Econ test 4

federal deficit

The annual difference between federal government expenditures and federal government tax revenues

debt

expenditures - revenues =

Federal debt

accumulated outstanding (unpaid) annual deficits

Compounding

If treasury borrows more money to pay off old debt, then interest rate compounds (like paying off visa card bill with master card) CON

crowding out

When the Treasury borrows billions of dollars from commercial banks it reduces the pool of available loanable funds for "the rest of us shmucks" (average Americans) (-)

Crowding in

when the Treasury borrows billions of dollars it spends it on projects hopefully creating jobs for Americans (+)

intranational debt

Americans owe Americans. Americans buy most T-bills, so a huge portion of America's debt is owed to Americans. The Treasury pays out bonds with money from selling new bonds. (See #1). This works because Uncle Sam never dies. (+/-)

intragenerational debt

Wealthy Americans make more money off their Treasury bonds because the system allows it and they have more money to spend on expensive bonds. Middle class pays more in taxes because the tax rate is a larger percentage of their income than upper class. (+/-)

intergenerational debt

future generations will pay tax money for services rendered to current generations today. (ex: highways, parks, etc.) (+/-)

foreign transfer

an increasing percentage of the Treasury's debt is owed to other countries. Any country can purchase American Treasury bonds from us, but we can buy their bonds as well. (+/-)

exchange value

America has a strong dollar in regards to the exchange rate. American importers (travelers, people buying foreign products) want a strong dollar. American exporters (grain farmers) want a weak dollar so other countries can afford our products. To buy American goods, other countries must convert their money into American dollars and vice versa. If the exchange value goes up, American prices for those countries goes up as well. Importer (+) Exporters (-)

exporters, weak

American _____ (grain farmers, ex) want a ____ dollar so other countries can afford our products

importers, strong

American ______ (travelers, people buying foreign products) want a _____ dollar

inflationary

If the Federal Reserve buys Treasury bonds, they're pumping more money into circulation which increases inflation. The fed is the only institution with this power. (-)

interest rate

price of money

price of deficit financing

interest payment from treasury

voluntary trade

benefits both parties and creates wealth

absolute average

that what you are best at

comparative average

that what you are best at relative to the competition

pre-trade

countries feeding themselves

internal trade off

to produce more of A, more of B must be given up

relative cost

the cost of each country producing one or more wheat or one more beef (think opportunity cost)

ITOT

international terms of trade

feasible range of ITOT

the possible range of units each country would trade without hurting their consumers or themselves

Assume actual ITOT

this is the given ITOT used to find the values in Post-Trade

post trade

To maximize production, the smaller country (in terms of production) should produce zero of their non-specialty item (the item they do not have a comparative advantage for)

tariff

tax on imports

quota

limiting trade by limiting number of imports

the goal of the quota

to simulate the production of the limiting country

Who benefits from tariffs and quotas?

producers of the country

who is harmed by tariffs and quotas?

firms and consumers

infant industry

very hard to protect/start the industry (reason for tariffs and quotas)

diversification

protect country against strong specialization

government

benefits from tariffs because it is tax money

issues with tariffs and quotas

Consumers and firms are hurt by tariffs, consumers are hurt by quotas

high tariff

can cause deficit to occur, foreign products will not be bought, and the government would not make any money

to maximize trade

set the smaller countries less efficient products to 0 to optimize the production of their best product

buying imports

more patriotic

voluntary trade

creates wealth

in the absence of trade, total domestic revenue

p1 x q1 (b,n,c,j,k,d,e,f)

with unlimited trade, how many cars do we buy

q2

how much money do american consumers spend on cars with unlimited trade

p2xq2 (d,e,f,g,h)

where does the money with unlimited trade

d goes to domestic

e,f,g,h goes to forein

what is the quantity of imports with unlimited trade

q2-q3

how much revenue do the american producers lose with unlimited trade

b,c,e,j,k,f,n

price of cars in america with a tariff

p3

how many cars do american consumers buy with tariff

q5

how much money do American consumers spend on cars with tariff

p3 x p5 (c,j,k,l,d,e,f,g)

where does the money go with the tariff

k,l go to government

c,j,d,e go to american producers

f,g go to producers

quantity of imports with tariff

q5 - q4

how much do imports shrink with tariff

from q3 - q2 to q4 - q5

how much money do American producers recapture with tariffs

c,j,e

how much money do American producers still lose with a tariff

B,n,k,f

the tariff shrinks foreign revenue by

e,h

lose to consumers for having fewer cars for sale at a higher price

M