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CPA BEC > Business 5: Changes in Economic and Business Cycles > Flashcards

Business 5: Changes in Economic and Business Cycles Flashcards

1
Q

What do business cycles refer to?

A

Rise and fall of economic activity relative to its LT growth trend

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2
Q

What do business cycles refer to?

A

Rise and fall of economic activity relative to its LT growth trend

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3
Q

Define GDP

A

total market value of all final g&s produced w/i the borders of a nation in a particular period

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4
Q

Define GDP

A

total market value of all final g&s produced w/i the borders of a nation in a particular period

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5
Q

Does GDP include the output of foreign-owned factories in the US?

A

Yes

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6
Q

Does GDP include the output of US owned factories operating abroad?

A

No (included in GNP)

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7
Q

Is nominal GDP adjusted for inflation?

A

NO (reflects current prices)

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8
Q

Is real GDP adjusted for inflation?

A

YES (reflects constant prices)

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9
Q

How would you calculate real GDP?

A

= (nominal GDP / GDP deflator) * 100

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10
Q

How would you calculate real GDP?

A

= (nominal GDP / GDP deflator) * 100

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11
Q

How would you calculate the change in real GDP?

A

= (CY real GDP / PY real GDP) - 1

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12
Q

How would you calculate the change in real GDP?

A

= (CY real GDP / PY real GDP) - 1

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13
Q

What is real GDP per capita?

A

real GDP divided by population

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14
Q

How is economic growth generally measured?

A

= increase in real GDP per capita over time

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15
Q

How is economic growth generally measured?

A

= increase in real GDP per capita over time

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16
Q

What is an expansionary phase characterized by?

A
  • Rising GDP, profits, prices

- Falling unemployment

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17
Q

A peak is a _____ ____ of economic activity.

A

High point

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18
Q

A peak is a _____ ____ of economic activity.

A

High point

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19
Q

What is a contractionary phase characterized by?

A
  • Falling GDP, profits

- Rising unemployment

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20
Q

An economy contracts until it reaches its what?

A

Trough

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21
Q

An economy contracts until it reaches its what?

A

Trough

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22
Q

What phase follows a trough in the business cycle?

A

Recovery phase

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23
Q

What phase follows a trough in the business cycle?

A

Recovery phase

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24
Q

How do economists define a recession?

A

2 consecutive quarters of falling national output

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25
Q

What do you call a very severe recession?

A

Depression

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26
Q

What do you call a very severe recession?

A

Depression

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27
Q

What type of indicators tend to predict economic activity?

A

Leading indicators

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28
Q

What type of indicators tend to follow economic activity?

A

Lagging indicators

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29
Q

What type of indicators tend to follow economic activity?

A

Lagging indicators

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30
Q

What type of indicators provide info about the current state of the economy?

A

Coincident indicators

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31
Q

What type of indicators provide info about the current state of the economy?

A

Coincident indicators

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32
Q

Economists generally agree that business cycles result from shifts in what?

A

Aggregate demand and/or aggregate supply

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33
Q

What does the AD curve illustrate?

A
  • Max quantity of all g&s producers are willing and able to produce @ any given price level
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34
Q

What does the AS curve illustrate?

A
  • Max quantity of all g&s producers are willing and able to produce at any given price level
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35
Q

What does the AS curve illustrate?

A
  • Max quantity of all g&s producers are willing and able to produce at any given price level
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36
Q

Why is the SRAS curve upward sloping?

A
  • illustrates that as prices increase, firms willing to produce more g&s
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37
Q

Why is the LRAS curve vertical?

A
  • illustrates that in LR, if all resources are fully utilized, output is determined solely by the factors of production (availability of resources, not by price)
  • corresponds to potential level of output in the economy
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38
Q

Why is the LRAS curve vertical?

A
  • illustrates that in LR, if all resources are fully utilized, output is determined solely by the factors of production (availability of resources, not by price)
  • corresponds to potential level of output in the economy
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39
Q

What does potential GDP refer to?

A

Level of real GDP (national output) the economy would produce if its resources (capital and labor) were fully employed

40
Q

When real GDP is below potential GDP, what business cycle will the economy typically be in?

A

Recession

41
Q

When real GDP is above potential GDP, what business cycle will the economy typically be in?

A

Expansion

42
Q

What happens when there is an overall reduction of demand in the economy?

A
  • Falling GDP, profits, prices

- Rising unemployment

43
Q

What happens when there is an overall reduction of demand in the economy?

A
  • Falling GDP, profits, prices

- Rising unemployment

44
Q

What happens when there is an overall increase in the demand for goods and services by individuals, businesses, and governments within an economy?

A
  • Rising GDP, profits, prices

- Falling unempoyment

45
Q

What happens when there is an overall increase in the demand for goods and services by individuals, businesses, and governments within an economy?

A
  • Rising GDP, profits, prices

- Falling unempoyment

46
Q

What happens if there is a reduction in supply?

A
  • Falling GDP, profits

- Rising unemployment, prices

47
Q

What happens if there is an increase in supply?

A
  • Higher GDP, profits

- Lower unemployment, prices

48
Q

If wealth increases in an economy, what will happen to overall demand?

A

Overall demand is going to go up

49
Q

If wealth increases in an economy, what will happen to overall demand?

A

Overall demand is going to go up

50
Q

A decrease in wealth would cause the AD curve to shift in what direction?

A

left

51
Q

A decrease in wealth would cause the AD curve to shift in what direction?

A

left

52
Q

What two things result from an increase in real interest rates?

A

individuals and businesses

1) save more
2) borrow less

53
Q

What two things result from an increase in real interest rates?

A

individuals and businesses

1) save more
2) borrow less

54
Q

What two things result from an increase in real interest rates?

A

individuals and businesses

1) save more
2) borrow less

55
Q

An increase in real interest rates would cause what shift in the AD curve?

A
  • Shift AD curve left, causing GDP to fall

- Unemployment rises, prices fall

56
Q

An increase in real interest rates would cause what shift in the AD curve?

A
  • Shift AD curve left, causing GDP to fall

- Unemployment rises, prices fall

57
Q

When there is a decrease in real interest rates, what two things tend to happen?

A

People tend to

1) save less
2) borrow more

58
Q

When there is a decrease in real interest rates, what two things tend to happen?

A

People tend to

1) save less
2) borrow more

59
Q

A decrease in real interest rates would case what shift in the AD curve?

A
  • Shift AD right, causing GDP to rise

- Unemployment falls, prices rise

60
Q

What is another term for appreciated currencies?

A

Strong currencies

61
Q

What is another term for depreciated currencies?

A

Weak currencies

62
Q

What is another term for depreciated currencies?

A

Weak currencies

63
Q

If $ is strong, $ more expensive relative to foreign currencies. What does this mean in terms of net exports?

A
  • Less exports (goods become relatively more expensive for foreigners)
  • More imports (goods become relatively less expensive for residents)
  • NET EXPORTS FALL
64
Q

How does a strong currency impact the AD curve?

A

SHIFT AD CURVE LEFT (GDP falls, unemployment rises, prices fall)

65
Q

If $ is strong, $ more expensive relative to foreign currencies. What does this mean in terms of net exports?

A
  • Less exports (goods become relatively more expensive for foreigners)
  • More imports (goods become relatively less expensive for residents)
  • NET EXPORTS FALL
66
Q

How does a strong currency impact the AD curve?

A

SHIFT AD CURVE LEFT (GDP falls, unemployment rises, prices fall)

67
Q

If $ is weak $ less expensive relative to foreign currencies. What does this mean in terms of net exports?

A
  • More exports (goods become relatively less expensive for foreigners)
  • Less imports (goods become relatively more expensive for residents)
  • NET EXPORTS RISE
68
Q

How does a weak currency impact the AD curve?

A

SHIFT RIGHT

69
Q

How does a weak currency impact the AD curve?

A

SHIFT RIGHT (GDP rises, unemployment falls, prices rise)

70
Q

How does a weak currency impact the AD curve?

A

SHIFT RIGHT (GDP rises, unemployment falls, prices rise)

71
Q

Can changes in government spending and consumer tastes impact AD?

A

YES

72
Q

Can changes in government spending and consumer taxes impact AD? [fiscal policy]

A

YES

73
Q

Can changes in government spending and consumer taxes impact AD? [fiscal policy]

A

YES

74
Q

How does an increase in government spending impact AD?

A
  • AD increases, GDP increases

- Unemployment falls, prices increase

75
Q

How does a decrease in government spending impact AD?

A
  • AD decreases, GDP decreases

- Unemployment rises, prices fall

76
Q

If the gov’t increased consumer taxes, how would that impact AD?

A
  • AD falls, GDP falls

- Unemployment rises, prices fall

77
Q

If the gov’t increased consumer taxes, how would that impact AD?

A
  • AD falls, GDP falls

- Unemployment rises, prices fall

78
Q

What is the government doing when implementing expansionary fiscal policy?

A
  • Increase gov’t spending
  • Decrease consumer taxes
    SHIFT AD RIGHT
79
Q

What is the government doing when implementing contractionary fiscal policy?

A
  • Decrease gov’t spending
  • Increase consumer taxes
    SHIFT AD LEFT
80
Q

What is the government doing when implementing contractionary fiscal policy?

A
  • Decrease gov’t spending
  • Increase consumer taxes
    SHIFT AD LEFT
81
Q

What is the goal of expansionary fiscal policy?

A

GOAL: push economy back to LR potential output

82
Q

What is the goal of expansionary fiscal policy?

A

GOAL: push economy back to LR potential output

83
Q

What factors shift AD?

A

TWICE Government:

Taxes
Wealth
Interest rates
Consumer confidence
Exchange rates
Government spending
84
Q

What factors shift AD?

A

TWICE Government:

Taxes
Wealth
Interest rates
Consumer confidence
Exchange rates
Government spending
85
Q

What does the multiplier effect refer to?

A

Fact that an increase in consumer, firm, or gov’t spending produces a multiplied increase in the level of economic activity

86
Q

What does the multiplier effect result from?

A

From the MPC (marginal propensity to consumer)

87
Q

What is the MPC?

A

Change in consumption due to $1 increase in income

88
Q

B/c people tend to save part of their income, the MPC is typically less than what?

A

ONE

89
Q

Using the MPC, how do you calculate the size of the multiplier effect?

A

= 1 / (1-MPC)

= 1 / MPS

90
Q

How do you calculate change in real GDP?

A

= multiplier

= change in spending

91
Q

How do you calculate change in real GDP?

A

= multiplier * change in spending

92
Q

How do you calculate change in real GDP?

A

= multiplier * change in spending

93
Q

Factors that shift SRAS are factors related to what?

A

Resources

94
Q

Factors that shift SRAS are factors related to what?

A

Resources

95
Q

What two factors would cause a change in SRAS?

A

1) Input or resource prices

2) Supply shocks (changes in resource availability)

96
Q

What two factors would cause a shift in SRAS?

A

1) Input or resource prices

2) Supply shocks (changes in resource availability)

CPA BEC (26 decks)

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