American Economy Final

Goals/Principles of Economic Policy

Key goals include efficiency, equity, economic growth, and stability.

Pareto Efficiency

An allocation of resources where no one can be made better off without making someone else worse off.

Role of the State

The government's role in setting rules, protecting property rights, and fixing market failures.

Efficiency-Equity Tradeoff

The idea that improving fairness (equity) reduces economic efficiency.

Rawls' Veil of Ignorance

Decision-makers create fair rules as if they didn't know their social position.

Rawls' Maxi-Min Principle

Maximize the welfare of the least-advantaged members of society.

Nozick's Libertarian Principle

Emphasizes minimal government intervention and protection of property rights.

Inequality in the U.S.

The unequal distribution of income, wealth, and opportunity.

Income

Total income from labor (wages) and capital (investments).

Piketty & Saez Main Idea

In low-growth economies, returns on capital exceed returns on labor, leading to rising inequality.

Market Failure

When the market fails to allocate resources efficiently.

Externalities

Costs or benefits that affect third parties.

Cap-and-Trade (RGGI)

A market-based system to reduce pollution by issuing permits to polluters.

Public Goods

Non-rival, non-excludable goods that require government intervention for provision.

Public vs Private Prisons

Public prisons are run by the government, while private prisons are run by private firms.

Adverse Selection

A situation where one party has more information than the other, leading to market failure.

Moral Hazard

When individuals take on more risk because they're protected from consequences.

Deductible

The amount one must pay out of pocket before insurance covers costs.

Features of Healthcare Markets

Characteristics like uncertainty of demand and asymmetric information that lead to market failures.

Medicare

Federal health insurance program for seniors and some disabled individuals.

Medicaid

A state and federal program providing healthcare for low-income individuals.

Affordable Care Act (ACA)

A law that reformed the U.S. healthcare system by expanding Medicaid and creating insurance exchanges.

Imperfect Competition

A market structure where firms have market power and control pricing.

Types of Monopolies

Natural monopolies arise from high fixed costs, while artificial monopolies result from anti-competitive practices.

Antitrust Policy

Laws designed to prevent monopolies and promote competition.

Fiscal Policy

Government use of taxes and spending to influence the economy.

Monetary Policy

Central bank policy to control money supply and interest rates.

Federal Reserve Structure

Centralized but independent structure managing U.S. monetary policy.

Independence of the Federal Reserve

The Federal Reserve operates independently of direct political control.

Federal Open Market Committee (FOMC)

The body that sets U.S. monetary policy by controlling open market operations.

Quantitative Easing (QE)

The Federal Reserve buys government bonds to increase the money supply.

Dual Mandate of the Federal Reserve

The Fed’s goal to promote maximum employment and price stability.

Reserve Requirement

The percentage of deposits that banks must keep in reserve.

Open Market Operations (OMO)

Buying and selling government bonds to influence money supply.