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causal inference
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A conclusion that when one thing happens, another specific thing will follow with a cause.
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Correlation
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Different from causation. Two things can be correlated but doesn't mean that they cause one another.
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Does the increase of minimum wage increase unemployment.
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Not necessarily. These two can be correlated, but not causing each other.
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controlled experiment
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An experiment in which only one variable is manipulated at a time. ex: The placebo drug experiment
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Natural experiment
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"nature" provides economists with what is similar to being a controlled experiment. Results from natural experiment can not necessarily be generalized to hypothetical changes that have not occurred yet.
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Bank run
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Banks could no longer meet the demands of their depositors. People rushed to withdraw money at the same time, since they were losing confidence in the banking system.This accounted for a shrinking money supply, as circulation of currency slowed.
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Example of natural experiment
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North and South Mississippi. One is increasing the lending to see if it heals the economic bank run. One is not doing that
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What is the Controlled group
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normal group, the one that does NOT receive the drug
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what is the Treatment group
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this group receives experimental treatment. The one that DOES receive the drug.
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Instrumental variable
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variable that creates random variation among individuals. like lottery
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The Vietnam War Draft Lottery
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A randomized war drafting that allowed Angrist to establish a casual relationship between military services and earnings 1
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School Lotteries: Cullen, Jacob, and Levitt (2006)
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Schools choosing who gets to be enrolled by a lottery system. provides us with a way to find the causal effects of school quality.
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Judge Lotteries
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One criminal wins the "judge lottery" by being assigned to a lenient judge and the other doesn't. Michael Mueller-Smith finds longer incarceration lengths have negative impacts on an individual's earnings and more future crimes.
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instrumental variables create
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differences in natural experiments.
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Regression Discontinuity Design
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A method to identify causal effects by using a cutoff rule
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Cutoff rule
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Any decision that is made that is determined by a threshold.
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identify the causal effect of attending University X
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compare students who are barely accepted to the university to those who are barely rejected.
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Controlled group and treatment group for cutoff rule
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treated group: students who are barely accepted
control group: students who are barely rejected.
control group: students who are barely rejected.
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Dinardo and Lee (2004)
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compare outcomes for firms in which a union barely won an election to firms in which a union barely lost an election.
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infer causality
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finding situations in the real world that mimic controlled experiments—situations in which nature has provided a treatment group and a control group.
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Machine learning
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using characteristics (often referred to as features) to predict an outcome.
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Algorithm
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the specific sets of steps that a computer takes in order to learn what variables are important for prediction.
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Regularization
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the process of eliminating variables that are only weakly related to our target of interest.
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cross validation
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Verifying the results obtained from a validation study by using different set of sample
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algorithmic discrimination
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algorithms may unfairly treat one group favorably relative to another group. Ex: Minorities
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New Jeresy and Penssylvania case
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Pennsylvania that continued to pay the unchanged minimum wage: Controlled Group
New Jeresy that recently raised their minimum wage: Treatment Group
New Jeresy that recently raised their minimum wage: Treatment Group
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law of demand
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As the price of a good rises, the quantity demanded of the good falls, and as the price of a good falls, the quantity demanded of the good rises, ceteris paribus.
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what causes shift in demand?
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income,
preferences,
prices of related goods,
the number of buyers, and
expectations of future prices.
preferences,
prices of related goods,
the number of buyers, and
expectations of future prices.
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Law of supply
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as the price of a good rises, the quantity supplied of the good rises
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changes in supply
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shifts the supply curve
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What causes the supply curve to shift?
answer
the prices of relevant resources,
technology,
the prices of related goods,
the number of sellers,
expectations of future price,
taxes and subsidies, and
government restrictions
technology,
the prices of related goods,
the number of sellers,
expectations of future price,
taxes and subsidies, and
government restrictions
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Economists measure the price level by
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by constructing a price index.
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market basket includes eight major categories of goods and services:
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food and beverages,
housing,
apparel,
transportation,
medical care,
recreation,
education and communication, and
housing,
apparel,
transportation,
medical care,
recreation,
education and communication, and
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CPI=
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(expenditures in the current year/expenditures in the base year) x 100
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percentage change in prices=
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(CPI later year - CPI earlier year) / CPI earlier year x 100
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Real income =
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(nominal income/CPI) x 100
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Salary in current dollars =
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Salary last year x (CPI current year / CPI earlier year)
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civilian non institutional population
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Persons not in the labor force + Civilian Labor Force
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Civilian labor force =
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employed + unemployed
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Definition of Unemployment rate
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The percentage of the civilian force that is unemployed:
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Unemployment rate =
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unemployed/labor force x 100
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definition of employment rate
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employed / civilian non institutional population x 100
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labor force participation rate =
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labor force / civilian non institutional population
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frictional unemployment
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caused by changing market conditions and represented by qualified individuals with transferable skills who change jobs.
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Structural Unemployment
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Unemployment due to structural changes in the economy that eliminate some jobs and create others
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Natural Unemployment
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frictional unemployment + structural unemployment
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full employment
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when the unemployment rate is equal to the natural unemployment rate. (NO cyclical unemployment)
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cyclical unemployment rate
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The difference between the unemployment rate and the natural unemployment rate.
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GDP
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Gross Domestic Product- the total market value of all final goods and services produced annually in an economy
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GDP=
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(quantity produced of each good x price of each good)
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expenditures
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consumption;
gross private domestic investment, or simply investment;
government consumption expenditures and gross investment, or simply government purchases; and
net exports:
gross private domestic investment, or simply investment;
government consumption expenditures and gross investment, or simply government purchases; and
net exports:
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consumption
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The sum of spending on durable goods, nondurable goods, and services.
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inbestment
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The sum of all purchases of newly produced capital goods, changes in business inventories, and purchases of new residential housing.
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government purchases
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Federal, state, and local government purchases of goods and services, and gross investment in highways, bridges, and so on.
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Expenditure approach GDP =
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C+I+G+(EX-IM)
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national income is the sum of these 5 components
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compensation of employees,
proprietors' income,
corporate profits,
rental income of persons, and
net interest.
proprietors' income,
corporate profits,
rental income of persons, and
net interest.
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NDP (net domestic product)
answer
GDP minus the capital consumption allowance.
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Personal income =
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National income
- Undistributed corporate profits
- Social insurance taxes
- Corporate profits taxes
+ Transfer payments
- Undistributed corporate profits
- Social insurance taxes
- Corporate profits taxes
+ Transfer payments
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disposable income =
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personal income - personal taxes
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real GDP
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GDP adjusted for inflation
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Real GDP =
answer
the sum of the base year price * current year quantity of all the goods.
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Percentage change in real GDP =
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(real GDP later year - real GDP earlier year) / real GDP earlier year x 100
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real balance affect
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The change in the purchasing power of dollar-denominated assets that results from a change in the price level
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monetary wealth
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person's wealth
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interest rate affect
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The changes in household and business buying as the interest rate changes
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international trade affect
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The change in foreign sector spending as the price level changes.
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price level changes ->
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interest rate affect
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As the price level falls ->
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the quantity demanded of Real GDP rises
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if the total expenditures on U.S goods and services rises at a GIVEN PRICE LEVEL
answer
AD rises
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aggregate supply
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The quantity supplied of all goods and services (Real GDP) at different price levels,
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SRAS curve
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A curve that shows the quantity supplied of all goods and services (Real GDP) at different price levels
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real wages =
answer
nominal wages/price level
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As real wage increases (supply)
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quantity supplied of labor increases
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As real wage increases (demand)
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quantity demanded of labor decreases
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what can cause SRAS curve to shift?
answer
wage rates, prices of nonlabor inputs, productivity, and supply shocks.Adverse supply shocks
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Adverse supply shocks
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shift the SRAS curve leftward
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Beneficial supply shocks
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shift the SRAS curve rightward
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Decline in AD
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-> lower real GDP AND Price level
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Decline in SRAS
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-> lower real GDP but HIGHER Price level
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in the long run equilibrium, the economy produces
answer
Natural Real GDP
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three states of economy
answer
long run equilibrium
short run equilibrium
disequilibrium
short run equilibrium
disequilibrium
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Investment is equal to
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fixed investment + Inventory investment
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The unemployment due to changes in the types of skills employers require is called __________ unemployment.
answer
structural
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In a recessionary gap, the implications of downward wage inflexibility are that there will be
answer
no rightward shifts of SRAS, allowing for the possibility of persistent high unemployment.
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labor force=
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employed + unemployed
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dollar depreciation
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right shift in demand
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The unemployment rate is equal to the natural unemployment rate at
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every point on the physical PPF.
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If the natural unemployment rate is x percent, then the economy is at long-run equilibrium when the actual unemployment rate is
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same as x %
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Keynes believed that saving is
answer
more responsive to changes in income than to changes in interest rates.
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Suppose Congress increases income taxes
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contractionary fiscal policy.
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If there is incomplete crowding out as a result of an increase in government spending there will be
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some increase in Real GDP.
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barter economy and specialization
answer
less specialization
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According to the simple quantity theory of money in the AD-AS framework, when the money supply increases, the result is __________ in Real GDP and __________ in the price level.
answer
no change; a rise
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interest rate and opportunity cost of holding money
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directly related so is the demand
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time to double
answer
70/percentage
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The cyclical unemployment rate is defined as the __________ unemployment rates.
answer
difference between the existing (actual) and the natural
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The unemployment rate is equal to the natural unemployment rate at
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every point on the institutional PPF.
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Money's basic advantage as compared to barter is that
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money reduces transaction costs.
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liquidity trap and the fed uses expansionary policy and raises the money supply
answer
people will hold on to their money
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At its peak, Blockbuster (provider of home movie and game video rental services) employed more than _______________ people worldwide.
answer
80,000
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