (20) x (25 – 5) = $200 The market price is $25 with quantity supplied at…
The Phillips Curve
…policies, however, workers don’t realize that the inflation rate is 5% and not 3%, and when they demand higher wages firms have to fire extra workers, so unemployment returns back…
Economic Development
…of natural resources, which might lead to pollution, congestion & disease. Development, however, is concerned with sustainability, which means meeting the needs of the present without compromising future needs. A….
Peak Oil: Will We Ever Run Out?
…above graph, at $5 Da (today’s generation) will consume 20 units. The line Db shows that tomorrow’s generation will consume ten units. Their total demand is 30 units. 2. Present…
Regressive Tax
…$7.50 in taxes on these shoes. But if one of these people (Person 1) makes $5,000 per month, and the other only makes $1,500 (Person 2), there is a significant…
Marginal Cost
…curve that lies above average variable costs—that is, point B and up, otherwise called the “shut-down point.” Meanwhile, point A is known as the “break-even point.” Businesses don’t supply at…
Exchange Rate
…in a floating exchange rate system. For example, $1.22 is worth €1 now, if it decreases to $1.10= €1, then the euro has depreciated, a euro can buy fewer dollars….
Moral Hazard
…risks. Moral Hazard Examples There are many diverse examples of moral hazard, but here are some common scenarios: 1. Government Bank Bail-Outs If governments declare that they will bail out…
Durable & Non-Durable Goods
…‘Planned obsolescence’, make the good less durable (such as the e-waste problem) Don’t sell, rent the land out Economics of Non-Durable Goods The price ends up becoming the marginal cost….
Bill of Exchange
…Transaction Example After shipping the goods, the documents for import along with the bill of exchange are submitted to the exporter’s bank. Then, the exporter’s bank then send it to…
Theory of Asset Demand
…slower. Luxury assets: For example, stocks & bonds – demand grows faster. 2. Expected Return (RETe) The Demand for Assets is relative to RETe (real, after tax expected return) on…
Objectives of Central Banks
…2. Employment It aims for a high, stable real growth and high employment rate in the economy. 3. Market Stability It promotes a stable financial market and financial institutions. 4….
Bonds
…Pd 0% 1000/(1 + 0) = $1000 1% 1000/(1 + 0.01) = $990.10 5% 1000/(1 + 0.05) = $952.38 10% 1000/ (1 + 0.1) = $909.09 100% 1000/ (1 +…
Progressive Tax
…demand. Specifically, for each dollar spent using SNAP, $1.73 in demand is stimulated. Meanwhile, when the rich experience tax breaks, every dollar of revenue that’s lost as a result creates…
Theory of Production: Cost Theory
…$100 and initially you produce two units, then the average fixed cost is $50. If you start creating 20 units, then the average fixed cost falls to $5. C. Variable…
Intrinsic Value Theory
…is negative, the intrinsic value is zero. For example, value investors that follow fundamental analysis look at both qualitative (business model, governance, target market factors, etc.) and quantitative (ratios, financial…
Inheritance Tax
…an estate tax. According to the Tax Foundation, Eighteen states and the District of Columbia impose either inheritance or estate taxes, with fourteen states (plus Washington, D.C.) levying estate taxes…
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…
The Accelerator Effect
…is constant, the investment will be consistent. National Income ↑ = Investment ↑ National Income ↓ = Investment ↓ The assumption behind the Accelerator Effect is that firms will want…
Demand Side Policies
…general, demand-side policies aim to change the aggregate demand in the economy. Aggregate Demand is made up of Consumer Spending + Government Spending + Investment + Net Exports (exports-imports). So…
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
…improvement. An allocation is defined as “Pareto Efficient” or “Pareto Optimal” when no further Pareto improvements can be made. Kaldor-Hicks Efficiency Kaldor-Hicks Efficiency is a Theory of Efficiency where an…
The McFadden Act
The McFadden Act (1927 – 1994) was appealed by the Riegle-Neal Interstate Banking and Branching Efficiency Act. The Act made national banks competitive against state-chartered banks by letting national banks…
Banking Regulations in the United States
…runs, credit crunches, and financial crises. Reasons for Banking Regulations in the U.S. 1. Bank Runs Bank runs occur due to fears of insolvency. For this reason, the Federal Deposit…
The Environmental Kuznets Curve
…The Curve is represented by an inverted U curve. The graph’s Y-axis is labeled as inequality, while time or per-capita income is depicted by the X-axis. In other words, the…
Say’s Law
…vent for other products.” Other classical economists expanded on Say’s work, including well-known figures like James Mill (1773–1836) and David Ricardo (1772–1823). Implications of Say’s Law According to Say’s Law,…
The Gini Coefficient
…Also, just because inequality between nations (inter-national inequality) has decreased slightly, this doesn’t negate the fact that inequality within nations (intra-national inequality) has actually increased during that same time period….
Equitable Distribution of Income
…‘fair,’ but the concept of ‘fair’ is subjective. Distribution of wealth and income is the way in which the wealth and income of a nation are divided among its population….
Interest Rate Risk
…Interest Rate Risk Structure Example Risk Premium = Interest (riskier asset) – Interest (treasury bond) Ex: T-bonds pay 5% int. after-tax, Corp bond pay 8% after-tax Risk Premium = 3%…
Pricing Stocks
…stock at a future sale. This discounted rate includes a risk premium. Present Discount Value (PDV) = D/i To price a stock, PDV = D(1+g)/(i-g) Which is the dividends increased…