Ch 2- Economic Concepts And Analysis

Question 1

Price Elasticity (sensitivity) of demand

Answer 1

= % change in quantity demand/ % change in price

Question 2

Arc Method- price elasticity of demand

Answer 2

measurement that considers change in quantity demanded to change in price

(Change in quantity demanded/ Average quantity)/ (Change in price/ Average price)

Question 3

Elastic v inelastic

Answer 3

> 1- elastic (sensitive to price changes0
=1 neither sensitive or insensitive
<1 inelastic (not sensitive to price changes)

Question 4

income elasticity of demand

Answer 4

%change in quantity demanded/ % change in income
>0 normal goods demand increase as income increases
<0 inferior goods demand will decrease as income increases

Question 5

Cross elasticity of demand

Answer 5

% change in quantity demanded of product X/ % change in price of product Y
>0 products are substitutes
=0 unrelated goods
<0 products are complements

Question 6

Consumption function

Answer 6

C=Co + C1YD

C= consumption for period
Co= constant
C1= Slope of consumption (marginal propensity to consume)
YD= disposal income for the period

Question 7

Elasticity of Supply

Answer 7

=%change in quantity supplied/
% change in price

> 1 then elastic sensitive to price change
=1 neither sensitive or insensitive
<1 in elastic not sensitive to price changes

Question 8

Identity and define business cycles and conditions and government policies that impact an entity’s industry or operations– Graph

Answer 8

expansions and contractions

measured by US Dept of Commerce Burea of Economics Analysis (BEA)

Question 9

Identity and define business cycles and conditions and government policies that impact an entity’s industry or operations– Peak

Answer 9

Highest point of economic activity (possible production constraits and shortages)
somewhat overvauled (irrational exuberance)

Question 10

Identity and define business cycles and conditions and government policies that impact an entity’s industry or operations– Contraction

Answer 10

economy begins to slow
lower corp growth and profits
lower than LT growth line
GDP decreases and unemployment increases

Question 11

Identity and define business cycles and conditions and government policies that impact an entity’s industry or operations– Trough

Answer 11

Lowest point in economic activity which can indicate excess production capacity and inventory that result in cost cutting and higher unemployment leading to recession

Recession- 2 consecutive quarters (6 months) of declining GDP

Depression- prolonged and excessive recession which lasts for two or more years

Question 12

Identity and define business cycles and conditions and government policies that impact an entity’s industry or operations– Expansion

Answer 12

Economy begins to expand and grow (periods of economic prosperity)
Activity above LT growth line
GDP rises, unemployment decreases
Okun’s law- every 1% increase in GDP, there’s a .5% decrease in unemployment

Question 13

Identity and define business cycles and conditions and government policies that impact an entity’s industry or operations– GDP

Answer 13

total output of goods and services produced in domestic economy during a particular time period
US GDP, goods produced within US borders regardless of resources ownership, Foreign and domestic companies as long as made in US, not if produced anywhere else (iPhones in China)
Great way to take temperature of economy

Question 14

Identity and define business cycles and conditions and government policies that impact an entity’s industry or operations– not part of GDP

Answer 14

Barter transactions- trading
Unpaid labor- volunteers homemakers
Black market- illegal

Question 15

Identity and define business cycles and conditions and government policies that impact an entity’s industry or operations– Nomimal GDP

Answer 15

unadjusted GDP measures total amt goods and services produced using the price index (constant dollar) to eliminate effects of inflation

Question 16

Identity and define business cycles and conditions and government policies that impact an entity’s industry or operations– Real (actual) GDP

Answer 16

adjustred GDP measures total amt of goods and services produced by using index (constant dollar) to eliminate the effects of inflation

Question 17

Identity and define business cycles and conditions and government policies that impact an entity’s industry or operations– GDP deflator

Answer 17

Price index used to convert nominal GDP to real GDP
GDP gap derived from all goods and services that are included in GDP
Use to get Real GDP
(Nominal GDP/GDP deflator) x 100

Question 18

Identity and define business cycles and conditions and government policies that impact an entity’s industry or operations– Potential GDP

Answer 18

maximum amt of goods and services produced at a constant inflation rate with ideal production and high employment levels

Question 19

Identity and define business cycles and conditions and government policies that impact an entity’s industry or operations– GDP gap

Answer 19

Calculated as difference between potential GDP and real GDP
measurement of unemployement uses and ineffieciences of government and businesses
Real GDP will weldom = potential GDP
potential GDP-real GDP
Positive gap=unemployed resources, may lead to unemployment
Negative gap- economy is operating above normal capacity may lead to rising prices

Question 20

Identity and define business cycles and conditions and government policies that impact an entity’s industry or operations– Four parts of GDP

Answer 20

consumers spending (65% of GDP)
business entities investment (15% of GDP)
federal, state, local gov spending (20% of GDP)
foreign activity

Question 21

Identity and define business cycles and conditions and government policies that impact an entity’s industry or operations– Multiplier efffect

Answer 21

spending effect on GDP
more spending more GDP
MPC + MPS= 1, if MPC less than 1 consumers’ income is saved
Multiplier= 1/ (1-MPC)

Resulting impact on real GDP
multiplier x spending change

Question 22

Identity and define business cycles and conditions and government policies that impact an entity’s industry or operations– Accelerator effect

Answer 22

increase of a firm’s investments in production that are done to meet the rate of growth for demand of goods
Consumer ^ firms increase spending to meet demand

Question 23

Identity and define business cycles and conditions and government policies that impact an entity’s industry or operations– Cyclical Businesses

Answer 23

sensitve to business cycles
usually have higher highs and lower lows
airlines, home builders (bring on more people because there’s more disposable income)

Question 24

Identity and define business cycles and conditions and government policies that impact an entity’s industry or operations–Non-cyclical businesses (defensive)

Answer 24

not affected by business cycle because demand for their products continues regardless of economic phase
more moderate highs and lows
needed for daily lilfe
utilities, healthcare, appliances

Question 25

Identity and define business cycles and conditions and government policies that impact an entity's industry or operations-- Aggregate supply

Answer 25

total of all goods and services in entire economy that firms are wiling to produce at any given price at any givern period

Question 26

Identity and define business cycles and conditions and government policies that impact an entity's industry or operations-- Agregate demand

Answer 26

total of all goods and services in entire economy that are demanded at any given price and at any given period demand for real GDP for an entire country

Question 27

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions-- Gross National Product GNP

Answer 27

total amt of all final goods and services produced by citizens of a country over a specific time period regardless of locations (US company in foreign country) during a period

Question 28

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions-- Net Domestic product

Answer 28

GDP-depreciation (capital cost allowance) | accounting dep- systematic allocation of fixed assets cost over years

Question 29

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions-- Net national product

Answer 29

all final goods and services produced by a country's citizens (regarless if in US or foreign) minus economic depreciation (amot of GNP required for new goods and services due to usage obsolescence or decline in calue of nation's captial fixed assets GNP-Economic dep

Question 30

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions-- Net national product

Answer 30

all final goods and services produced by a country's citizens (regarless if in US or foreign) minus economic depreciation (amot of GNP required for new goods and services due to usage obsolescence or decline in calue of nation's captial fixed assets GNP-Economic dep

Question 31

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions-- National income

Answer 31

NNP-business sales tax

Question 32

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions-- National income

Answer 32

NNP-business sales tax

Question 33

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions-- Personal Income

Answer 33

total income received by households and noncorp businesses actual income paid out basis for consumption expenditures after taxes

Question 34

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions--Personal disposalable income

Answer 34

personal income-income taxes

Question 35

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions--Personal disposalable income

Answer 35

personal income-income taxes

Question 36

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions--Unemp[loyment

Answer 36

%of unemployed people divided by total labor (all 16+ non instituitionalized labor) Structural unemployement- no match-up of worker skills with job requirements, or don't live near job but have requirements (worker generally acquires new skill) Frictional unemployment- normal in this economy; temporary worker transitions as they move from one job to another usually voluntary or being laid off Cyclical unemployment- decreases in GDP, less than potentional GDP. Full- employment- no cyclical unemployment

Question 37

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions-- Inflation

Answer 37

Increase over time in general or aggregate price; causing increase in price of goods and services increase in cost of living- decrease in purchasing power of money Federal Reserve controls inflation Less money less inflation More money more inflation

Question 38

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions-- Inflation

Answer 38

Increase over time in general or aggregate price; causing increase in price of goods and services increase in cost of living- decrease in purchasing power of money Federal Reserve controls inflation Less money less inflation More money more inflation

Question 39

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions-- Deflation

Answer 39

opposite of inflation; businesses not wanting to invest because investments looking to keep losing value

Question 40

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions-- Hyperinflation

Answer 40

price of goods and services sharply increase (usually 50%+ in a month)

Question 41

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions-- Consumer Price Index

Answer 41

measurement to gauge inflation- US Dept of Labor montly calculates CPI current period - CPI previous Period/ CPI prev period x 100

Question 42

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions-- Producer Price Index

Answer 42

current wholesale prices for a fixed basket of goods and services produced by firms relative to those prices during same period in previous year

Question 43

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions-- Philips Curve

Answer 43

inverse relationship between inflation and unemployment unemployment high, low inflation unemployment low, high inflation

Question 44

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions-- Monetary assests and liab

Answer 44

cash, AR, Notes REC, investments, AP, and Notes Pay Fixed interest rates assets lose value as inflation increases holding fixed interest monetary liab in periods of inflation make it easier to pay back the debt devalued

Question 45

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions--non-monetary assets and liab

Answer 45

inventory, fixed assets, warranties payable, and defferred income tax credits

Question 46

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions--non-monetary assets and liab

Answer 46

inventory, fixed assets, warranties payable, and defferred income tax credits; periods of inflation better to invest in non monetary

Question 47

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions--Interest Rates

Answer 47

what charged or paid for use of money changes result from Federal Reserve and inflation Nominal interest not adjusted for inflation, charged by lender and paid by borrower in loan transactions Real interest rate+inflation rate Nominal quoted in financial newspaper and banks

Question 48

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions--Real interest6 Rate

Answer 48

inflation adjusted interest rate;

Question 49

Calculate and use economic measures and indicators to explain the impact on an entity's industry or operations due to a change in government policies, business cycle and economic conditions-- Federal Gov budget surpluses and deficets

Answer 49

tax revenue doesn't cover gov spending | if deficit occurs gov should put out more money (print more money) which increases inflation

Question 50

Identify and define key factors related to the economic marketplace and how they generally impact and apply to a business entity and determine the impact to economic market influences on overall economy as well as on entity's business strategy operations and risk-- Market equilibrium

Answer 50

where demand =supply

Question 51

Identify and define key factors related to the economic marketplace and how they generally impact and apply to a business entity and determine the impact to economic market influences on overall economy as well as on entity's business strategy operations and risk-- Government intervention

Answer 51

Price ceiling- highest price that is established for a good set below equilibrium, demand (Q2) will be greater than supply (Q1); products shifted to be more profitable Price floor- minimum price established for a good; set above equilibrium price, supply (Q2) will be greater than demand (Q1) produce goods and surplusses exists

Question 52

Identify and define key factors related to the economic marketplace and how they generally impact and apply to a business entity and determine the impact to economic market influences on overall economy as well as on entity's business strategy operations and risk-- Externalities

Answer 52

components of economic activity that affects parties who are not directly involved; not everyone wil benefit from compnay producing a good or service Negative- pollution, not included in price of product produced

Question 53

Identify and define key factors related to the economic marketplace and how they generally impact and apply to a business entity and determine the impact to economic market influences on overall economy as well as on entity's business strategy operations and risk-- Classical economic

Answer 53

theories minimal gov intervention; fiscal policy shouoldn't be used to grow economy prices for goods and services are flexible, markets are self-regulating, supply will create its own demand, there is equality between savings and investments, and real GDP can be determined without inputs using inflation rates or money supply

Question 54

Identify and define key factors related to the economic marketplace and how they generally impact and apply to a business entity and determine the impact to economic market influences on overall economy as well as on entity's business strategy operations and risk--Monetarist economics

Answer 54

monetary policy, where natural rate of unemployment which governments could improve on intervention but it includes risk of inflation less gov and favors free market

Question 55

Identify and define key factors related to the economic marketplace and how they generally impact and apply to a business entity and determine the impact to economic market influences on overall economy as well as on entity's business strategy operations and risk-- Keynesian Economics

Answer 55

imperfect and not self-regulating

Question 56

Identify and define key factors related to the economic marketplace and how they generally impact and apply to a business entity and determine the impact to economic market influences on overall economy as well as on entity's business strategy operations and risk-- Neo-Keynesian Economics

Answer 56

Neo

Question 57

Identify and define key factors related to the economic marketplace and how they generally impact and apply to a business entity and determine the impact to economic market influences on overall economy as well as on entity's business strategy operations and risk-- Supply side economies

Answer 57

d

Question 58

Determine the business reasons for and explain the underlying economic substance of significant transactions (business combos, divestures, etc) -- Traditional economies

Answer 58

d

Question 59

Determine the business reasons for and explain the underlying economic substance of significant transactions (business combos, divestures, etc) -- Centrally Restricted (command) economies

Answer 59

as

Question 60

Determine the business reasons for and explain the underlying economic substance of significant transactions (business combos, divestures, etc) -- Market economies

Answer 60

k

Question 61

Determine the business reasons for and explain the underlying economic substance of significant transactions (business combos, divestures, etc) -- Expanding globally

Answer 61

k

Question 62

Determine the business reasons for and explain the underlying economic substance of significant transactions (business combos, divestures, etc) -- Diamond of National Advantage

Answer 62

k

Question 63

Determine the business reasons for and explain the underlying economic substance of significant transactions (business combos, divestures, etc) -- Barriers to change

Answer 63

k