Economists can be Funny
What is the most common answer given by an economist?
What is "It depends?"
When the price of a good increases, the quantity demanded usually decreases. What law is this?
What is Law of Demand?
If the Fed raises interest rates too aggressively, the economy may fall into this.
What is a recession?
This term refers to the "line of best fit" that minimizes the sum of the squared vertical deviations between each data point and the line.
What is Ordinary Least Squares (OLS)?
Roughly 20% of the world’s oil flows through the Strait of Hormuz, which has been disrupted by the Iran war. When this supply is threatened, global oil prices do this.
What is the increase?
Despite student belief that this was built for torture, it is actually how economist use data to learn about the world.
What is Econometrics?
This occurs when many depositors withdraw funds simultaneously due to fear a bank will fail.
What is a Bank Run?
In a "Prisoner's Dilemma," this is the specific outcome where neither player can improve their position by changing their strategy alone, even though they’d both be better off if they just cooperated.
What is Nash Equilibrium?
This violation of OLS assumptions occurs when the variance of the error term is not constant across observations, often looking like a "fan shape" on a scatterplot.
What is Heteroskedasticity?
Rising oil prices increase production costs for firms across the economy, leading to higher prices and lower output. Economists call this type of inflation what?
What is cost-push inflation?
Economists have predicted nine of the last five recessions.
What is Type l error, forecasting error, or economist doing their best?
Famous economist who said "inflation is everywhere and always a monetary phenomenon."
Who is Milton Friedman?
This specific economic theory explains why the national income of an economy is divided among factors of production based on their marginal productivities.
What is the Neoclassical Theory of Distribution?
This specific type of variable takes on a value of either 0 or 1 to indicate the absence or presence of a qualitative effect.
What is a Dummy Variable (or Indicator Variable)?
During global uncertainty, investors move money into U.S. assets. This increases demand for dollars, causing the real exchange rate to appreciate and net exports to do this.
What is decrease?
Joke: The reason a balloon store might go out of business.
What is the cost of inflation?
Airlines charge $200 for the seat next to you and $600 for yours even though they’re identical. Economists call this pricing strategy what?
What is Price Discrimination?
If a bank has $350,000 in total assets, $50,000 in equity, $80,000 in debt and $70,000 in deposits, what is its leverage ratio?
What is 7? (Total Assets/Equity)
When two independent variables in a regression are highly correlated, making coefficient estimates unstable, this problem occurs.
What is Multicollinearity?
In the open economy model, a stronger U.S. dollar makes exports more expensive and imports cheaper. On the net exports (NX) vs real exchange rate graph, this causes movement along the curve resulting in this change.
What is a decrease in net exports?
When you forget an important variable and your professor circles your regression in red.
What is omitted variable bias?
During a recession, the government increases spending without raising taxes. What is the immediate effect on aggregate demand?
What is Aggregate Demand Increases?
In a Cobb–Douglas production function, the Marginal Product of Capital (MPK) is not fixed; how would this value specifically increase.
What is an increase in labor (holding capital constant)?
This is the term for a "placeholder" variable used in a regression when you have a qualitative category with $N$ options, but you only include $N-1$ of them to avoid the "Dummy Variable Trap."
What is the Base Group?
According to the small open economy model, a war-related tariff on imports will shift the NX curve to the right but will fail to change the actual trade balance because it does not affect these two specific components of national accounts.
What is Savings and Investments?