Chapter 4 Flashcards
What is microeconomics?
Applies to individual markets of good and service. Looking at how businesses decide what to produce or individuals decide what to buy.
What is macroeconomics?
Focus on broader issues like employment levels, i, inflation, recessions, government spending, ..
How many groups that interact in the economy? What are they?
3: consumers, businesses, and governments.
What is market?
Any arrangement allowing buyers and sellers to conduct business with one another.
What is equilibrium price?
At this price, number of buyer = number of seller. Anyone wants to buy or sell, can do so.
What regulate prices of financial instruments?
Demand and supply
When the economy growth?
When it is able to produce more output over time
What is GDP?
Gross domestic product is the total market value off all final goods and services produced in a country over a given period.
How economic growth is measured?
By the increase in GDP from one period to the next
What is monthly and quarterly GDP for?
To keep track of the short-term activity within the market.
What is the Annual GDP for?
Examine the trends, changes in production, and fluctuations in the standard of living
How many methods are there to measure GDP?
Two. Expenditure approach and income approach
What is income approach to calculate GDP?
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
What is expenditure approach to calculate GDP?
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
What is the purpose of M in the GDP formula?
Because the consumers, government and businesses spending have already include the product that imported so we need to minus it out
What are the key factors contribute to gain productivity?
Technological advances, population growth, improvements in training, education, and skills. -> also contribute to growth in GDP.
What is expenditure approach to calculate GDP?
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.
What is the formula of calculating GDB with expenditure approach?
GDP = C + I + G + (X - M) C = consumer, I = business spending and investment, G = Government spending, X = Exports, M = import.
What is the purpose of M in GDP formula?
C, I and G spending already include imported product so it is necessary to subtract it. Similar to X.
What is real GDP?
is Nominal GDP removed attribute from inflation.
What is productivity?
used to describe output per unit of input
What are the key factors contribute to gains in productivity?
- technological advances
- population growth
- improvements in training, education, and skills.
what are the phases of the business cycle?
expansion, peak, contraction, trough and recovery
How to measure expansion and contraction in the economy?
measured by increase and decrease in real GDP
What is the characteristic of expansion?
- 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
What are the characteristics of peak?
- 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