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1
Q

How does a price increase affect supply?

A

When the prices of an item increases supply increases- because more sellers are willing to sell.

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2
Q

What is a supply curve shift?

A

When supply changes due to something other than price.

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3
Q

What are the characteristics of a positive supply curve shift (shift right)?

A

Supply increases at each price point

Higher Equilibrium GDP

Number of sellers increases - market can get flooded

Examples: Government subsidies or technology improvements that decrease costs for suppliers

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4
Q

What are the characteristics of a negative supply curve shift (shift left)?

A

Supply decreases at each price point

Lower Equilibrium GDP

Cost of producing item increases

Examples: Shortage of gold- so less gold watches are made; wars or crises in rice-producing countries means there is less rice on the market

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5
Q

How does price affect the demand for an item?

A

When the prices of an item increases- demand for it decreases.

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6
Q

What is a Demand Curve Shift?

A

When demand changes due to something other than price.

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7
Q

What is a Positive Demand Curve Shift (Shift Right)?

A

When demand increases at each price point

Price of substitutes go up - price of beef rises- so people buy more chicken

Future price increase is expected - War in Middle East- people go out and buy gas

Market expands - i.e. people get new free health care plan- demand at clinic rises

Expansion - more spending increases equilibrium GDP

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8
Q

What is a Negative Demand Curve Shift (Shift Left)?

A

Demand decreases at each price point.

Price of complement goes up - price of beef goes up- less demand for ketchup

Boycott - Company commits social blunder- consumers boycott

Consumer income rises - Demand for inferior goods drops as people have more money to spend

Consumer tastes change

Contraction - less spending decreases equilibrium GDP

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9
Q

What is the Marginal Propensity to Consume?

A

How much you spend when your income increases

Calculate: Change in Spending / Change in Income

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10
Q

What is the Marginal Propensity to Save?

A

How much you save when income increases

Calculate: Change in Savings / Change in Income

Also equals 1 - Marginal Propensity to Consume

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11
Q

How is the multiplier effect calculated?

A

(1 / 1-MPC) x Change in Spending

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12
Q

How does increased spending by consumers and the government affect the demand curve?

A

As spending by consumers or the government increases- the demand curve increases (shifts right).

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13
Q

How does spending change due to the multiplier effect?

A

The increase in demand ends up being larger than the amount of additional income spent in the economy due to the multiplier effect.

One consumer spends money- which:
*Increases the income of a business
*Increases the income of a vendor
*Increases income of employees
*Increases tax revenue

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14
Q

How is Price Elasticity of Demand calculated?

A

% Change in Quantity Demand / % Change in Price

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15
Q

Under elastic demand- how does price affect revenues?

A

Price increases- Revenue decreases

Price decreases- Revenue increases

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16
Q

What conditions would indicate Elastic Demand?

A

Many substitutes (luxury items)
Considered elastic if elasticity is greater than 1
10% drop in demand / 8% increase in price : 1.25 (Elastic)

Price increases- Revenue decreases
Price decreases- Revenue increases

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17
Q

How does revenue react to price under Inelastic Demand?

A

Price increases- Revenue increases

Price decreases- Revenue decreases

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18
Q

What conditions would indicate Inelastic Demand?

A

Few substitutes (groceries- gasoline)
Considered inelastic if coefficient of elasticity is less than 1
5% drop in demand / 10% increase in price : .5 (inelastic)

Price increases- Revenue increases
Price decreases- Revenue decreases

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19
Q

What is Unitary Demand?

A

Total revenue will remain the same if price is increased

Considered unitary if coefficient of elasticity : 1

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20
Q

How is Income Elasticity of Demand calculated?

A

% Change Quantity Demanded / % Change in Income

Normal goods greater than 1 (demand increases more than income)

Inferior goods less than 1 (demand increases less than income)

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21
Q

What conditions occur under periods of inflation?

A

Interest rates increase
Reduced demand for loans
Reduced demand for houses- autos- etc.
Value of bonds and fixed income securities decrease
Inferior good demand to increase
Foreign goods more affordable than domestic
Demand for domestic goods decrease

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22
Q

What happens under Demand-Pull inflation?

A

Overall spending increases

Demand increases (shifts right)

Market equilibrium price increases

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23
Q

What happens under Cost-Push inflation?

A

Overall production costs increase
Supply decreases (shifts left)
Market equilibrium price increases

Note: Demand-Pull and Cost-Push Inflation BOTH result in market equilibrium price to increase

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24
Q

What is the Equilibrium Price?

A

The price where Quantity Supplied : Quantity Demanded

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25
Q

What is Optimal Production?

A

When Marginal Revenue : Marginal Cost

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26
Q

What is the result of a Price Floor?

A

Causes a surplus if above equilibrium price.

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27
Q

What is GDP (Gross Domestic Product)?

A

The annual value of all goods and services produced domestically at current prices by consumers- businesses- the government- and foreign companies with domestic interests

Included: Foreign company has US Factory

Not included: US company has foreign factory

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28
Q

What is included under the income approach for calculating GDP?

A

Sole Proprietor and Corp Income
Passive Income
Taxes
Employee Salaries
Foreign Income Adjustments
Depreciation

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29
Q

What is included under the Expenditure Approach for calculating GDP?

A

Individual Consumption

Private Investment

Government Purchases

Net Exports

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30
Q

What is Nominal GDP?

A

Measures goods/services in current prices.

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31
Q

For what is a GDP Deflator used?

A

Used to convert GDP to Real GDP

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32
Q

What is Real GDP?

A

Nominal GDP / GDP Deflator x 100

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33
Q

What is Gross National Product (GNP)?

A

Like GDP; Swaps foreign production. US Firms overseas are included- Foreign firms domestically are not included

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34
Q

What is the Consumer Price Index (CPI)? How is it applied?

A

Price of goods relative to an earlier period of time- which is the benchmark. Year 1 : 1.0

((CPI Current - CPI Last) / CPI Last) * 100

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35
Q

How is disposable income calculated?

A

Personal Income - Personal Taxes

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36
Q

How is Return to Scale calculated?

A

% Increase in output / % Increase in input

Greater than 1 : Increasing returns to scale

Less than 1 : Decreasing returns to scale

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37
Q

When is the economy in Recession?

A

When GDP growth is negative for two consecutive quarters.

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38
Q

What is a Depression?

A

A prolonged- severe recession with high unemployment rates

No requisite period of time for the economy to officially be in a depression

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39
Q

What are the stages of the Economic Cycle?

A

Peak (highest)
Recession (decreasing)
Trough (lowest)
Recover (increasing)
Expansion (higher again)

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40
Q

What are leading indicators?

A

Conditions that occur before a recession or before a recovery

Example: Stock Market or New Housing Starts

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41
Q

What are lagging indicators?

A

Conditions that occur after a recession or after a recovery

Examples: Prime Interest Rates- Unemployment

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42
Q

What are coincident indicators?

A

Conditions that occur during a recession or during a recovery

Example: Manufacturing output

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43
Q

Which people are included in the calculation of unemployment?

A

Only people looking for jobs

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44
Q

What is Cyclical Unemployment?

A

GDP doesn’t grow fast enough to employ all people who are looking for work

Example: People are unemployed in 2010 because there aren’t enough jobs available due to the economy

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45
Q

What is Frictional Unemployment?

A

People are changing jobs or entering the work force. This is a normal aspect of full employment.

Example: A recent college graduate is looking for a job

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46
Q

What is Structural Unemployment?

A

A worker’s job skills do not match those necessary to get a job so they need education or training

Example: A construction worker wants to work in an office- so they quit their job and get computer training

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47
Q

How does inflation relate to unemployment?

A

High Unemployment : Low Inflation (Vice Versa)

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48
Q

What is the Discount Rate?

A

The rate a bank pays to borrow from the Fed.

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49
Q

What is the Prime Rate?

A

The rate a bank charges their best customers on short-term borrowings.

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50
Q

What is the Real Interest Rate?

A

Inflation-adjusted interest rate

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51
Q

What is the Nominal Rate?

A

Rate that uses current prices

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52
Q

What is the Risk-Free Rate?

A

Rate for a loan with 100% certainty of payback.

Usually results in a lower rate.

US Treasuries are an example.

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53
Q

What is included in the M1 money supply?

A

Currency- Coins- and Deposits

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54
Q

What is included in the M2 money supply?

A

Highly liquid assets other than currency- coins or deposits

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55
Q

What is Deficit Spending?

A

Increased spending levels without increased tax revenue.

Lower taxes without decrease in spending

Gamble that the multiplier effect will take over and boost economy

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56
Q

How can the Fed control the money supply?

A

By buying and selling the government’s securities.

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57
Q

How does the Fed control economy-wide interest rates?

A

By adjusting the discount rate charged to banks

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58
Q

What is a Tariff?

A

A tax on imported goods

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59
Q

What is a quota?

A

A limit on the number of goods that can be imported

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60
Q

How do international trade restrictions affect domestic producers?

A

They are good for domestic producers.

Demand curve shifts right

Fewer substitutes

They can charge higher prices

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61
Q

How to international trade restrictions affect foreign producers?

A

They are bad for foreign producers

Demand curve shifts left

Fewer buyers

They must charge lower prices

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62
Q

How do international trade restrictions affect foreign consumers?

A

They are good for foreign consumers

Supply curve shifts right

Goods purchased at lower prices in the foreign markets

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63
Q

How do international trade restrictions affect domestic consumers?

A

They are bad for domestic consumers

Supply curve shifts left

Fewer goods bought due to higher prices

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64
Q

What is Accounting Cost?

A

Explicit (Actual) cost of operating a business

Implicit costs are opportunity costs

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65
Q

What is Accounting Profit?

A

Revenue - Accounting Cost

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66
Q

What is Economic Cost?

A

Explicit + Implicit Cost

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67
Q

What is Economic Profit?

A

Revenue - Economic Cost

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68
Q

What is the primary objective of accounting?

A

To measure income

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69
Q

What is the most authoritative set of accounting pronouncements?

A

The FASB Codification

All pronouncements fall under the Codification umbrella

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70
Q

What are the 2 Levels of Authority within the FASB codification?

A

Authoritative and Non-Authoritative

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71
Q

How does managerial accounting differ from financial accounting?

A

Managerial Accounting has a timeliness focus

Managerial Accounting is not required to follow GAAP

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72
Q

Which financial reports are required to be filed with the SEC?

A

Form 10K - Annual and Audited

Form 10Q - Quarterly and Reviewed

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73
Q

What is the focus of financial reports for individual companies?

A

Focus is on the needs of users to help them make decisions and assessments about the company

Does not make assessments of the economy

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74
Q

What are the Primary Constraints of Financial Reporting?

A

Cost vs. Benefit

Materiality

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75
Q

What are the Secondary Constraints of Financial Reporting?

A

Consistency - Year vs. Year

Comparability - Company vs. Company

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76
Q

What are the Qualitative Characteristics of Financial Reporting?

A

Relevance & Faithful Representation

Relevance - Makes a difference to the user
Includes:
Predictive Value - Future Trends
Confirming Value - Past Predictions
Materiality - Could affect User Decisions

Faithful Representation
Includes:
Completeness - Nothing omitted that would impact the decision-making of a user
Neutrality - Information is presented is without bias
Free from Error - No material errors or omissions

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77
Q

What are the Enhancing Qualitative Characteristics of Financial Reporting?

A

Comparability Verifiability Timeliness and Understandability

Comparability - Allows users to compare different items among various periods
Verifiability - Different people would reach a similar conclusion on the information presented
Timeliness - Information is made available early enough to impact the decision making of users
Understandability - Information is easy to understand

78
Q

How does Conservatism affect the recording of accounting transactions?

A

When an estimate is necessary due to uncertainty conservatism chooses the best option that won’t overstate the financial position of the company

79
Q

What is an accrual?

A

Earned (Revenue) or Incurred (Expense) but no Cash Receipt/Outlay yet

80
Q

What is a deferral?

A

Cash Receipt/Outlay but not Earned (Revenue) or Incurred (Expense)

81
Q

What is recognition in accounting?

A

When an item is recorded and included in the financial statements

82
Q

Describe fair value with respect to an asset

A

The price you would receive if you sold the asset

Assumes asset is at its highest and best value

Assumes asset is sold at its most advantageous market to get the best price possible

83
Q

What market assumptions are made in a fair value assessment?

A

Buyer and Seller are not Related

Buyer and Seller are Knowledgeable

Buyer and Seller are able to transact - i.e. This isn’t a hypothetical transaction for Fair Value measurement purposes. The buyer actually does have the $10M to purchase the asset you’re trying to value at $10M

Buyer and Seller are both motivated to buy/sell

84
Q

What items are included in a Level 1 input in the fair value hierarchy?

A

Price quotes or market prices

For example NYSE or NASDAQ

85
Q

What items are included in a Level 2 valuation input?

A

Interest rates

Prime rate

86
Q

What items are included in Level 3 inputs of the fair value hierarchy?

A

Unobservable inputs such as assumptions or forecasts

Lowest priority for valuation

87
Q

What are acceptable valuation techniques for fair value?

A

Market approach - uses market transactions and prices to value the asset

Income approach - uses present value discounts earnings

Cost approach - uses replacement cost to value the asset

88
Q

What are current assets?

A

Cash

Inventory or Assets expected to be converted or consumed during a business’ operating cycle

Deferred Gross Profit on Installment Sales (Contra Asset)

Receivables expected to be collected in 12 months or less

89
Q

What are current liabilities?

A

Liabilities that will use current assets during the present operating cycle

90
Q

What is an accrued liability?

A

Expense that has been incurred but not paid

Example: rents payable

91
Q

What is a deferred revenue?

A

A type of current liability

Payments that have been received but cannot be recorded as revenue yet

Example: Tenant pre-pays rent - Landlord still must perform to earn it and is a liability until this happens

92
Q

When are revenues recognized?

A

When they have been earned; i.e. company has performed

93
Q

What is a gain?

A

Increase in equity from an activity or event that is not central to the main activities of the business

Can be operating or non-operating

94
Q

What is a loss?

A

Decrease in equity from an activity or event that is not central to the main activities of the business

Can be operating or non-operating

95
Q

What is an operating cycle?

A

Average time it takes to turn materials or services into Cash

96
Q

What is the present value of future cash flows?

A

Valuation method - the current value of a future amount of money using a specific interest rate

97
Q

What is historical cost?

A

How much an asset cost - (net of depreciation and amortization)

98
Q

What is replacement cost?

A

How much it would cost to reacquire an asset today (Entrance Cost)

99
Q

What is a market cost?

A

The sale price of an asset (Exit Cost)

100
Q

What is Net Realizable Value?

A

Sale Price of an Asset - Selling/Disposal Fee

101
Q

When is royalty income recognized? How is it recognized?

A

Recognized when earned

If the royalty % is applied against net sales then subtract the estimated return amount from the gross sales first and then apply the royalty rate

102
Q

When is revenue recognized in an installment sale?

A

Revenue recognized upon receipt of cash

Only used when cash collection is uncertain

103
Q

What is deferred gross profit?

A

Gross Profit that can’t be recognized until cash is received

D.GP : Gross Profit % x Accounts Receivable

Pay attention to the year if GP% varies

104
Q

What is the cost recovery method?

A

No revenue recognized until all costs are recovered from purchase of the asset

Most conservative method of revenue recognition when collection of sale price is uncertain

105
Q

What is subscription revenue? How is it recorded?

A

Payment has been received but performance is not complete.

As company performs revenue is recognized.

Recorded as a Deferred Revenue (Liability) on Balance Sheet

106
Q

How are franchise revenues recorded?

A

Franchisor - Startup franchise fee revenue deferred until substantial performance

Franchisee - Costs are deferred until corresponding revenue is recognized

107
Q

How do you calculate sales revenue starting from cash basis income?

A

Mnemonic: SPEAR-BAR

Sales (i.e. Customer Payments)
+ Ending Accounts Receivable
- Beginning Accounts Receivable
: Sales Revenue on an Accrual Basis

108
Q

How do you calculate COGS starting from Cash Basis?

A

Mnemonic: CRAP-I

Cash Remitted (i.e. paid)
+Increase in Accounts Payable
-Increase in Inventory
:COGS on an Accrual Basis

109
Q

How are discontinued operations reported? When are they used?

A

Reported Net of Tax after Continuing Operations but before Extraordinary Items

Company decides to cease operating a segment of its business

Includes Income (or loss) from the period plus the gain (or loss) from disposal

110
Q

What qualifies as an extraordinary item? How is it recorded?

A

Both unusual AND infrequent

Reported Net of Tax after Discontinued Operations

Note: Usual or Infrequent Items are reported as part of Continuing Operations

111
Q

What is constant dollar accounting?

A

Adjusts assets to reflect a consistent level of purchasing power due to inflation

Uses the Consumer Price Index (CPI)

112
Q

When are expenses recognized?

A

When they are incurred. Accrue if not yet paid.

113
Q

What are accrued expenses?

A

Those incurred but not paid.

Product costs - Expenses should be matched with associated revenues as they are recognized (sales commission on a used car sale)

Period costs - Expenses amortized and recognized with the passage of time

114
Q

When should impaired assets be written down to fair value and expensed?

A

Immediately.

115
Q

What major items should be classified under General & Administrative (G&A) expenses?

A

Office staff salaries

Office/building rent

Office supplies

Note: Sales staff salaries and portions of the building assigned to Sales should be allocated to Selling Expense not G&A

116
Q

What are business start-up costs?

A

One-time costs for opening a new business

Expensed as they are incurred

117
Q

When is interest not expensed?

A

Interest on projects (software) for internal use is not expensed but is instead capitalized

118
Q

What are the major components of Comprehensive Income?

A

Net Income + Other Comprehensive Income (OCI):

Revenues/Expenses

Gains/Losses

Cumulative accounting adjustments

Reclassifications adjustments

Non-owner changes in equity

119
Q

What items are considered cumulative accounting adjustments?

A

Foreign Currency Translation Adjustments

Unrealized gains on AFS Securities

Minimum Pension Liability adjustment for defined benefit plans

120
Q

What is the purpose of a reclassification adjustment?

A

Avoids double counting items that were included in both Net Income and OCI

Example: AFS Securities previously included in OCI are now sold at a loss and reported on the Income Statement

121
Q

Where is Comprehensive Income reported?

A

Reported in a Single or Combined Income Statement

122
Q

What disclosures on accounting policies are required in financial statements?

A

Accounting Principles used

Basis of Consolidation

Inventory Pricing Methods

Depreciation Method

Amortization of Intangibles

123
Q

What are some major risks and uncertainties that must be disclosed?

A

Nature of Operations

Use of Estimates and listing of Significant Estimates

Concentration vulnerability

124
Q

How does a price increase affect supply?

A

When the prices of an item increases supply increases- because more sellers are willing to sell.

125
Q

What is a supply curve shift?

A

When supply changes due to something other than price.

126
Q

What are the characteristics of a positive supply curve shift (shift right)?

A

Supply increases at each price point

Higher Equilibrium GDP

Number of sellers increases - market can get flooded

Examples: Government subsidies or technology improvements that decrease costs for suppliers

127
Q

What are the characteristics of a negative supply curve shift (shift left)?

A

Supply decreases at each price point

Lower Equilibrium GDP

Cost of producing item increases

Examples: Shortage of gold- so less gold watches are made; wars or crises in rice-producing countries means there is less rice on the market

128
Q

How does price affect the demand for an item?

A

When the prices of an item increases- demand for it decreases.

129
Q

What is a Demand Curve Shift?

A

When demand changes due to something other than price.

130
Q

What is a Positive Demand Curve Shift (Shift Right)?

A

When demand increases at each price point

Price of substitutes go up - price of beef rises- so people buy more chicken

Future price increase is expected - War in Middle East- people go out and buy gas

Market expands - i.e. people get new free health care plan- demand at clinic rises

Expansion - more spending increases equilibrium GDP

131
Q

What is a Negative Demand Curve Shift (Shift Left)?

A

Demand decreases at each price point.

Price of complement goes up - price of beef goes up- less demand for ketchup

Boycott - Company commits social blunder- consumers boycott

Consumer income rises - Demand for inferior goods drops as people have more money to spend

Consumer tastes change

Contraction - less spending decreases equilibrium GDP

132
Q

What is the Marginal Propensity to Consume?

A

How much you spend when your income increases

Calculate: Change in Spending / Change in Income

133
Q

What is the Marginal Propensity to Save?

A

How much you save when income increases

Calculate: Change in Savings / Change in Income

Also equals 1 - Marginal Propensity to Consume

134
Q

How is the multiplier effect calculated?

A

(1 / 1-MPC) x Change in Spending

135
Q

How does increased spending by consumers and the government affect the demand curve?

A

As spending by consumers or the government increases- the demand curve increases (shifts right).

136
Q

How does spending change due to the multiplier effect?

A

The increase in demand ends up being larger than the amount of additional income spent in the economy due to the multiplier effect.

One consumer spends money- which:
*Increases the income of a business
*Increases the income of a vendor
*Increases income of employees
*Increases tax revenue

137
Q

How is Price Elasticity of Demand calculated?

A

% Change in Quantity Demand / % Change in Price

138
Q

Under elastic demand- how does price affect revenues?

A

Price increases- Revenue decreases

Price decreases- Revenue increases

139
Q

What conditions would indicate Elastic Demand?

A

Many substitutes (luxury items)
Considered elastic if elasticity is greater than 1
10% drop in demand / 8% increase in price : 1.25 (Elastic)

Price increases- Revenue decreases
Price decreases- Revenue increases

140
Q

How does revenue react to price under Inelastic Demand?

A

Price increases- Revenue increases

Price decreases- Revenue decreases

141
Q

What conditions would indicate Inelastic Demand?

A

Few substitutes (groceries- gasoline)
Considered inelastic if coefficient of elasticity is less than 1
5% drop in demand / 10% increase in price : .5 (inelastic)

Price increases- Revenue increases
Price decreases- Revenue decreases

142
Q

What is Unitary Demand?

A

Total revenue will remain the same if price is increased

Considered unitary if coefficient of elasticity : 1

143
Q

How is Income Elasticity of Demand calculated?

A

% Change Quantity Demanded / % Change in Income

Normal goods greater than 1 (demand increases more than income)

Inferior goods less than 1 (demand increases less than income)

144
Q

What conditions occur under periods of inflation?

A

Interest rates increase
Reduced demand for loans
Reduced demand for houses- autos- etc.
Value of bonds and fixed income securities decrease
Inferior good demand to increase
Foreign goods more affordable than domestic
Demand for domestic goods decrease

145
Q

What happens under Demand-Pull inflation?

A

Overall spending increases

Demand increases (shifts right)

Market equilibrium price increases

146
Q

What happens under Cost-Push inflation?

A

Overall production costs increase
Supply decreases (shifts left)
Market equilibrium price increases

Note: Demand-Pull and Cost-Push Inflation BOTH result in market equilibrium price to increase

147
Q

What is the Equilibrium Price?

A

The price where Quantity Supplied : Quantity Demanded

148
Q

What is Optimal Production?

A

When Marginal Revenue : Marginal Cost

149
Q

What is the result of a Price Floor?

A

Causes a surplus if above equilibrium price.

150
Q

What is GDP (Gross Domestic Product)?

A

The annual value of all goods and services produced domestically at current prices by consumers- businesses- the government- and foreign companies with domestic interests

Included: Foreign company has US Factory

Not included: US company has foreign factory

151
Q

What is included under the income approach for calculating GDP?

A

Sole Proprietor and Corp Income
Passive Income
Taxes
Employee Salaries
Foreign Income Adjustments
Depreciation

152
Q

What is included under the Expenditure Approach for calculating GDP?

A

Individual Consumption

Private Investment

Government Purchases

Net Exports

153
Q

What is Nominal GDP?

A

Measures goods/services in current prices.

154
Q

For what is a GDP Deflator used?

A

Used to convert GDP to Real GDP

155
Q

What is Real GDP?

A

Nominal GDP / GDP Deflator x 100

156
Q

What is Gross National Product (GNP)?

A

Like GDP; Swaps foreign production. US Firms overseas are included- Foreign firms domestically are not included

157
Q

What is the Consumer Price Index (CPI)? How is it applied?

A

Price of goods relative to an earlier period of time- which is the benchmark. Year 1 : 1.0

((CPI Current - CPI Last) / CPI Last) * 100

158
Q

How is disposable income calculated?

A

Personal Income - Personal Taxes

159
Q

How is Return to Scale calculated?

A

% Increase in output / % Increase in input

Greater than 1 : Increasing returns to scale

Less than 1 : Decreasing returns to scale

160
Q

When is the economy in Recession?

A

When GDP growth is negative for two consecutive quarters.

161
Q

What is a Depression?

A

A prolonged- severe recession with high unemployment rates

No requisite period of time for the economy to officially be in a depression

162
Q

What are the stages of the Economic Cycle?

A

Peak (highest)
Recession (decreasing)
Trough (lowest)
Recover (increasing)
Expansion (higher again)

163
Q

What are leading indicators?

A

Conditions that occur before a recession or before a recovery

Example: Stock Market or New Housing Starts

164
Q

What are lagging indicators?

A

Conditions that occur after a recession or after a recovery

Examples: Prime Interest Rates- Unemployment

165
Q

What are coincident indicators?

A

Conditions that occur during a recession or during a recovery

Example: Manufacturing output

166
Q

Which people are included in the calculation of unemployment?

A

Only people looking for jobs

167
Q

What is Cyclical Unemployment?

A

GDP doesn’t grow fast enough to employ all people who are looking for work

Example: People are unemployed in 2010 because there aren’t enough jobs available due to the economy

168
Q

What is Frictional Unemployment?

A

People are changing jobs or entering the work force. This is a normal aspect of full employment.

Example: A recent college graduate is looking for a job

169
Q

What is Structural Unemployment?

A

A worker’s job skills do not match those necessary to get a job so they need education or training

Example: A construction worker wants to work in an office- so they quit their job and get computer training

170
Q

How does inflation relate to unemployment?

A

High Unemployment : Low Inflation (Vice Versa)

171
Q

What is the Discount Rate?

A

The rate a bank pays to borrow from the Fed.

172
Q

What is the Prime Rate?

A

The rate a bank charges their best customers on short-term borrowings.

173
Q

What is the Real Interest Rate?

A

Inflation-adjusted interest rate

174
Q

What is the Nominal Rate?

A

Rate that uses current prices

175
Q

What is the Risk-Free Rate?

A

Rate for a loan with 100% certainty of payback.

Usually results in a lower rate.

US Treasuries are an example.

176
Q

What is included in the M1 money supply?

A

Currency- Coins- and Deposits

177
Q

What is included in the M2 money supply?

A

Highly liquid assets other than currency- coins or deposits

178
Q

What is Deficit Spending?

A

Increased spending levels without increased tax revenue.

Lower taxes without decrease in spending

Gamble that the multiplier effect will take over and boost economy

179
Q

How can the Fed control the money supply?

A

By buying and selling the government’s securities.

180
Q

How does the Fed control economy-wide interest rates?

A

By adjusting the discount rate charged to banks

181
Q

What is a Tariff?

A

A tax on imported goods

182
Q

What is a quota?

A

A limit on the number of goods that can be imported

183
Q

How do international trade restrictions affect domestic producers?

A

They are good for domestic producers.

Demand curve shifts right

Fewer substitutes

They can charge higher prices

184
Q

How to international trade restrictions affect foreign producers?

A

They are bad for foreign producers

Demand curve shifts left

Fewer buyers

They must charge lower prices

185
Q

How do international trade restrictions affect foreign consumers?

A

They are good for foreign consumers

Supply curve shifts right

Goods purchased at lower prices in the foreign markets

186
Q

How do international trade restrictions affect domestic consumers?

A

They are bad for domestic consumers

Supply curve shifts left

Fewer goods bought due to higher prices

187
Q

What is Accounting Cost?

A

Explicit (Actual) cost of operating a business

Implicit costs are opportunity costs

188
Q

What is Accounting Profit?

A

Revenue - Accounting Cost

189
Q

What is Economic Cost?

A

Explicit + Implicit Cost

190
Q

What is Economic Profit?

A

Revenue - Economic Cost

accounting (4 decks)

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