Financial Markets
On January 30, 2026, a former Fed governor and Wall Street veteran was nominated to succeed Jerome Powell as Federal Reserve Chair.
Who is this nominee?
Kevin Walsh
If the price elasticity of demand is -0.4, demand is considered this
Inelastic
This term refers to the lowest level of unemployment an economy can sustain without accelerating inflation.
Natural rate of unemployment
What variable are you trying to explain in a regression?
Dependent Variable
A government payment to encourage production or consumption.
Subsidy
When the Federal Reserve reduces the size of its balance sheet by letting bonds mature without reinvesting the proceeds.
What is this process called?
Quantitative tightening
for perfect substitutes, indifference curves have this shape
Straight lines with constant slope
This curve shows the inverse relationship between unemployment and inflation in the short run.
The Phillips Curve
What statistic between, 0 and 1, measures how much variation in the dependent variable is explained by the model?
R^2
What part of the government controls the U.S money Supply?
The Federal Reserve
What is an inverted yield curve, and what does it signal to investors?
Short-term interest rates are higher than long-term interest rates on government bonds
This cost curve intersects both AVC and ATC at their minimum points.
Marginal cost
This concept describes the level of GDP an economy produces when operating at full employment.
Potential GDP
If your model predicts perfectly, all residuals would equal this number.
What is the difference between progressive and regressive taxes?
Progressive: Tax rate increases as income increases Regressive: Tax rate increases as income decreases
The S&P 500’s forward earnings yield entering 2026 was nearly equal to the 10-year Treasury yield, pushing the equity risk premium close to zero.
Define the equity risk premium, and one reason why a near-zero level concerns some analysts.
The equity risk premium is the extra return investors expect from holding stocks instead of risk-free assets, like Treasury bonds.
Compared to perfect competition, monopoly creates this type of welfare loss
What is deadweight loss
This hypothesis suggests that government deficit spending may not stimulate aggregate demand because consumers anticipate higher future taxes and save more.
The Ricardian Equivalence
This problem happens when you forget to include an important variable that affects the dependent variable.
Omitted variable bias
The economic condition of persistent high inflation combined with high unemployment and stagnant demand.
Stagflation
In options trading, “the Greeks” measure an option’s sensitivity to various factors.
Name the Greek that measures an option’s sensitivity to the passage of time, and explain why the time-related Greek is almost always negative for option holders.
Name: Theta
Definition: Theta measures how much an option’s price changes as time passes, holding all else constant.
A redistribution of endowments affects equilibrium prices only if preferences are not this
Quasi-Linear
This condition links the nominal interest rate, expected inflation, and the real interest rate.
The Fisher Equation
When error terms are correlated across time in a time series regression, this problem arises.
Autocorrelation
A central bank might engage in this "unconventional" policy by purchasing long-term securities from the open market to increase the money supply.
Quantitative Easing