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CSC Master list v1.0 Vol 1 > Chapter 4 > Flashcards

Chapter 4 Flashcards

1
Q

What is microeconomics?

A

Applies to individual markets of good and service. Looking at how businesses decide what to produce or individuals decide what to buy.

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2
Q

What is macroeconomics?

A

Focus on broader issues like employment levels, i, inflation, recessions, government spending, ..

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3
Q

How many groups that interact in the economy? What are they?

A

3: consumers, businesses, and governments.

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4
Q

What is market?

A

Any arrangement allowing buyers and sellers to conduct business with one another.

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5
Q

What is equilibrium price?

A

At this price, number of buyer = number of seller. Anyone wants to buy or sell, can do so.

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6
Q

What regulate prices of financial instruments?

A

Demand and supply

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7
Q

When the economy growth?

A

When it is able to produce more output over time

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8
Q

What is GDP?

A

Gross domestic product is the total market value off all final goods and services produced in a country over a given period.

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9
Q

How economic growth is measured?

A

By the increase in GDP from one period to the next

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10
Q

What is monthly and quarterly GDP for?

A

To keep track of the short-term activity within the market.

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11
Q

What is the Annual GDP for?

A

Examine the trends, changes in production, and fluctuations in the standard of living

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12
Q

How many methods are there to measure GDP?

A

Two. Expenditure approach and income approach

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13
Q

What is income approach to calculate GDP?

A

To measure GDP starts from the idea that total spending on goods and services should equal total income generated by producing all of these goods and services

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14
Q

What is expenditure approach to calculate GDP?

A

Add up everything that consumers, businesses, and government spend money during certain period including business investment, export and imports that flow through the economy.
GDP = C + I + G + X - M
I: business spending and investment

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15
Q

What is the purpose of M in the GDP formula?

A

Because the consumers, government and businesses spending have already include the product that imported so we need to minus it out

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16
Q

What are the key factors contribute to gain productivity?

A

Technological advances, population growth, improvements in training, education, and skills. -> also contribute to growth in GDP.

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17
Q

What is expenditure approach to calculate GDP?

A

add up everything that consumers, businesses, and governments spend money on during a certain period, including business investment, export and imports that flow through the economy.

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18
Q

What is the formula of calculating GDB with expenditure approach?

A 
GDP = C + I + G + (X - M)
C = consumer, I = business spending and investment, G = Government spending, X = Exports, M = import.
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19
Q

What is the purpose of M in GDP formula?

A

C, I and G spending already include imported product so it is necessary to subtract it. Similar to X.

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20
Q

What is real GDP?

A

is Nominal GDP removed attribute from inflation.

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21
Q

What is productivity?

A

used to describe output per unit of input

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22
Q

What are the key factors contribute to gains in productivity?

A
  • technological advances
  • population growth
  • improvements in training, education, and skills.
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23
Q

what are the phases of the business cycle?

A

expansion, peak, contraction, trough and recovery

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24
Q

How to measure expansion and contraction in the economy?

A

measured by increase and decrease in real GDP

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25
Q

What is the characteristic of expansion?

A
  • inflation is stable
  • business adjust inventories and investment to meet increased demand and avoid shortages.
  • corporate profits rise
  • start-ups > bankruptcies
  • stock market is strong and typically rise
  • unemployment rate is steady or falling
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26
Q

What are the characteristics of peak?

A
  • demand begins to outstrip (vuot khoi) the capacity of the economy to supply
  • labor and product shortages -> wage and price increase -> inflation increases
  • Interest rates rise and bond prices fall (dampens business investment and reduces sale)
  • business sales decline -> increase inventory and reduced profits
  • stock prices begin to fall, market activity declines
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27
Q

what are the characteristics of contraction?

A

(financial press might refer to this phase as negative GDP)

  • economy activity begins to decline, real GDP decrease
  • unwanted inventories rises and declining profits, firm reduce production, postpone investment and may lay off employee.
  • start-up < business failures
  • falling employment erodes household income and consumer confidence.
  • consumers react by spending less and saving more
  • stock market activity is low.
28
Q

When the economy is considered to be in recession?

A

if the contraction lasts at least two consecutive quarter.

29
Q

What are the characteristic of trough?

A

lowest point of growth cycle, falling demand and excess capacity.

  • interest rates fall, triggering a bond rally
  • inflation falls
  • consumers beginning to spend because of the lower interest rates
  • stock prices rally (tang)
30
Q

what are the characteristic of recovery?

A

typically begin with renewed buying of items such as houses and cars which is sensitive to i.

  • firm that reduced inventories during the contraction must increase production to meet new demand
  • cautious to hire back significant numbers of workers but no more layoffs
  • firms are not yet ready to make significant new investment
  • Unemployment remains high, wage pressures are restrained (ap luc tien luong duoc han che), and inflation may decline further
31
Q

what is economic indicators?

A

provide information on business conditions and current economic activity. they can help to show whether the economy is expanding or contracting.

32
Q

What are the economic indicators we use?

A

Leading indicators (tend to peak and trough before the economy), coincident indicators (change at same time and in the same direction as the whole economy), lagging indicators (change after the economy as a whole changed.

33
Q

What are the leading indicators?

A

housing starts, manufacturer’s new orders, commodity price (same direction with raw materials), average hours worked per week, stock prices (indicate a change of profit), the money supply (represents liquidity and therefore affect the interest rate.

34
Q

What are coincident indicators?

A

Personal income, GDP, industrial production, retails sales.

35
Q

What are the lagging indicators?

A

unemployment, inflation rate, labor cost, private sector plant and equipment spending, business loans and interest on such borrowing.

36
Q

How to judge a recession?

A

base on depth (decline must be substantial depth), duration (must last more than couple of months) and diffusion (must be a feature of the whole economy)

37
Q

What is the working age population?

A

> 15 years old

38
Q

What are the 3 groups that working age population is divided?

A
  1. Unable to work (mental problem, in correctional facilities)
  2. not working by choice (full time student, homemakers, retirees, discouraged workers)
  3. the labour force (working or actively looking for job)
39
Q

What are the key labor market indicators?

A

participation rate (indicates willingness of people to work) and the unemployment rate

40
Q

How to calculate participation rate?

A

= labor force/working age population * 100%

41
Q

how to calculate unemployment rate?

A

= actively looking for job but not working / labor force * 100%

42
Q

How many types of unemployment are there?

A

cyclical unemployment, seasonal unemployment, frictional unemployment and structural unemployment

43
Q

what is cyclical unemployment?

A

directly tied to business cycle, increase when economy weakens and drops when economy strengthens again.

44
Q

what is seasonal unemployment

A

some industries operate only during part of the year

45
Q

what is frictional unemployment?

A

occurs when people enter and leave work force such as just finish school, just quit job, just been laid off,… normal part of a healthy economy

46
Q

What is structural unemployment?

A

reflects a mismatch between jobs and potential workers in terms of skills, location, wage,..Closely tied to changes in technology, international competition, and government policy. typically lasts longer than frictional unemployment.

47
Q

What is natural unemployment rate?

A

Minimal level of frictional and structural unemployment in the economy because they always exist.

48
Q

what are the determinants of interest rate?

A
  1. Demand and supply of capital (saving and spending)
  2. default risk
  3. foreign interest rates and the exchange rate.
  4. central bank credibility
  5. inflation (lender charge higher i when inflation expected to increase)
49
Q

How interest rates affect the economy?

A

higher interest rate have a negative effect on growth prospects because they reduce business investment, encourage saving, and reduce consumption.

50
Q

What is the nature of money?

A

medium of exchange, unit of account, and store of value.

51
Q

What is inflation?

A

the percentage of change in average level of price over a given period and measured by Consumer Price Index CPI.

52
Q

What is CPI?

A

Consumer price index = (CPI current period - CPI previous period)/CPI previous period x 100%.

53
Q

What is the cost of inflation?

A
  1. erode the standard of living
  2. reduce real value of investment
  3. distort (bop meo) the price signals sent to market participants. (because price indicate the supply and demand, because of inflation difficult to determine)
  4. can make interest rate increase and a recession.
54
Q

What is the economies can expect in high inflation?

A

more serve expansions and contractions than low-inflation economy.

55
Q

What are the causes of inflation?

A
  1. demand-pull inflation (businesses have trouble meeting high demand).
  2. cost-push inflation
56
Q

What is disinflation?

A

decline in the rate at which the price rise (still rising but slower rate)

57
Q

what is deflation?

A

fall in price, negative CPI

58
Q

what is the relationship between inflation and unemployment rate?

A

often when unemployment is low, inflation tends to be high and vice versa.

59
Q

what is the Phillips curve?

A

low unemployment is achieved in the short run by increasing inflation at faster rate. Lower inflation is achieved at the cost of possibly increased unemployment and slower economic growth.

60
Q

What is balance of payment?

A

details statement of a country’s economic transaction with the rest of the world over a given period.

61
Q

What is the components of balance of payment?

A
  1. current account (record import and export of goods and services) also called the trade account.
  2. Capital and financial account (records financial flows).
62
Q

What is current account deficit and surplus?

A

deficit when Canadian buys more from abroad than sell. vice versa.

63
Q

What is dollar appreciated and depreciated?

A

Appreciated when Canadian dollar rises in value and when Canadian dollar falls in value it has depreciated.

64
Q

What are the determinants of exchange rate?

A

( In Canada, the currency floats freely.)

  1. Commodities ( demand to buy from Canada rises -> Canadian dollar increase)
  2. inflation (low inflation indicates increase purchase power to other currencies)
  3. interest rates (central banks can influence value of exchange rate by raising and lowering short-term nominal interest rate)
  4. Trade (same with commodities except commodities is about natural product and trade is export and import)
  5. Economic performance
  6. public debts and deficits
65
Q

What kind of indicator money supply is?

A

Leading indicators

66
Q

Why the stock market rally (increase in trough period)?

A

Becuase interest is low

CSC Master list v1.0 Vol 1 (13 decks)

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