Economics Flashcards
Gross Domestic Product
Definition
The total market value of all final goods and services produced WITHIN the borders of a nation in a particular time period
Real GDP
Definition and Formula
Definition: Measure value of all FINAL goods and services in constant prices
Formula:
Real GDP = (Nominal GDP/GDP Deflator) *100
Recession vs Depression
Definitions
Recession - two consecutive quarters of falling national output
Depression - very severe recession
Recession
- Definition
- Outcome
- A period when real output, as measured by real national income, is decreasing.
- Actual real national income falls short potential real national income because some resources are unemployed and the economy operates below capacity
Aggregate Demand & Supply Curves
Diagram
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Recession Caused by Shift in Demand Curve
Diagram
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Recession caused by a Shift in the Supply Curve
Diagram
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Expansionary Fiscal Policy
Diagram
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Contractionary Fiscal Policy
Diagram
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Multiplier Effect
Formula
Multiplier = 1/(1-MPC)
Change in real GDP = Multiplier * Change in Spending
MPC + MPS = 1
Measuring GDP: Expenditure Approach
G-I-C-E
G - Government purchases of goods and services
I - Gross private domestic investment
C - Personal consumption expenditures
E - Net exports
Measuring GDP: Income Approach
I-P-I-R-A-T-E-D
I - Income of proprietors P - Profits of corporations I - Interest (net) R - Rental Income A - Adj. for net foreign inc & misc items T - Taxes (indirect business taxes) E - Employee compensation (wages) D - Depreciation
Unemployment Rate
Formula
(No. of unemployed/Total labor force) * 100
Types of Unemployment
- Frictional - individuals are forced or voluntarily change jobs
- Structural - due to changes in demand for products or services
- Cyclical - caused by condition of real GDP less than potential GDP (recessions)
Consumer Price Index (CPI)
Def. & Formula
Definition: Measure of overall cost of a fixed basket of goods and services purchased by average household
Formula:
Change in CPI = Inf. Rate =
[(CY CPI - PY CPI)/PY CPI]*100
Real Interest Rate
Definition & Formula
Definition: Nominal interest rate minus inflation rate
Formula:
Real IR = Nominal IR - Inflation Rate
Money Supply
M1 - Money used for purchases of goods & services - includes coins, currency, CDs
M2 - M1 plus liquid assets easily converted to checkable deposits or other M1
M3 - Includes all M2 as well as time certificates of deposit > $100k
Strategic Management - Steps
8 Steps - Know in order
- Define vision & mission statement
- Set goals of the firm
- Define objectives
- Decide what to measure to take baseline
- Strategic Analysis - SW)T
- Create the strategic plan
- Implement the strategic plan
- Evaluate & revise strategic plan
Factors that Shift Demand Curves
W-R-I-T-E-N
W - Change in Wealth R - Change in Price of Related Goods I - Change in Consumer Income T - Change in Consumer tastes/preferences E - Change in customer expectations N - Change in number of buyers
Change in Quantity Demanded
Diagram
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Change in Demand
Diagram
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Factors that Shift Supply Curves
E-C-O-S-T
E - Changes in Price Expectations of supplying firm
C - Changes in Production Costs
O - Changes in Price or Demand for Other Goods
S - Changes in Subsidies or Taxes
T - Changes in Production Technology
Change in Quantity Supplied
Diagram
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Change in Supply
Diagram
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Market Equilibrium
Diagram
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Effects of a Change in Demand on Equilibrium
Diagram
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Effects of a Change in Supply on Equilibrium
Diagram
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Shifts in Demand & Supply
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Price Ceiling vs Price Floor
Definition
Price Ceiling - Maximum price that may be charged for a good
- If ceiling is set below equilibrium price, shortages are caused
Price Floor - Minimum price that may be charged for a good
- If floor is set above equilibrium price, surplus will be caused
Demand Elasticity Coefficient
Interpretation
ED = Elasticity of Demand
ED>1 Elastic (sensitive to price changes)
ED=1 Unitary (not sensitive or insensitive)
ED<1 Inelastic (not sensitive to price changes)