Unit 3 Study Guide - Econ

What is the wage rate?

What is the wage rate?

A standard amount of pay given for work performed

List the 4 categories of labor

• Unskilled Labor

• Semi-Skilled Labor

• Skilled Labor

• Professional Labor

What is the Market Theory of Wage Determination?

The supply and demand for a worker’s skills and services determine the wage or salary

What is the Equilibrium Wage Rate?

A wage rate that leaves neither a surplus nor shortage

What is the Theory of Negotiated Wages and how does seniority play into this?

• The bargaining strength of organized labor is a factor that helps to determine wages

• Some workers receive higher wages due to length of work even if they don’t do as much work

What is the Signaling Theory?

Employers are willing to pay more people with indicators that “signal” superior knowledge or ability

What are the different ways that you can resolve labor disputes?

• Collective Bargaining

• Mediation

• Arbitration

• Fact-Finding

• Injunction and Seizure

• Presidential Interventions

What is Collective Bargaining?

Negotiations between labor and management

What is Mediation?

Bringing in a neutral 3rd party to help settle a dispute

What is Arbitration?

When both sides agree to place differences before a 3rd party whose decision will be final

What is Fact-Finding?

An agreement to have a 3rd party gather facts about the dispute and present a recommendation

What is Injunction and Seizure?

• Injunction - A court order not to act

• Seizure - A temporary takeover of operations

What is a Presidential Intervention?

When the President intervenes by publicly appealing to both parties to settle their differences (may fire federal employees)

What are taxes?

The government’s largest/primary source of revenue that is taken by a small amount of the people’s money/income

How do taxes influence the economy?

• Resource Allocation - what do taxes go towards

• Consumer Behavior - higher taxes if something being bough is harmful

• Productivity and Growth - incentive to save and invest…being productive with saved and invested money to watch it grow

What’s the incidence of tax?

Who pays the tax

What is the criteria for effective taxes?

• Equity

• Simplicity

• Efficiency

What are the two principles of taxation?

• Benefit Principle - those who benefit pay in proportion to benefits received

• Ability-to-Pay Principle - taxed according to ability to pay (not based on benefits)

Define Regressive Tax

When there are higher taxes on individuals with lower income

Define Progressive Tax

When there are higher taxes on individuals with higher income

Define Proportional Tax

When everyone is taxed the same percentage regardless of income

What are the two types of spending?

• Goods and Services - schools and military expenses

• Transfer Payments - government gets nothing back, social security and unemployment

What is the federal budget?

The annual plan outlining proposed revenues and expenditures for the coming year

How is the federal budget created?

The Office of Management and Budget (part of the Executive Branch) proposes it, Congress approves, it goes to the Senate, the President signs it

What are the top Federal Government expenditures?

• Social Security

• National Defense

• Income Security

What are the top State Government expenditures?

• Intergovernmental Expenditures

• Public Welfare

• Insurance and Retirement

What are the top Local Government expenditures?

• Schools

• Utilities

• Public Safety and Health

What is deficit spending?

When spending exceeds revenue collected

How much is the US in debt?

$34.5 trillion (and it just keeps going up)

What are some impacts of the National Debt?

• Economic incentives are reduced

• Crowding out - higher income rates

• Redistributing income - tax rich…poor benefit…vice versa

How can deficits and the debt be reduced?

• Raising Revenues

• Reducing Spending

What are Savings?

The absence of spending

What is Investing?

The use of income today that allows for future benefit

What are the two types of investments?

• Economic Investment - lent to businesses

• Personal Investment - savings into financial assets

What is the Financial System?

• A system that consists of banks, insurance markets, bond markets, and stock markets

• Allows for the transfer of money between all of them

What are the four types of markets for financial assets?

• Capital

• Money

• Primary

• Secondary

What is a Capital Bond?

When someone sells/buys long term assets

What is a Money Bond?

When someone sells/buys short term assets

What is a Primary Bond?

When someone buys newly made assets

What is a Secondary Bond?

Where assets are resold

What is a bond?

A contract that is issued by a corporation promising to repay borrowed money, plus interest, on a fixed schedule (the government can issue bonds too)

What are the elements of a bond?

• Par Value

• Maturity

• Coupon Rate

What is Par Value?

The amount an issuer promises to pay the buyer (bond)

What is Maturity?

The date that a bond is to be repaid

What is a Coupon Rate?

The interest rate a bondholder receives every year until a bond matures

What are the three different types of bonds?

• Government Securities

• Municipal Bonds

• Corporate Bonds

What is a Government Security?

Treasury bonds, notes, or bills

(Bond = 10 years maturity

Bill = 1 year or less maturity)

What is a Municipal Bond?

Funds raised to finance government projects in the area

What is a Corporate Bond?

When companies finance expansion through bonds

(Junk bonds, Risky)

What are the two biggest evaluators of bonds?

Moody’s/Standard and Poor’s

What are the two largest factors for investment objectives?

• Time - short or long term

• Income - money available to invest?

What is a Risk?

The possibility for loss on an investment

What is a Return?

The profit or loss made on an investment

What is Diversification?

The practice of distributing investments among various financial assets (limits risk and maximizes return)

What is stock?

Shares of ownership in a corporation

Where can you obtain stocks?

Stock exchanges

What are two different types of stocks?

• Common Stock

• Preferred Stock

What is a Common Stock?

A share of ownership in a corporation…

• Voting rights

• Share of profit

• No guaranteed dividends

What is a Preferred Stock?

A share of ownership in a corporation…

• Gives a share of profit

• No voting rights

What is a stockbroker?

An agent who is paid a commission for buying and selling securities (most people use this route)

What are the two largest organized stock exchanges?

• New York Stock Exchange (NYSE)

• Over the Counter Markets (OTC)

What are futures?

A contract to buy or sell a commodity at a specific future date and price

What are options?

Like a future, but allows investors to buy or sell stock at a future date at a preset price

What are the two largest indicators of how the stock market is performing?

• Dow Jones Industrial Average (Dow)

• Standard and Poor 500

What is a bull market?

When stock prices rise steadily with a 20% increase over at least 2 months

(Most bullish - 1990’s after dotcom bubble)

What is a bear market?

When stock prices decline steadily with a 20% decrease over at least 2 months

(Most bearish - 1929 to 1932 when the stock market crashed)