B5: Economic Concepts and Analysis Flashcards
What is included in the Expenditure approach to calculating GDP?
- G - Government Spending
- I - Investment expenditures
- C - Consumption expeditures
- E - Net Exports
- Exports
- Imports
What are the tools of the Fed Reserve in an Expansionary Monetary Policy?
- Open Market - purchase gov’t securities
- increases money supply
- Lowering the discount rate to banks
- encourages borrowing, increases MS
- Lowering the reserve requirements
All increase money supply, reduce costs of capital, and encourage spending (demand curve right)
What are the different types of natural unemployment?
- Frictional - changing jobs, or temporarily laid off
- Structural - skills of workers do not line up with skills needed in jobs
- Seasonal - time of year
These types of unemployment will still exist in a period of full employment
What is stagflation?
Falling output, rising unemployment, and rising price level
What is the velocity of money?
Rate which money is exchanged in the economy
Typically measured by taking the GDP and dividing by money supply
How do you measure CPI and Inflation rates?
CPI = Current cost of market / Base Year cost of market
Inflation = Change in CPI / CPI last year
CPI is what CONSUMERS (not businesses) pay for goods over time as a measure of inflation
What are Porter’s 5 Forces?
Identifies forces that have a significant effect on the competitve environment and profitability of the firm
- Barriers to entry
- Market Competitiveness (intensity)
- Existence of substitute products
- Bargaining Power of the customer
- Bargaining Power of the suppliers
What are Porters four major factors taht impact global competitive advantage?
- Conditions of factors of production
- availability of resources (skilled labor, natural resources)
- Conditions of domestic demand
- high domestic demand, global competitive advantage
- Related and supporting industries
- if there is a cluster of similar business in one nation, many suppliers, will help nation do better globally
- Firm Strategy, structure, and rivalry
- less regulation/promote competition/low taxes
What causes competition to become stronger and impact the profitability of a firm?
Competition is fierce when:
- Market is not fast growing
- several equal size firms exist in market
- customer does not have strong brand preference
- cost of exiting the market exceeds the cost of continuing to operate
- various firms use various types of strategic plans
What is a SWOT analysis ?
Strengths, Weaknesses, Opportunities, Threats
Relationship between the entity (SW - internal) and its environment (OT - external).
What is the comparative advantage theory?
When each nation specializes in products for which it has the greatest comparative advantage, total world output is maximized. This specialization requires imports, which raises living standards as more goods are available.
The US can still compete with nations with lower labor rates, because it has advantages in other production factors.
What is the effect of prices on US imports and exports when the dollar depreciates?
Import prices will increase - costs more to buy foreign goods
Export prices will decrease - cheaper for foreign currency to buy US goods
What are the characteristics of primary capital markets?
Primary - New issues of debt and equity securities
Secondary - exchange of exisitng debt and equity securities
Futures market - future commodity contracts
What is included in the money supply? M1, M2, M3
The stock of all liquid assets available for transactions in the economy at a given point in time.
M1- cash, demand deposits and traveler’s checks
M2- M1 plus savings deposits, time deposits less than $100K, and money market
M3 - M1 and M2 plus time deposits more than $100K
What are residential contrstruction, inventories, and plant and equipment?
Three components of investment.
Capital consumption allowance (aka depreciation) is a negative component of plant and equipment investment
