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CSC course- FIP > CH.4-Economic Principles > Flashcards

CH.4-Economic Principles Flashcards

1
Q

Economics

A

understanding the choices individuals make and how the sum of those choices determines what happens in market economy

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2
Q

Market economy

A

all the activities related to producing and consuming goods and services + how the decisions made by individuals, firms, governments, determine proper allocation of resources

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3
Q

Microeconomics

A

market behaviors of individual consumers and firms

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4
Q

Macroeconomics

A

performance of economy as a whole, broader picture, challenges facing society as result of limited natural resources, human effort, skills, technology

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5
Q

3 main groups interact with economy-Decision makers

A

CONSUMERS
FIRMS
GOVERNMENTS

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6
Q

Market

A

any arrangement that allows buyers and sellers to conduct business with each other

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7
Q

fixed income market

A

network of investment professionals, distribution channels, suppliers, wholesalers who develop and trade products to meet various investor needs

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8
Q

2 GENERAL ECONOMIC PRINCIPLES EXPLAIN SUPPLY AND DEMAND

A

QUANTITY DEMANDED

QUANTITY SUPPLIED

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9
Q

Quantity demanded

A

amount consumers willing to buy at a particular price during given time period
-higher price= lower quantity demanded

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10
Q

quantity supplied

A

amount producers willing to supply at particular price during given time period
-higher price= greater quantity supplied

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11
Q

equilibrium price

A

prie that matches what someone willing to pay for products with price at which someone willing to supply it

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12
Q

Gross domestic product (GDP)

A

Market value of all final goods/servicfes produced in country in given time period

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13
Q

How is GDP measured

A

Expenditure approach

Income approach

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14
Q

Expenditure approach

A

Looks at total spending on final goods (finished product) and services produced in the economy
GDP=C + I +G + (X-M)

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15
Q

Income approach

A 
looks at total income earned by producing those goods and services
measures GDP by:
-wages for labor
-rent for land
-interest for capital goods
-profits for entrepreneurs
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16
Q

Nominal GDP

A

Dollar value of all Goods and services produced in a given year at prices that prevailed same year

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17
Q

Real GDP

A

constant dollar value of all goods and services produced in a given year at prices that prevailed in same base year

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18
Q

Business cycles

A 
Expansion
Peak
Contraction
trough
recovery
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19
Q

Expansion

A

in times of normal growth, economy steadily expanding

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20
Q

Peak

A

At top of cycle

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21
Q

Contraction

A
  • economy passes peak, enters downturn or contraction

- longer than 2 quarters = recession

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22
Q

Trough

A

Contraction continues, falling demand, excess capacity, growth cycle reaches lowest point

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23
Q

Recovery

A

GDP returns to previous peak, typically starts with renewed buying of interest sensitive things like houses, cars

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24
Q

Economic indicators that analyze business conditions

A

Leading indicators
coincident indicators
lagging indicators

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25
Q

economic indicators

A

statistics or data series that are used to analyze business conditions and current economic activity

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26
Q

Leading Indicators

A

peak and trough before overall economy, anticipate emerging trends in economic activity

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27
Q

coincident indicators

A

change at approx same time adn in same direction as rest of economy

28
Q

Lagging indicators

A

change after economy as whole changes, can confirm that a business cycle pattern occuring

29
Q

Popular definition of recession

A

2 consecutive quarters of declining GDP

30
Q

STATISTICS CANADA DEFINITION OF RECESSION

A

recession by depth, duration, diffusion of the decline in business activity:

  • decline must be of substantial depth
  • decline must be more than couple months
  • decline must be feature of whole economy
31
Q

Labour force

A

sum of working age population who are either employed ot unemployed

32
Q

key indicators of labour market

A
  • Participation rate

- Unemployment rate

33
Q

Participation rate

A

working age population in labor force

- shows willingness of ppl to enter work force and take jobs

34
Q

Unemployment rate

A

labor force that is unemployed, but looking for work

35
Q

Discouraged workers

A

Individuals that are available and willing to work, but cant find job
- they are not incl as part of labor force

36
Q

3 types of unemployment

A

Cyclical
frictional
structutral

37
Q

Cyclical unemployment

A

tied directly to fluctuation in business cycle

-rises when economy weak

38
Q

Frictional Unemployment

A

Result of normal labor turnover- ppl entering and leaving work force from ongoing job creation, and destruction of jobs
- normal part of healthy economy

39
Q

Structural Unemployment

A

workers unable to find work b/c lack of skills, don’t live where jobs available, don’t want to work at wage rate offered

  • tied to changes in technology, international competition, government policy
  • lasts longer than frictional unemployment b/c workers must retrain or relocate
40
Q

Natural Unemployment

A

minimum level of unemployment, economy thought to be operating at close to full potential or capacity- all resources (incl labor) fully employed.

41
Q

Determinats of interest rates

A
  • Demand and supply of capital
  • default risk
  • Foreign interest rates and exchange rate
  • central bank credibility
  • infaltion
42
Q

Default premium

A

if central government at risk defaulting on debt, rate rise for everyone

43
Q

How interest rates affect economy

A
  • may raise cost of capital for business investments, which reduces possibility of profitable investments
  • increases cost of borrowing, discourages consumers from spending, encourages more saving
  • increases portion of income required to pay debt, which reduces amount of money to spend on other things
44
Q

Nominal Interest rates

A

Effects of inflation have not been removed

-i.e rate charged on loan

45
Q

real interest rates

A

nominal interest rate- expected inflation rate

46
Q

Nature of money

A

as:

  • medium of exchange
  • unit of account
  • store of value
47
Q

Inflation

A

money growth, too much money chasing too few products

48
Q

Consumer price Index (CPI)

A

one of the most widely used indicators of inflation, considered a measure of cost of living in Canada

49
Q

Inflation rate calculation

A

(CPI current period - CPI previous period/CPI previous period) X 100

50
Q

Causes of inflation

A

???

51
Q

Output gap

A

difference between real GDP, what economy actually produces, potential GDP gap, what economy capable of producing when existing input of labor, capital, technology fully employed

52
Q

Negative output gap

A

actual output below potential

  • space capacity in economy
  • can produce more b/c resources not flly employed
53
Q

Positive output gap

A

Output above potential output

  • operating above capacity
  • trying to produce more than it can with existing resources
54
Q

Demand pull inflation

A
  • companies raise prices in response to strong demand

- higher continued consumer demand, pushes inflation higher

55
Q

Cost push inflation

A

higher costs PUSH inflation higher

56
Q

Disinfaltion

A

decline in rate at which prices rise, decrease in rate of inflation

  • Phillips curve
  • sacrifice ration
57
Q

Phillips curve

A
  • Lower unemployment rate achieved in long run by increasing inflation rate faster
  • lower inflation rate achieved at the cost of possibly increased unemployment and slower economic growth
58
Q

Sacrifice ratio

A

used to describe the extent to which GDP must be reduced with increased unemployment to achieve 1% decrease in inflation rate

59
Q

Deflation

A

Sustained fall in prices where annual change in CPI is negative year after year- OPPOSITE OF INFLATION

60
Q

Balance of payments

A

detailed statement of country’s economic transactions with rest of world in given period of time

  • current account- what we spend
  • capital and financial account- what we use to finance this spending
61
Q

exchange rate

A

price of one currency in terms of another

62
Q

commodity prices

A

countries around the world that buy cdn products need cdn dollars to finance purchase
-Positive correlation- as demand for commodities increase, demand for cdn dollar also increases- puts upwards pressure on cdn dollar

63
Q

Inrerest rate differentials

A

higher domestic interest rates increae the return to lenders relative to other countries
-attracts capital, lifts exchg rate

64
Q

Inrerest rate differentials

A

higher domestic interest rates increase the return to lenders relative to other countries
-attracts capital, lifts exchg rate

65
Q

Inflation differentials

A

??

66
Q

Fixed exchange rate

A

domestic currency at fixed level against another currency or composite of other currencies

67
Q

floating exchange rate

A

central bank allows market forces to determine value of currency

CSC course- FIP (11 decks)

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