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Intro to FP > Economic Concepts > Flashcards

Economic Concepts Flashcards

1
Q

Law of Supply

A

increase in market price = increase in quantity supplied
decrease in market price = decrease in quantity supplied

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2
Q

Law of Demand

A

price goes down = demand goes up
price goes up = demand goes down

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3
Q

what causes a Shift in supply curve

A

FACTORS OTHER THAN PRICE like technology, price of related goods and special influences

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4
Q

Equilibrium price

A

where supply curve intersects demand curve - shift in supply or demand sets new equilibrium price - bad news for a stock - same supply of shares but price drops

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5
Q

Elastic price

A

think luxury goods

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6
Q

Inelastic Prices

A

think food water consumer staples

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7
Q

Fiscal Policy

A

Government’s tax and spending policy

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8
Q

How can the government spur economic activity?

A

tax less and spend more

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9
Q

How does the Treasury “borrow”

A

By issuing bonds that are purchased by banks and investors

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10
Q

How do banks pay for bonds?

A

Crediting the checking account of the US Treasury, which increases the money supply

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11
Q

What is Monetizing the debt?

A

When banks buy bonds from the US Treasury

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12
Q

What has an immediate effect on the economy?

A

Government spending. Taxes increases have a delayed effect

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13
Q

Government spending has an immediate effect but tax increases have what

A

Delayed effect

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14
Q

Economy in a recession means what for tax revenue?

A

Less income to be taxed on

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15
Q

Inflation often picks up when the economy is doing what

A

expanding

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16
Q

Automatic Stabilizers

A

revenue and expenditure items in the federal budget that automatically change with the state of the economy and tend to stabilize GDP

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17
Q

Economists make budget projections based on what

A

the economy producing at full employment level of output

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18
Q

3 Ways Fed Influence economic activity

A
  1. Setting short term interest rates
  2. buying/selling treasury securities to increase/decrease money supply
  3. Setting bank reserve requirements to increase/decrease funds available for loans
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19
Q

3 Primary Monetary Policy tools to regulate money supply

A
  1. Manipulate the Required Reserve Ratio
  2. Manipulation of the Discount Rate
  3. Engaging in open market operations
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20
Q

Required Reserve Ratio

A

amount of TOTAL deposits member BANKS must KEEP with THE FED at the end of the day

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21
Q

Bank Discount Rate

A

interest rate that banks pay the fed

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22
Q

Federal Funds Rate

A

rate banks charge other banks on overnight loans - this is set by the FOMC

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23
Q

Open market operations

A

Feds preferred means of controlling the money supply
Increase supply = buy treasuries (pay banks $)
Decrease supply = sell treasuries (banks pay $)

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24
Q

What Fed uses to measure overall inflation

A

CPI

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25
Q

GDP

A

total market value of all final goods and services produced within a given period of time

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26
Q

Business Cycle

A

short run fluctuations in the economy as influenced by the forces of supply and demand

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27
Q

Recession

A

2 quarters of declining GDP

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28
Q

Business cycle trough to peak

A

expansion or boom

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29
Q

Business cycle peak to trough

A

contraction, recession, slump

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30
Q

Inflation

A

increase in prices, low unemployment, high wages

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31
Q

Stagflation

A

Inflation but no economic growth

32
Q

Upward sloping yield curve

A

Longterm is higher
think about what this looks like - draw a chart

33
Q

Flat yield curve

A

Flat - short and long term rates are the same

34
Q

Downward sloping

A

short term rates higher than long term

35
Q

Contractionary policy means the government does what re: borrowing?

A

Government borrowing will DECREASE in contractionary policy

36
Q

Contractionary Policy

A

Taxes go UP
Public Spending goes DOWN
Borrowing goes DOWN

37
Q

Expansionary Policy

A

Taxes go DOWN
Public Spending goes UP
Borrowing goes UP

38
Q

Taxes go up - expansionary or contractionary?

A

Contractionary

39
Q

Does the law of demand have an inverse relationship?

A

Yes - law of demand demonstrates an inverse relationship between the price consumers are willing to pay and the amount they are willing to purchase

40
Q

Are consumers more responsive to price when a substitute is available?

A

Yes - if I can get a substitute item then price is going to play a big factor. Which one is cheaper for the same thing?

41
Q

Demand curve slopes how

A

Down and to the right - as price decreases demand increases

42
Q

Higher the price what does supply do?

A

Supply goes up

43
Q

Lower prices means what supply?

A

Lower supply

44
Q

Supply goes up price does what
Supply goes down price does what

A

Supply goes up price goes up
Supply goes down price goes down

45
Q

When the price of a product increases, consumers will reduce their consumption more when? (long run or short run)

A

in the long run than the short run.

46
Q

When is demand for products more elastic

A

in the long run

47
Q

What causes change in the demand curve? (who would cause that change?)

A

Changes in INCOME
Changes in PRICE of COMPLEMENT and SUBSTITUTE goods
Changes in EXPECTATIONS
Changes in TASTE and PREFERENCES

48
Q

A change in quantity supplied is identified as what on the supply curve

A

MOVEMENT along the supply curve. Willingness of producers to offer the same product at different prices

49
Q

Change in consumer sentiment is leading or lagging?

A

Leading

50
Q

Avg prime rate charged by banks is leading or lagging?

A

Lagging

51
Q

Change in CPI is leading or lagging?

A

lagging

52
Q

Orders for durable goods, leading or lagging?

A

Leading

53
Q

Avg duration of unemployment leading or laggging

A

lagging

54
Q

Change in money supply leading or lagging?

A

leading

55
Q

Housing starts leading or lagging indicator?

A

Leading

56
Q

Which of the following would cause a shift in the SUPPLY curve:
Change in resource price
change in technology
natural disaster
political disruption

A

All of the above can cause a shift in the supply curve

57
Q

Quantity Demanded

A

amount of a product a household would buy if it could buy all it wanted at current market price

58
Q

Price rises quantity demanded does what

A

falls

59
Q

Price falls quantity demanded does what

A

Goes up

60
Q

what creates movement along the demand curve

A

change in quantity demanded

61
Q

Changes in demand

A

a shift in the demand - rumor re:mad cow disease may decrease demand for beef and increase for substitute like chicken

62
Q

excess demand

A

quantity demanded exceeds quantity supplied - INCREASE in price- think taylor swift tickets

63
Q

excess supply

A

quantity supplied exceeds demand - PRICE DROPS

64
Q

Shift in demand or supply sets a what

A

new equilibrium price

65
Q

availability of substitutes

A

more substitutes means an increase in price would cause a drop in demand - consumers would buy the other cheaper option

66
Q

relevance to budget

A

if product is small part of budget, small price increase may not change quantity demanded

67
Q

Short run

A

in short run a change in price may not effect quantity demanded bc consumers will still buy it. In the LONG RUN they may be able to find a substitute so demand would fall in the long run

68
Q

price elasticity of demand

A

measures buyers responsiveness or sensitivity to change in price

69
Q

inelastic product price change

A

won’t have effect on demand bc consumers need it

70
Q

elastic product price change effects demand how

A

it will effect demand because consumers don’t necessarily need to buy it

71
Q

perfect inelasticity

A

demand does not change with price - think insulin people would still need it

72
Q

inelasticity

A

percentage demanded changes somewhat, but not much compared to price

73
Q

unitary elasticity

A

% change in demand = % change in price

74
Q

Elastic

A

% demand change > % in price change

-think increase iceberg lettuce price people will just buy romaine

75
Q

perfectly elastic

A

a slight change in price will cause demand to go to 0

Intro to FP (14 decks)

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