BEC 1 - Economic Concepts & Strategy Flashcards

Question

Supply Curve Shifts (Direct Relationship)

Answer 1

of Producers Government Subsidies Price Expectations Reductions if Costs/Tech Advance

Answer 2

Increases in Production costs, Price of Other Products

Answer 3

(%Change in Qd X / %Change in Price of Y)

Answer 4

Zero (Positive # = Substitute, Negative # = Complement)

Answer 5

%Change in Qs / %Change in Price É. ABSOLUTE VALUES

Answer 6

Excess of normal profit rate (suppliers entering the market)

Answer 7

Below Equilibrium, creates a shortage

Answer 8

Above Equilibrium, creates a surplus

Answer 9

The Difference between Chosen Route and Opportunity Cost

Answer 10

Equilibrium Price is INDETERMINATE (either way) | Q-Purchased increases (decreases)

Answer 11

Equilibrium Price INCREASES (follows Demand) | Q-Purchased is INDETERMINATE

Answer 12

MUa Q-demanded will INCREASE & MUb Q-demanded will DECREASE until MUa=Mub

Answer 13

Budget Constraint and Indifference Curve Tangent

Answer 14

Income - Taxes + Govt Benefits

Answer 15

Change in Spending / Change in Income

Answer 16

Change in Saving / Change in Income

Answer 17

(1/MPSaving) x (Change in Spending)

Answer 18

increase in total revenue received from sale of one more unit of input/resource

Answer 19

Price Decreases to Total Revenue Increases (Sales Increases and MR Decreases)

Answer 20

in excess of VCÉ when capacity is reached (MR=MC), any additional unit will also increase Fixed Costs

Answer 21

Total Costs = Variable Costs (no fixed costs)

Answer 22

%Increase in Output / %Increase in Input

Answer 23

Falling price per unit (RTS>1.0)

Answer 24

Increasing Price Per Unit (RTS<1.0)

Answer 25

No Effect on Price (RTS=1.0)

Answer 26

- Large # of Buyers/Sellers - Same Products (Homogenous) - No Non-Price Competition (IE No Ads) - No Barriers to Entry/Exit - No Price Contracts - Demand Curve is Elastic (Horizontal)

Answer 27

- Small # of large Producers - Homogenous/Heterogenous Products - Significant barriers for entry ($$, Time, Licenses) - Non-Price Competition - Rival Actions are observed - Kinked D-Curve

Answer 28

Data analysis for understanding/predicting competition

Answer 29

who are our customers and why are they our customers

Answer 30

SWOT (Strengths, Weaknesses, Opportunities, and Threats) or Mission Statement, Goals/Objectives, Actions (Assessment and Data Analysis)

Answer 31

physical, perceived, and customer service for: 1. makes the firms sales less responsive to changes in the prices charged by other competitors 2. allows to charge different prices for different products 3. charge higher prices

Answer 32

cutting costsÉ 1. Process reingineering (redesign processes) 2. lean manufacturing (ID misuse of resources) 3. supply chain management

Answer 33

Part of Cost Leadership StrategiesÉ might be able to operate with leaner inventories if all parts of the Supply Chain shared information

Answer 34

relationship between: 1. total expenditures by consumers, firms, govt, & the foreign sector AND 2. the Price level at a given point

Answer 35

1. Interest Rate Effect (Interest Rates Increase, then Financing Consumption Decreases) 2. Wealth Effect (Fixed Income decreases in Value, Buy Less Elastic (Luxury Items)) 3. International Purchasing Power Effect (US Good and Svc's are more expensive, Consumers Buy Imported or Q demanded for Foreign Goods INCREASES And Q-demanded for domestic DECREASES)

Answer 36

relationship between: 1. total goods and services produced (output) AND 2. the Price level at a given point of time

Answer 37

Increase in aggregate spending causes no change in Q but Price Increases (D shifts to right)É excess demand bids up costs and results from improved exceptions OR Loose policy

Answer 38

(Short Term) there is a trade off between unemployment and inflation (needs to be balanced because of NAIRU implications)

Answer 39

supply curve shifts to the left and costs are "pushed" to the consumerÉ producers are faced with increases in costs of inputs (higher price and less quantity AKA Negative Supply shock)

Answer 40

sudden decrease in aggregate supply curve. Price increases and quantity decreases

Answer 41

Non Accelerating Inflation Rate of UnemploymentÉ if actual level of UE < NAIRU, BOOM in ST but problems eventually follow (high inflation)

Answer 42

prohibited price fixing, boycotts, market division, and restrict resale agreements among suppliers

Answer 43

prohibited stock mergers that reduce competition, price discrimination, and common directorships among competing firms

Answer 44

prohibited discounts to large purchases NOT based on cost differentials

Answer 45

prohibits acquisition of the assets of a competitor if it would reduce competition

Answer 46

UE, Inflation, and LT economic Growth

Answer 47

Sum of All income earned in the production of FINAL goods and services

Answer 48

Consumption of Personal + Businesses (Gross Private Investment) + Government + Net Exports (- Net Imports)

Answer 49

underutilized resources (UE% Higher)

Answer 50

overheating, which results in: - LOW unemployment rates - BOOM conditions - eventuallyÉ.. PRICE INFLATION

Answer 51

larger payouts if CPI increases (if inflation is low, negative returns)

Answer 52

1. CPI (Year10 CPI / Year1 CPI) * Year1 USD 2. PPI - fixed basket at the wholesale level for producers (not retail) 3. GDP Deflator

Answer 53

Focuses on shifts in Agg. Demand depends on: 1. expectations about the future (confidence = Increase) 2. countercyclical policy by the govt (loose Fiscal & monetary policy = increase)

Answer 54

Recession, Trough, Expansion, Peak

Answer 55

Early ("Recovery"): declines in UE and GDP>Potential | Final: booming, higher inflation rates

Answer 56

Early: 2 Consecutive Quarters of negative growth in Real GDP (decreased economic production and increased unemployment Final Stages: GDP< Potential, decreased aggregate spending (Shift Demand Curve to the Left)

Answer 57

Shift Supply Curve to the left (also cause decline in GDP)

Answer 58

stocks, average hours worked per week, new orders for durable goods, average initial claims for UE, building permits, and housing starts

Answer 59

simultaneous movement with expansions and recessions | IE Industrial productions, manufacturing and trade sales

Answer 60

Frictional, Structural, Cyclical, and Institutional

Answer 61

Friction and Structural only included

Answer 62

the Supply and Demand of funds (firms, households, government, and financial institutions)

Answer 63

the rates paid on conventional treasurys securties and TIPS

Answer 64

Difference between Conventional Securities Yield and TIPS yield (plus difference in small liquidity premiums)

Answer 65

AKA discount rateÉ those that commercial banks charge and pay one another for ST loans

Answer 66

banks charge their most creditworthy business customers on short term loans (usually 3% + federal funds rate)

Answer 67

GOVERNMENT involvement in taxes, subsidies, and govt spending

Answer 68

Use it as an expansionary FISCAL Policy when" | 1. GDP

Answer 69

1. Lowering tax rates (revenues) without lowering spending to an equivalent amount or 2. Increasing spending (expenses) without increasing tax rates to an equivalent amount

Answer 70

Deficit is the period of time when expenses exceed revenues | Debt is the TOTAL amount of outstanding US treasurys or PAST Deficits

Answer 71

As a CONTRACTIONARY FISCAL Policy to reduce aggregate demand (increase taxes) 1. GDP > Potential 2. Unemployment rates are too low (

Answer 72

FEDERAL RESERVE managing: 1. credit conditions 2. Interest Rates 3. the Money Supply

Answer 73

MAXIMIZE economic growth, stability | MINIMIZE unemployment rates, inflation rates, and financial fluctuations

Answer 74

1. Reserve Requirements 2. Federal Funds Rate (aka "Discount Rate") 3. Open Market Operations

Answer 75

Fed Reserve Monetary policy tool by setting a TARGET discount rate & using the buy/sell of short term US Treasury's ensure that the EFFECTIVE RATE = TARGET RATE

Answer 76

the Federal reserve can implement EXPANSIONARY monetary policy. The Fed will BUY US Treasurys (open market operations) to lower the federal funds rate (discount rate) or lower the Federal Funds rate alone which will stimulate the economy. Lower Discount Rate = Lower Interest Rates = More Money the Economy = More Jobs

Answer 77

The Federal reserve can implement CONTRACTIONARY monetary policy. The Fed can increase the reserve requirements ratio, increase the federal funds rate, or SELL US Treasurys which will decrease the money supply and dampen the economy.

Answer 78

approx. 0.00%

Answer 79

It is when the Federal Reserve increases the Money Supply (Quantity) but it has no effect on the Federal Funds Rate (Price)

Answer 80

(The FED) Via Credit Conditions which may have an affect on individual economic agents Looser = Stimulates the economy by encouraging spending (Therefore increasing aggregate demand) Tighter = Dampens the economy by discouraging spending (Therefore decreasing aggregate demand)

Answer 81

M0: Currency M1: M0 + Travelers Checks + Demand Deposits M2: M1 + Time Depots$100K

Answer 82

Government influence economic activity through environmental issues, labor issues, occupational health and safety, energy policy, healthcare, bank capital, lending practices

Answer 83

Regulations will channel resources from disfavored sectors to favored sectors Also, can prevent financial crises by implementing bank regulations (minimum down payment, thicker capital cushions, etc)

Answer 84

Private (confidence and borrowing excess) and Government (poor timing & incentives) sectors role in recurring business cyclesÉ whether the Government is alleviating or worsening them and how they are.

Answer 85

NO GOVT INTERVENTION - The economy is self stabilizing without government induced distortions but with small fluctuations in UE and Inflation. Distortions include price and wage controls, note issuance and lending restrictions

Answer 86

(FISCAL POLICY) Argues that the economy does not self-stabilize quickly enough. Therefore, the Government must use FISCAL POLICY (run deficit spending or surplus budgets)

Answer 87

(MONETARY POLICY - OPEN MARKET OPS) argues that in order to MINIMIZE fluctuations in both UE and Inflation rates, the FED should focus on STABLE MONETARY GROWTH (not interest rates). Therefore, the fed allows interest rates to CLIMB if Lending > LT Monetary Growth Rate (opposite for Falling rates). Argues that increasing Monetary Growth > LT AVG is more likely to cause instability

Answer 88

Govt Policy should focus less on short term fluctuations and more on removing impediments in economic production (SUPPLY CURVE SHIFTS RIGHT in the LONG TERM)....i.e. Reduce Taxes, Increase Savings, Investment, Innovation Investigates which govt laws and regulations may be counterproductive. Think about the Laffer curve.

Answer 89

REDUCING tax rates may INCREASE tax revenues (i.e. incentive to work more is increased)

Answer 90

- Combines Elements from Monetarists and Keynesian Theory (Monetary + Fiscal) - argues that the relationship between monetary aggregates and economic conditions have been too loose to rely on a constant rate of monetary growth to minimize UE And Inflation fluctuations - Monetary and Fiscal Policy should BOTH be loosened in response to Higher UE Rate

Answer 91

- insight on how monetary policy can lead to resource dislocations, bubble formations, and instability (boom-bust cycles) - I.E. Low interest rates may lead to producers overestimating actual consumer demand, which leads to oversupply and higher UE in that sector

Answer 92

a country able to produce a good a lower cost (nothing else considered) than another country

Answer 93

- a county able to produce a good at lower RELATIVE cost than another country (in a pair of countries, there is always comparative advantage for both countries in Product A or B) - opportunity costs of producing 1 more unit of A and 1 Less unit of B

Answer 94

Tariffs cause: - Domestic Producers (positive effect, less substitute goods, Higher Price, Less Quantity. Demand Curve Shifts Right) - Domestic Consumers (negative effect, prices increased, Supply Curve to the Left) - Foreign Producers (negative effect - forced to sell at a lower price in a smaller market, Demand Curve to the Right) - Foreign Consumers (positive - lower prices and higher quantity in their country, Supply curve to the right)

Answer 95

- Import Quotas - Embargoes (think CUBA) - Voluntary Export Restraints (Toyota in USA) - Foreign Exchange Controls (favored parties) - Dumping (unjustifiably low price of a foreign good) - Dual Pricing (diff currencies = different prices depending on the market) - Export Subsidies (outright payments to tax benefits)

Answer 96

- Part of the Current account in the Balance of Payments - Difference between GOODS exported and GOODS imported - Net Exports = Trade Surplus (Net Imports = Trade Deficit)

Answer 97

focuses on the flow of goods and services in the balance of payments during a specific period of time

Answer 98

- focuses on the flow of fixed and financial assets ($$, stocks/bonds) in the balance of payments during a specific Period of time - mirror image of the current account (Current account deficit = Capital Account Surplus)

Answer 99

when the foreign currency weakens. Therefore domestic consumers will purchase more of their goods because it is cheaper

Answer 100

[(FWD Rate - SPOT Rate)/ SPOT Rate] * (Months in 1 Year / Months in FWD Period)

Answer 101

There is a DISCOUNT since the foreign currency will be worth less in the future

Answer 102

Foreign Higher Inflation rates, currency DEPRECIATES relative to others

Answer 103

Foreign Higher Interest Rates, currency APPRECIATES relative to others (demand for the currency rises)

Answer 104

Net Exporter Countries currency APPRECIATES relative to others (net importers cause demand of those currencies to rise)

Answer 105

currencies from countries with more stability tend to endure fewer ST fluctuations. Change in factors does not effect the value as much as countries with a LT record of instability.

Answer 106

During international crises, international investors tend buy currency of stable countries

Answer 107

(rarely used) - central bank rarely or never buys/sells foreign currencies to influence exchange rates - exchange rates are set by supply and demand by PRIVATE PARTIES and the actions of other Foreign central Banks

Answer 108

If it allows individuals and firms to freely buy/sell foreign currency AND wants to maintain a FIXED exchange rate - they are having to match the monetary policy of the country against which its fixed it currency

Answer 109

Fall between floating and fixed exchange rates. - Formal Pegs: closer to FIXED exchange rates - Dirty Floats: closer to pure FLOATING exchange rates

Answer 110

Hedging Principle: Matching assets and liabilities in each market of operation i.e. using the foreign operations local currency

Answer 111

1. by matching as many revenues and costs as possible in each market of operation 2. Derivative or Hedging Contracts: Options, Forwards (commitment) Futures (commitment), Currency Swaps, Money Market Hedges (loan removes unfavorable outcome)

Answer 112

Banks have ASSETS with longer Maturities & LIABILITIES with shorter maturities. Therefore, an INCREASE in interest rates will leave them with assets that reprice SLOWLY (low interest rates) and liabilities that recipe QUICKLY (higher interest rates)

Answer 113

1. Reduce Assets with LT maturities and increase Liabilities with Long Maturities 2. Reduce fixed rate LT assets and increase VARIABLE rate LT assets 3. Derivatives

Answer 114

1. Diversifying customers 2. Selling future streams of payment: Moving from "originates to hold" to "originates to distribute" for profits 3. Internal Controls for tight credit standards 4. Greater guarantees from borrowers (down payments, collateral) 5. Derivates (credit default swaps)

Answer 115

form of insurance that protects against credit defaults on bonds in exchange for premiums - can also purchase portfolio of CDS (protection against economy-wide defaults

Answer 116

1. Matching maturities of their assets and liabilities, assets could be liquidated @ full amount (not in "fire sale" of depressed value) 2. maintain cushion "emergency fund" of liquid assets (forgoes potential returns) 3. Maintain a variety of LT lines of credit with a variety of providers (fees involved)

Answer 117

1. Shift financial sources from debt to EQUITY (accommodates easier to temporary declines) 2. diversify income streams and assets held (could reduce managerial focus) 3. Hedging Strategies (I.e. Shorting the S&P 500)

Answer 118

You can Call at spot rate. If the cost does rise, you can use the call to buy at the spot rate. If the cost declines, you can let the option expire and purchase at the lower cost.

Answer 119

1. Increased Foreign Direct Investment (operations, networks, research) 2. Increase Foreign Indirect (or Portfolio) Investment (financial assets denominated in foreign currency) 3. Decreased Natural and Artificial Barriers (transportation, information, communication costs, and tariffs) 4. Increased Modernization of Developing Countries (living standards, societal norms, consumer homogenization)

Answer 120

1. Efficient equipment and labor 2. Sophisticated Mgmt Techniques 3. Continuous innovation, research, value adding for current and new products 4. Product Quality control 5. Customer Service and Support 6. Leverage Financial resources to adopt financial services

Answer 121

companies operating across countries may complete inputs in several countries. For tax laws, different prices must assigned be to those inputs when transfers to another country. Tax calculations based on the difference between the input price and transfer price.