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Series 86 > Economics > Flashcards

Economics Flashcards

0
Q

Supply

A

Supply for an item is defined as a schedule showing the amount of that item that sellers can and will supply at various price levels during a given period of time

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1
Q

Demand

A

Demand for an item is the schedule of the amount of that item that buyers can and will purchase at various price levels during given period of time.

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2
Q

The intersection of the supply and demand curves is…

A

the equilibrium or market-clearing price

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3
Q

Demand Elasticity

A

Ed = (%∆ in Qd/%∆ in P)

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4
Q

If Ed>1, demand is…

A

Elastic

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5
Q

If Ed<1, the demand is…

A

Inelastic

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6
Q

Ed = 1 is…

A

called unit elasticity

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7
Q

Demand for an item tends to be _______ at higer prices and _______ at lower prices

A

elastic; inelastic

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8
Q

If Ed > 1, a price decrease will ______ total revenue

A

increase

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9
Q

If Ed < 1, a price decrease will ______ total revenue

A

decrease

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10
Q

The main factor affecting supply elasticity is…

A

time

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11
Q

The % increase in sales needed to maintain the same revenue while decreaseing the price is…

A

Price Decrease %/(1-(Price Decrease %))

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12
Q

The % increase in sales required to increase revenue and decrease prices

A

[(1+Sales Increase) - (1-Price Decrease)]/[1-Price Decrease]

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13
Q

Normal Profit

A

The cost of obtaining and retaining entreprenurial ability

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14
Q

Economic Profit

A

Sales - Raw Materials - Operating Expenses - Normal Profit

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15
Q

Firms earning losses will __________________ in an attempt to earn economic profits where they are available

A

reallocate their resources

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16
Q

As the ______ system allocates resources toward _________ industries and away from __________ industries, the economy as a whole reaches general ___________.

A

price; expanding; declining; equillibrium

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17
Q

Short Run

A

Period over which fixed costs cannot be changed although they can be used in different ways. In the short run, resources that can be changed are called variable costs.

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18
Q

Law of Diminishing Returns

A

The more variable resources are combined with fixed resources, there will be a point beyond which the marginal output obtained by adding additional variable resources will decline.

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19
Q

Average Total Cost (ATC)

A

ATC = AFC + AVC

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20
Q

Average Fixed Class (AFC)

A

Total fixed costs / output

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21
Q

Marginal Cost (MC)

A

∆Cost / ∆Output

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22
Q

If MC < AVC, AVC will ______________ and once MC > AVC, _____________.

A

continue to fall; will begin to rise

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23
Q

The MC and AVC intersect at…

A

the minimum point of the AVC curve.

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24
Q

In the long run, all costs are ____________.

A

variable

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25
Q

After an intial decline in ATC due to ____________________, the curve reaches a minimum point and then begins to rise as _________________ begin to have an effect.

A

economies of scale; diseconomies of scale

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27
Q

The smallest level of output at which a firm can achieve minimum ATC is called _____________________.

A

Minimum Efficient Scale (MES)

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28
Q

When diseconomies of scale are encountered quickly, MES will occur ar _______ levels or output. When economies of scale are extensive, MES will occur at ________ levels of output.

A

lower; higher

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29
Q

Economies of Scope

A

Synergies created from vertical integration

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30
Q

GNP

A

Measures the total value of all goods and sercives produced by a national economy. Includes goods and services produces by domesically based firms opperating abroad.

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31
Q

GDP

A

The output of goods and services produced domestically without regard to the origin of the producer

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32
Q

__________ occures when the demand for goods and services in the marketplace increases at a faster rate than the supply of these items.

A

Inflation

33
Q

Real Interest Rate

A

Interest Rate - Inflation Rate

34
Q

Inflationary periods are typically characterized by _________ interest rates as investors demand _________ nominal rates to earn a desired real rate of return.

A

rising; higher

35
Q

2 risks to bond-holders from changing inflation rates

A

1) market prices of holdings fall

2) purchasing power of interest payments decrease

36
Q

Deflation

A

A persistent and appreciable decline in the general level of prices.

37
Q

Disinflation

A

A reduction in the rate of inflation

38
Q

Stagflation

A

A prolonged period of a high inflation and a high rate of unemployment

39
Q

Business Cycle Phases

A

Expansion (Recovery), Peak, Contraction (Decline), Trough

40
Q

Recession

A

When Real GDP declines for two successive quarters (six months).

41
Q

Depreciation

A

When Real GDP declines for 2 years or more

42
Q

3 Types of Busienss Cycle Indicators

A

Leading, Coincident, and Lagging

43
Q

Examples of Leading Economic Indicators

A

Average workweek, Initial jobless claims, New orders, Vendor performance, Contracts and ordersfor plant and equipment, New building permits, S&P 500, M2, Change in business and consumer borrowing, Interest rate spreads, Index of consumer expectations

44
Q

Examples of Coincident Indicators

A

Non-Ag Payrolls, Personal Income, Industrial Production, Manufacturing and Trade Sales

45
Q

Lagging Economic Indicators

A

Avg. duration or unemployment; Relationship of inventory to sales, manufacturing, and trade; Labor cost per unit for manufacturing goods, Avg. prime rate charged by banks, Commercial and industrial loans outstanding, Consumer installement to personal income, CPI for services

46
Q

Changes in the business cycle least affect ________ equities the least

A

deffensive

47
Q

Examples of defensive industries

A

Utilities, nondurable household goods, tobacco, and food.

48
Q

Examples of cylical industries

A

Manufacturing, homebuilders, auto manufacturers, and transportation companies.

49
Q

Popular theories to contorl econmic cyclicality

A

Keynesian, Supply-Side, and Monetary

50
Q

Keynesian Economic Theory

A

States that government intervention in the economy is neccessary for sustained economic growth and stability. Govt. should use fiscal policy to combat the effecs of inflation and deflation, as well as influence economic activity

51
Q

Fiscal Policy

A

Government’s use of taxation and expenditure programs to maintain a stable, growing economy. Its main focus is on economic growth and high employment.

52
Q

Becasue fiscal policy is established by _________, decisions in some cases may be based on __________ rather than __________ motives.

A

congress; political; economic

53
Q

Supply-Side Economics

A

Places emphasis on reducing taxes and the size of government to give individuals and corporations more money to invest and thus, stimulating economic activity.

54
Q

Monetary Poilicy

A

Attempts to control the supply of money and credit in the economy inorder to affect interest rates and thus cause an increase or decrease in economic activity.

55
Q

The ________________ attempts to control the ___________ and _______ to maintain a stable growing economy with the aim of combating __________.

A

Federal Reserve Board; money supply; credit; inflation

56
Q

M!

A

Currency + Demand Depositits+ Other Checkable Deposits

57
Q

M2

A

M1 + Money Market Deposit Accounts + Savings and Small Time Deposits + Balences of Money Funds + Overnight Repurchase Agreements at Banks

58
Q

M3

A

M2 + Large Time Deposits + Term Repurchase Agreements at Banksn and Savings and Loans + Eurodollars

59
Q

Tools of the Fed

A

Reserve Requirements, Discount Rate, Open Market Operations, Margin Requirements, Moral Suasion

60
Q

Reserve Requirments

A

The portion of deposits that member banks are required to keep with the FRB. Changes can be drastic making RR the least used tools in monetary policy

61
Q

Multiplier Effect

A

The rate at which banks can create new money by relending deposits and in turn creating new deposits

62
Q

Velocity of Money

A

Measures the number of times a dollar is spent over a given period.

63
Q

Discount Rate

A

The rate the Fed charges member banks in the case of emergency. Although it is the basis of other key interest rates, the discount rate is the only rate directly controlled by the Fed.

64
Q

Federal Funds Rate

A

The interest charged for overnight loans between banks. Considered the most volitale interest rates.

65
Q

Open Market Operation

A

involves the purchase of US TBills through primary government dealers, banks and brokers appointed by the Fed. The most effective, flexible, reversable and frequently used tool of the Fed. Designed to keep the Ferdeal Funds Rate within its target range.

66
Q

Repurchase Agreement

A

Contract between the Fed and and primary dealer to purchase US TBills from the dealer at a fixed price with a provision to resale back to the dealer at a negotiated rate

67
Q

Matched Sale

A

Reverse Repurchase Agreement

68
Q

Margin Requirements

A

The Fed can determine the amount of credit that brokerages and banks can extend to purchase securities. It is the least effetive tool as it only affects securities market transactions

69
Q

Intermediation

A

The ability of financial intermediaries (such as banks) to attract deposits and, in turn, extend credit

70
Q

Disintermediation

A

The process by which investors withdraw funds from banks and seek higher-yielding investments elsewhere

71
Q

If interest rates in the US are _________ than rates overseas, foreign investors will look to invest more in the US

A

higher

72
Q

_________ US interest rates compared to foreign yields may lead to a stronger dollar

A

higher

73
Q

If the US dollar strengthens, exports from the US will ________, leading to a trade _______.

A

decrease; deficit

74
Q

When American goods are sold abroad, US banks that facilitate the exchange must ________ foreign currency creating a(n) ________ in the US money supply.

A

deposit; increase

75
Q

Current Account

A

Shows the results for trade transactions completed in the current year

76
Q

Capital Account

A

Deals with long-term trade transactions, usually involving property or financial assets.

77
Q

A current account deficit would have to be _______ with a ________ account ________. The net of the two accounts must be ______.

A

balanced; capital; surplus; zero

78
Q

Interbank System

A

Open market trading system consisting of the world’s major commercial and central banks trading that sets currency conversion rates by trading with each other through currency brokers.

Series 86 (4 decks)

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