Midterm Exam 2 Budget and Finance Systems

What are the four basic economic principles?

Supply, Demand, Equilibrium price, equilibrium quantitiy 

What is the definition of econ?

the study of maximizing unlimited wants with limited resources. 

What are the two traits of economic principles?

• asumming people are rational

• people are self interested

what is the definition of opportunity cost?

the highest valued at alternative forgone

What is the equation for accounting profit?

TR-TC(explicit costs)

What is the equation for economic profit?

TR-TC(explicit and implicit costs). 

What are government owned organziations 

colleges and universities have government affiliations

What does the governance have to do?

• disclose financial information

What did the Green Bay Packers issue to keep their profit alive?

• they issued stock continously and made money of it. 

What organization is a non profit

• PGA

Wht common type is a sole properitorship?

• the most dominant type is in the NFL

Why are 50/50 splits bad for business

because everyone is at a deadlock and it gets people to get nowhere. 

What is the definition of a subchapter s corporation?

a business that elects to be taxed as a "pass-through" entity, meaning it avoids double taxation by passing profits and losses to its shareholders who report them on their individual tax returns

What are some positives to a subchapter s corporation and negatives

Positive: single taxed, and limited liability

Negative: acquiring capital can be tough since stock owners must be in the US, each stock and dividend are equal, very complex

What are some positives to an LLC and a LLP

• simple to operate and single taxation

• relatively new so each state handles them differently. 

What are two traits of a subchapter c corporation?

• dominnat corporate structure, shareholders can be international, subject to double taxation

What are two companies that are subchapter c corporations?

• disney, general motors.

What is an initial public offering?

• when a company initially needs capital, they sell a part of the company for cash now. THis allows them to expand. 

How does an IPO correlate to a stock market?

• the shares from the IPo are than traded on secondary financial markets such as the NASDAQ and New York Stock Exchange.

what do you need to be mindful of in the stokck market?

• Assymetric information (imbalance of information)

What is an adverse selection and what are some traits?

the imbalance occurs prior to the transaction. Their are lemons problem.

What is a moral hazard?

the imbalance occurs after the transaction

Why was the sec created?

combat adverse selection

What is the definition of money in the US?

• medium of exchange, stores value, unit of account, liquid

How does the FED measure money today?

M1= cash+ checking accounts+ traveler checks

M2= M1+ savings account+ certificate of deposites

When was the FED created, role ofthe FED, and its structure?

• It was created in 1913, role of the FED is to regulate us banks and lender of last resort. 

• The fed structure is presidents within a private sector and governors that are appointed by president and people in congress

What are some of the tools of the FED?

• change the required reserve ratio, and the discount rate 

What is open market operations with the FED?

• when the FED wants to conduct expansionary monetary policy, it will buy bonds on the Open market injecting money in the economy. 

• This pushes interest rates down. 

What also is opern market operations with the FED?

• when the fED wants to doncut contradictionary monetary polcy it sells bonds on the open market, taking money in exchange of bonds, thus decreasing the quality of money. 

what is expansionary fiscal policy?

concerned about production or unemployment.

What is contractionary fiscal policy?

• concerned about the debt (think ausisterity_

• decrease government spending or increase taxes.

What is depreciation?

large purchases of durable goods can be depreciated in the tax code

what are the four common depreciation

straight line, sum of years, double decline, lines of production

What is straight line years depreciation and is the easiest?

• it takes the total value and divide by the number of expected useful years you can use it 

What is the sum of years

recgonized that the value diminishes quickly at first

Double decline balance

most agressive early depreciation method, it takes the number of years left and doubles it

what is units of production depreciation

take the total output the product will produce, then take each year’s output as a percentage of the expected total as your percentage to depreciate. 

Why push for facilities?

franchise valuation is a function of revenue streams (increase one or more revenue streams and you can increase the value of the franchise)n

What two objectives don’t go together and why?

Maximizing wins and attendance, they don’t go together because their is a msaller incentive from the owner/

What are the four sources funding comes from?

• ownership, municipal, city, and state. 

what is an externality?

its when someone other than the buyer or seller is affected by the transaction.

what is a pshycic impact?

emotional impact of a franchise.

What are some examples of phase 1 facility planning?

1880s and 1923. No monopoly radius, think fennway and wrigley 

What are some examples of phase 2 in facility planning?

1960-1979, usually cookie cutters

increase in both the cost and the percentage of public funds

names came from the community

What are some examples of phase 3 stadiums?

• 90 facilities went up in 20 years, cost increased per facility, specialized stadiums and specialized deals for the franchiseunderestimates the amount the public give. 

What is the 1986 tax reform?

• tax free bonds were not allowed for building facilities that collected more than 10 percent of their revenue from one source. 

What type of funding did stadium payouts shift away from during Phase 3 financing?

General Obligation bonds

What new sources replaced GOBs in Phase 3 financing?

Sales taxes, property taxes, and stadium rents

What were some examples of private funding sources in Phase 3 financing?

naming rights, sponsorships, and similar deals

Why are sin taxes so common?

whenever a product is inelastic and their thought of as sinful they are a tax. Inelastic demand perspective.

What is vertial equity?

taxpayers ability to pay

what is horizontal equity?

says that people with similar incomes should bear an equal burden.

What is an efficiency principle?

easy to understand, simple for government to collect, low in compliance costs.

What are the advantage and disadvantage of General Obligation bonds

advantage is that their guaranteed by the issuing entity. they have a large advantage in that they are tax free and cary very little risk. 

the disadvantage is that there are strict laws tying the hands of the government officials from going into debt on city or state levels. 

What is another source of public finance and what does it mean exactly?

A certificate of participation is another example of public finance it is issued by the government and they pay it off. In a COP they would sell revenue stream to an outside investor. Inr eturn the investor gets a percentage of the revenue. 

What is a revenue bond?

to pay for the stadiums ans is paid back from a well defined source. Like for example hotel taxes and taxi taxes. 

What are the three types of Taxes??

salex taxes, tourism taxes, sin taxes.

What are the three types of indirect sources of funding and what do they mean?

• Land donations, infrastructure imporvements, and tax abatements. 

Explain the concept of the Time Value of Money

The time value of money (TVM) is a core financial principle also known as the present discounted value (PDV). It states that money today is worth more than the same amount in the future. (FERNANDO, 2025).

Time value of money is the concept that money now is worth more than what it would be in the future due to inflation and you could also invest it

How many companies are licensed by the National Recognized Statistical Rating Organizations (NRSRO)?

There are 10 companies that are licensed by the NRSRO

What exactly is the gold standard?

Money Started as a barter system. It made sense to have a medium of exchange so they started with gold and silver as a commodity. They had to change this system because it was not good to just have gold laying around: if someone just had a bunch of gold laying in their house, it could easily get stolen. Institutions began popping up with paper money as a medium of exchange, but currency was still backed by gold. They found more gold out west, which started the gold rush, so more currency was found. Eventually, they got off the gold standard as you could not conduct monetary policy and the advantage was monetary policy. They wanted to untie the hands of the fed, so they moved to fiat money system.

Explain the financial crisis the US went through that began in 2007-2008. How did the government attempt to resolve the crisis (in your answer please include TARP)

Banks gave loans to people who might not pay them back. When lots of loans went bad, banks got into big trouble. Some banks even failed. On October 3rd 2008, The US Congress approves a $700 billion bailout package for US banks, the Troubled Asset Relief Program (TARP). (Turner, 2023)