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BEC Corporate Governance, Economics, and Financial Management > Macroeconomics > Flashcards

Macroeconomics Flashcards

1
Q

What are imports and exports in macroeconomics?

A

Imports: outward flow of payments beyond the domestic economy
Exports: receipt of payments that flow from outside the domestic economy.

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2
Q

The foreign sector plays a role in a macroeconomic free-market flow model because of?

A

Both imports and exports. These two play an important role in macroeconomic free-market model.

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3
Q

What are examples of “injections” in macroeconomic free-market flow model?

A

Government spending, government subsidiaries, investment spending, and amounts received for exports. NOT IMPORTS.

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4
Q

What are some things that are likely to be studied in macroeconomics?

A

Aggregate demand, aggregate supply, inflation and deflation.

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5
Q

What is one economic activity that is considered in macroeconomics but not in microeconomics?

A

Individuals paying taxes to the government.

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6
Q

What is the definition of a leakage and what are two examples of leakages?

A
  1. A leakage is when income is used for purposes other than domestic consumption.
  2. Taxes and savings are some examples
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7
Q

Name factors that would increase (shift curve to right) aggregate demand.

A
  1. Increase in government spending
  2. Increase in consumer spending
  3. Increase in export revenues
  4. Increase business investment
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8
Q

Name factors that would decrease (shift curve to left) aggregate demand.

A
  1. Increase spending on imports
  2. Increase in taxes (tax rates & revenues)
  3. Increase in interest rates
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9
Q

What is the formula to calculate marginal propensity to consume (MPC)? How do you solve these kinds of problems.

A

MPC=Change in consumption spending/Change in Disposable Income
Or (S2-S1)/(DI2-DI1)
You need four variables to solve this problem: S year 1, S year 2, DI year 1, DI year 2

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10
Q

What is the formula to calculate marginal propensity to save (MPS)? How do you solve these kinds of problems.

A

MPS=Change in savings/Change in Income
Or (S2-S1)/(DI2-DI1)
You need four variables just like MPC
Important: savings are calculated by income - consumption.

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11
Q

What would constitute a federal deficit? (Two things to remember)

A

Decreased tax revenues (1) and increased entitlement payments (2).
A federal deficit results when federal payments are greater than federal revenue for a period.

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12
Q

What would constitute a federal surplus? (Two things to remember)

A

Increased tax revenues (1) and decreased entitlement payments (2). Surplus results when revenues exceed payments

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13
Q

Why would an economy in inflationary phase contribute to lower federal deficit or even surplus?

A

When the economy is in an inflationary phase, aggregate demand typically is high, which results in higher income and, therefore, higher tax revenue for the federal government.

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14
Q

One trillion dollars equals how many billion?

A

1,000 billion

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15
Q

What is the formula for the multiplier effect?

A

ME=Initial change in spending x (1/1-MPC)

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16
Q

What variables are needed in multiplier effect formula? Depending on which variable you are solving for, that variable needs to be listed as X on equation.

A
  1. MPC or 1-MPS
  2. ME or the necessary remaining amount needed to reach full employment
  3. Initial change in spending = the increase in government expenditures necessary to produce full employment
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17
Q

How is disposable income calculated/

A

Personal income minus personal taxes

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18
Q

In macroeconomic terms, aggregate demand is?

A

Total expenditures on consumer goods and investment, including government and foreign expenditures, during a given period.

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19
Q

Economists and economic policy makers are interested in the multiplier effect because the multiplier explains why?

A

The multiplier provides an indication of the impact of an increase in consumption or investment in GDP. An increase in spending ripples through the economy because individuals and business save only a portion of the increase in income.

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20
Q

When there is a reduction in aggregate supply, what is likely to occur? (Shift curve left)

A

Increase in the level of price as well as lower quantity of output.

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21
Q

What are the three different types of supply curves and explain the shape of each one?

A
  1. Classical Supply Curve - Completely vertical
  2. Conventional Supply Curve - Continuous positive slope
  3. Keynesian Supply Curve - Horizontal up to a point and then it “kinks” upward
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22
Q

When the amount of labor is reduced, how will this affect a supply curve?

A

Supply curve shifts inward (left). Decrease in labor (economic resource) does this.

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23
Q

What will cause movement along supply curve as opposed to a shift in aggregate supply?

A

Increase or decrease in selling price of a good.

24
Q

What are some factors that would shift an aggregate supply curve to the right? (Increase) (lower price of output)

A
  1. Improvement in technology
  2. Increase in population
  3. Decrease in cost of input resources
  4. Increase in availability of input resources
25
Q

Would minimum wage rate increase result in what to supply curve?

A

Shift supply curve to the left.

26
Q

How would a rise in country’s export and imports effect aggregate demand curve?

A

Rise in exports - Increase demand (Shift right)

Rise in imports - Lower demand (shift left)

27
Q

What is potential GDP?

A

Maximum amount of various goods and services an economy can produce at a given time with available technology and full utilization of economic resources.

28
Q

The aggregate demand and aggregate supply curves intersect at a price and quantity that are?

A

Either at, above, or below potential GDP. The point at which the aggregate demand and aggregate supply curves intersect is equilibrium–the real output (and price level) for an economy.

29
Q

Assuming two currencies (Chinese and U.S. dollar), if there is an increase in valud of foreign currency relative to U.S. dollar. How would this effect U.S. aggregate demand?

A

Increase aggregate demand in U.S. Foreign goods will be more expensive than American goods.

30
Q

What are the components to calculate GDP? These will all be added together in the formula.

A
  1. Consumption expenditures (Individuals)
  2. Gross or business investment (Businesses)
  3. Government expenditures (spending)
  4. For net exports (exports - imports)
31
Q

What are the four categories of unemployment?

A
  1. Frictional
  2. Structural
  3. Seasonal
  4. Cyclical
32
Q

Which form of unemployment is not included in natural rate of unemployment?

A

Cyclical unemployment

33
Q

What is the formula for natural rate of unemployment?

A

Frictional unemployment + structural unemployment + seasonal unemployment

34
Q

Why would the economy be at a natural rate of unemployment at the peak of business cycle?

A

At peak of business cycle, level of employment is at its highest. There would be no unemployment caused by lack of business activity. The peak would have structural, seasonal, and frictional unemployment and no cyclical meaning natural rate of unemployment.

35
Q

A good sold produced in year 1 was in finished goods year 1. Then it was sold in year 2. Which year should this be included in GDP?

A

Year 1. Since the product does not require further processing before being sold, it should be included in GDP of the year in which it was “finished,” regardless of when it is sold.

36
Q

What is the key characteristic of a thing that will be included in GDP? Provide one example of something not included in GDP.

A

Something that represents the value of goods or services produced (wages, doctor’s fee, home purchase). Purchase of stock is not included because it’s an ownership interest.

37
Q

What are the two major components of real GDP?

A
  1. Labor productivity

2. Total worker hours

38
Q

What is the difference between net national product (NNP) and gross national products (GNP)?

A

Net national product does not include depreciation. NNP=GNP-Depreciation.

39
Q

What do GNP and NNP have in common?

A

Net National Product, like Gross National Product, measures the total output of all goods and services produced worldwide using the economic resources of U.S. entities.

40
Q

Define productive-possibility curve.

A

PPC measures the maximum amount of various goods and services an economy can produce at a given time with available technology and efficient use of all available resources.

41
Q

What is potential GDP?

A

Potential GDP is a measure of the maximum amount of goods and services an economy can produce at a given time, assuming available technology and full utilization of available economic resources, including labor.

42
Q

What are the assumptions in potential GDP?

A
  1. Available technology
  2. Full utilization of economic resources
  3. All labor is being fully and efficiently used
43
Q

What is national income?

A

Total payments for economic resources included in the production of all goods and services.

44
Q

What characterizes a recessionary phase of the business cycle?

A

Actual national income is typically less than potential national income as a result of decreased demand, which is characteristic of the recessionary phase of a business cycle and the resulting decrease in payments for goods and services.

45
Q

What is the formula for full employment unemployment rate?

A

Frictional + Structural unemployment

46
Q

Define frictional unemployment.

A

Unemployment due to workers being in transition between jobs or relocating.

47
Q

Define cyclical unemployment.

A

Unemployment due to downturn in the economy (economic contraction).

48
Q

Define structural unemployment.

A

Workers who have lost their jobs due to need for their job being greatly reduced or eliminated. Technological advances or changes in composition in employment opportunities.

49
Q

Define seasonal unemployment.

A

Unemployment due to work opportunities varying by seasons. Example: school teachers not teaching in summer.

50
Q

Unemployment does not apply to individuals not in the labor force. What factors contribute to someone not being in the labor force?

A
  1. <16 years old
  2. Retired
  3. Not seeking work
  4. Institutionalized
  5. Active military
51
Q

What is the formula for total unemployment rate?

A

Natural rate of unemployment (seasonal + frictional + structural) + Cyclical unemployment. So it’s a sum of all four categories.

52
Q

There can be official full employment when there is which of the following kinds of unemployment?

A

There could be official full employment when there is structural, frictional, and/or seasonal unemployment. Only cyclical unemployment is considered in the official measure of full employment.

53
Q

Why is frictional unemployment the least important to management when trying to predict the future state of the economy?

A

Because frictional unemployment is temporary unemployment that always exists as workers change jobs or new workers come in.

54
Q

Economic contraction (decrease in demand) would result in?

A

Increase in cyclical rate of unemployment.

55
Q

What is the formula to solve for unemployment rate?

A

Unemployed (all four categories)/size of labor force

BEC Corporate Governance, Economics, and Financial Management (19 decks)

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