Econ 101...Ish
What is economics?
This is the study of how agents choose to allocate scarce resources and how those choices affect society.
What is self-interest?
Adam Smith said individuals pursuing this are led by an "invisible hand" to promote the public good.
What is opportunity cost?
This is the best alternative use of a resource — what you give up to use it.
What is FV = PV(1+r)^n?
This formula tells you how much a present sum grows to in the future, given an interest rate and a number of periods.
This is the typical face (par) value of a standard U.S. corporate bond.
$1000
What is microeconomics?
This branch of economics studies individuals, households, firms, and governments, and how their choices affect prices and resource allocation.
What is a shortage?
This is what tends to happen when a price ceiling is set below the equilibrium price.
What is a budget constraint?
An equation representing the goods or activities a consumer can choose given a limited budget is called this.
What is the Rule of 72?
This handy rule approximates how many years it takes an investment to double by dividing 72 by the interest rate.
What is a discount bond?
This term describes a bond that is selling for less than its par value.
What is macroeconomics?
This branch of economics studies the economy as a whole.
What is a surplus (e.g. unemployment)?
This is what tends to happen when a price floor (like a minimum wage) is set above the equilibrium price.
What is marginal analysis?
This type of analysis studies the difference between one feasible alternative and the very next feasible alternative.
At roughly this interest rate, you'd be indifferent between $100,000 today and $115,000 in three years.
4.77%
What is the Yield to Maturity (YTM)?
This rate of return is the Internal Rate of Return an investor can expect if they hold a bond all the way to maturity.
What is a positive statement?
This type of statement can aspire to objectivity, makes testable predictions, and describes what people actually do.
What is equilibrium?
This term describes the special situation where everyone is simultaneously optimizing, so nobody believes they'd benefit personally from changing their own behavior.
In the lecture's example of driving vs. flying to Houston (factoring in the value of your time), this mode of travel had the lower total cost per person.
Flying
What is inflation?
This phenomenon deteriorates purchasing power over time and reduces the real return on your savings.
What is (Macaulay) Duration?
This measure is the weighted average — weighted by the present value of cash flows — of the time at which a bondholder receives their money.
What is a normative statement?
This type of statement is inherently subjective, depends on your values, and describes what people (including society) ought to do.
What are competition, trust, and rules/institutions?
Besides self-interest, name the other three forces the lecture says make the invisible hand actually work.
What is the Principle of Optimization at the Margin?
This principle states that an optimal feasible alternative has the property that moving toward it makes you better off, and moving away from it makes you worse off.
What is inflation (the inflation rate)?
According to the Fisher Equation, the real interest rate approximately equals the nominal interest rate minus this.
A 30-year zero-coupon bond has a Macaulay Duration equal to this many years.
30 years