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BEC > Economics > Flashcards

Economics Flashcards

1
Q

Real GDP

A

(Nominal GDP / GDP deflator) * 100

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2
Q

Leading Indicators

A

Predict economic activity

Change before the economy follows a trend

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3
Q

Examples of leading indicators

A

Average new unemployment claims
M2
S&P Stock Index
Orders for goods

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4
Q

Lagging Indicators

A

Follow economic activity

Change after a given economic trend has already started

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5
Q

Examples of lagging indicators

A

CPI
Consumer debt to income ratio
Average duration of unemployment

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6
Q

Coincident Indicators

A

Change at approximately the same time as the whole economy

Provides information about the current state of the economy

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7
Q

Examples of coincident indicators

A

Industrial production
GDP
Personal income less transfer payments

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8
Q

Long run aggregate supply line

A

Vertical line
Illustrates that in the long run, if all resources are fully utilized, output is determined solely by the factors of production
Correspondences to the potential level of output in the economy

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9
Q

Factors that shift aggregate demand

A 
TWICEG
Taxes
Wealth
Interest rate
Consumer confident
Exchange rate increases
Government spending
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10
Q

Multiplier Effect (definition)

A

Increase in consumer, company or government spending produces a multiplied increase in the level of economic activity

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11
Q

Multiplier equation

A

1 / (1-MPC)

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12
Q

Solve for change in GDP per multiplier effect

A

Multiplier * Change in Government Spending

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13
Q

Factors that shift aggregate supply

A 
Input prices (wages, supplies)
Supply shocks (plentiful vs curtailed)
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14
Q

GDP Measurement: Expenditure Approach

A

Government spending
Investment, gross private
Consumption, private
Exports (net), includes foreign

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15
Q

GDP Measurement: Income Approach

A 
Income of proprietors
Profit from corporations
Interest (net)
Rental income
Adjustments from net foreign income
Taxes
Employee compensation
Depreciation
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16
Q

Net Domestic Product

A

GDP - depreciation

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17
Q

Gross National Product

A

Includes GDP and goods/services produced abroad by US firms and excludes good/services produced domestically by foreign firms

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18
Q

Net National Product

A

GNP - economic depreciation

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19
Q

National Income

A

NNP - indirect business taxes

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20
Q

What type of employment rises during a recession and falls during an expansion?

A

Cyclical unemployment

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21
Q

What is included in the natural rate of unemployment?

A

Structural, frictional and seasonal unemployment

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22
Q

What is full unemployment?

A

When cyclical unemployment does not exist but there is still natural unemployment (structural, frictional and seasonal).

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23
Q

Consumer Price Index

A

Measure of overall cost of a fixed basket of goods and services already paid for

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24
Q

CPI Equation

A

(Current cost / Base Cost) * 100

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25
Q

Demand Pull Inflation

A

Shift in aggregate demand to the right

Due to TWICEG

26
Q

Supply Push Inflation

A

Shift in aggregate supply to the left

Due to inputs and supply shocks

27
Q

M1

A

Money used for purchasing goods, services

No type of savings accounts or CDs

28
Q

M2

A

M1 plus liquid assets that are easily convertible to checkable deposits or M1

CDs LESS THAN $100k
Money market deposit accounts
Mutual funds
Savings Accounts

29
Q

M3

A

M2 plus CDs of $100k or more

30
Q

Expansionary monetary policy

A

Purchase of US Treasury bills, bonds (purchase pours money into economy)
Decrease in interest rate
Decrease in required reserve ratio

31
Q

What happens as a result of expansionary monetary policy?

A

Aggregate demand shifts right
GDP rises
Unemployment falls
Price levels rise

32
Q

Contractionary monetary policy

A

Sale of US Treasury bills
Increase in interest rate
Increase in required reserve ratio

33
Q

What happens as a result of contractionary monetary policy?

A

Aggregate demands shifts left
GDP falls
Unemployment rises
Price levels fall

34
Q

What is the result of a change in price relative to the quantity demanded?

A

Indirect relationship
When price increases, quantity demanded decreases
This is simply a change in QD along the demand curve

35
Q

What is the result of the change other than price, relative to the quantity demanded?

A

The demand curve will shift right according to increases the following:

Wealth
Related good prices
Income of the consumer
Tastes of the consumer
Expectations of the consumer
Number of buyers in the market
36
Q

Fundamental law of supply

A

The higher the price one can sell, the more they will produce
Positive relationship

37
Q

What is the result of a change in (selling) price relative to the quantity supplied?

A

When (selling) price increases, the quantity supplied will increase
This is simply a change in QS along the supply curve

38
Q

What is the result of a change other than (selling) price, relative to the quantity supplied?

A

The supply curve will shift according to the following:

Expectations of future (selling) price
Cost of inputs
Other goods' demand
Subsidies, taxes
Technology in production
39
Q

How will the expectation of future selling price effect the supply curve?

A

If future selling prices will decrease, company will sell more now > supply more now to make more profit

40
Q

How will the cost of inputs effect the supply curve?

A

If costs are expected to decline, supply will increase (more workers for cheaper)

41
Q

How will the demand of other goods effect the supply curve?

A

if the demand for other goods falls, a company will focus on producing more of another good to squeeze profit (butter v margarine).

42
Q

How will subsidies effect the supply curve?

A

If subsidies increase, supply of a good will also increase since the company will receive more support from the government to produce.

43
Q

How will taxes effect the supply curve?

A

If taxes increase, supply of a good will decrease since this will discourage production.

44
Q

How will technology in production effect the supply curve?

A

If technology improves, supply will increase as production will be more efficiency (output).

45
Q

Price ceiling

A

Maximum price set BELOW the equilibrium price

Cause prices to be artificially low, creating greater demand (rent control)

46
Q

Price floor

A

Minimum price set ABOVE the equilibrium price

Established by law (minimum wage)

47
Q

Price elasticity of demand (definition)

A

Sensitivity per the percentage change in quantity demanded as a result of the percentage change in the price
Ranges from >1, 1 to <1

48
Q

What is meant by a negative price elasticity coefficient for a demand curve?

A

Since the relationship between demand and price is negative, this is represents a normal demand curve. However, this will always been shown as the absolute value.

Positive percentage change / Negative percentage change

49
Q

When there are more substitutes available, what is assumed of demand?

A

Demand is elastic, consumers will respond to changes in price and will seek out other options as they have them.

50
Q

When there are few to no substitutes available, what is assumed of demand?

A

Demand is inelastic, consumers will not respond to changes in price and will NOT seek out other options, since they don’t have any/have few.

51
Q

Cross Elasticity (definition)

A

Percentage changes in QD or QS of one good caused by a change in price of another good

Ex. butter and margarine

52
Q

Price elasticity of demand (equation)

A

% change in quantity demanded / % change in price

53
Q

Cross elasticity (equation)

A

% change in number of units of X demanded or supplied / % change in the price of unit Y

54
Q

What is meant by a positive coefficient as a result of cross elasticity?

A

Due to the change in price of product Y, the QD or QS has increased. Therefore, the goods are substitute goods.

55
Q

What is meant by a negative coefficient as a result of cross elasticity?

A

Due to the change in price of product Y, the QD or QS has decreased. Therefore the change in price of product Y has steered away customers; therefore, the goods are complementary goods.

56
Q

Income elasticity of demand (definition)

A

Percentage changes in QD or QS caused by a change in income

57
Q

Income elasticity of demand (equation)

A

% change in QD or QS / % change in income

58
Q

What is meant by a positive income elasticity as a result of income elasticity of demand?

A

As income of the consumer increases, the demand for the good increases. As a result, this is a normal good/luxury good.

59
Q

What is meant by a negative income elasticity as a result of income elasticity of demand?

A

As income of the consumer increases, the demand of the good decreases. As a result, this is an inferior good.

60
Q

Expansionary fiscal policy

A

Increased government spending

Decreased taxes

61
Q

Contractionary fiscal policy

A

Decreased government spending

Increased taxes

62
Q

PEST Analysis

A

Political, economic, social, technological

Essential to understanding the nature of the operating environment and making entity wide decisions

BEC (9 decks)

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