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Economies and diseconomies of scale are important determinants of ________.
Pattern of costs in the long run
WHY? - Because Economies and diseconomies of scale affect a company’s costs
When it experiences economies of scale, a company’s long-run average costs will decrease
NOTE: Diseconomies of scale occur when the long-run average costs increase
WHAT is the expected result if a group of consumers decide to boycott a particular product?
THE expected result would be a decrease in the demand for the product
HOW would the Federal Reserve Bank address the problem of a recession?
Lower the discount rate it charges to banks for loans
WHY? - Because this will expand the money supply
Hence this is anti-recessionary (i.e. it will increase the money supply and will decrease interest rates which will increase investments)
WHAT is one measure economists and economic policy makers use to gauge a nation’s economic growth?
The change in the Real per Capita Output
i.e. It is often used to measure the standard of living
WHAT is the Consumer Price Index?
THE measurement of inflation that is a calculation based on a monthly pricing of items on a typical household shopping list
NOTE: A base year is used as a reference point
HOW is gross domestic product (GDP)
measured under the income approach?
Depreciation charges and indirect business taxes + Wages + Rents + Interest + Profits – Net American income earned abroad
HOW do you calculate GDP using the expenditure approach?
GDP is the sum of
(1) personal consumption expenditures
(2) gross private domestic investment
(3) government purchases (consumption and investment), and
(4) net exports
WHAT is a sign that the economy is in a recessionary phase?
Potential national income exceeds actual national income
i.e. This usually occurs during a recession
WHAT component of gross domestic product (GDP) has the greatest fluctuation from year to year?
Gross domestic private investment
Hence, the most volatile component of GDP is business investment
WHAT market concept compares the price of goods in a given year to a base year?
Consumer price index
E.g. CPI measures inflation by a monthly pricing of items on a typical household shopping list
WHAT problem may arise from using fiscal policy to help stimulate an economy?
There may be expansionary and, therefore, inflationary bias to such policies
WHY? - Increased government spending and tax reduction will help stimulate the economy but will lead to inflation if no increase in productivity occurs
WHEN does Demand-pull inflation occur?
WHEN incomes rise suddenly
WHY? - Because consumers demand more of everything, driving up the price level
WHAT is an appropriate action during a recession involving government fiscal policy to raise equilibrium output?
TO Increase government spending
WHY? - Because an increase in government spending, with other factors held constant, increases equilibrium GDP, (i.e. equilibrium output)
WHAT is aggregate demand in national income terms?
Total expenditure on consumer goods and investment, including government and foreign expenditure, during a given period
E.g. The determinants of aggregate demand are changes in consumer spending, investment, government spending, and net exports
WHAT is an indicator the federal government uses to measure inflation?
Consumer Price Index (i.e. CPI)
NOTE: CPI current index uses a base year as a reference point (the CPI measures the Rate of inflation)
