100 Questions for a Student of Economics

1. What does the Kuznet's Curve show?

Kuznets' curve shows that as economy grows, the level of inequality first rises and after reaching a maximum points falls thereafter. A typical curve is shown below. 

2. What insight does the Laffer curve provide to the policymakers?

 The Laffer Curve shows the relationship between tax rates and total tax revenue. It shows that there is an optimal tax rate that maximizes total government tax revenue beyond which increase in tax rate discourages economic activities and tax collection by discouraging work and investment. Thus, increasing the tax rate does not always leads to increase in tax revenue. Rather in some cases cutting tax rates will both stimulate economic incentives and increase tax revenue.

3. What is Fisher rule ?

Fisher rule is a relationship between real interest rate, nominal interest rate and expected inflation. It shows that nominal interest rate is the sum of real interest rate and expected inflation. Thus, as expected inflation goes up, nominal interest rate goes up. The rule can be expressed as : 

4. What does the term arbitrage mean?

Arbitrage is an operation where an asset e.g commodity or currency is purchased in one market and sold in other market simultaneously to make profit from the price differentials in the two markets.