Notes 2 Flashcards

1
Q

Unit labor cost

A

w x l

Y

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2
Q

Compensation =

A

labor cost per output + output per hour

3.7 = 1.5% + 2.2%

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3
Q

Productivity in Quarter 2

A

Productivity rose 2.2%

as output growth - 2.4%

exceeded hours worked growth - 0.2%

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4
Q

It is becoming __________ to get additional output from current workers

A

more difficult

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5
Q

With aggregate demand still rising, firms will have to ___________ hiring in 2012

A

increase

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6
Q

Hourly compensation

Real Hourly compensation

A

Hourly compensation - rose 3.7%

real hourly compensation - rose 1.7%

*inflation 2.0%

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7
Q

Growth in ______________ remain weak, giving firms incentive to hire

A

unit labor costs

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8
Q

Labor?

A

Labor is relatively inexpensive, leading to higher profits

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9
Q

Since labor is relatively inexpensive

A

Allows for additional capital for expansion plans to offset tighter credit conditions

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10
Q

wages =

A

wages = Lcost/unit + output per hour

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11
Q

2nd quarter 2012 wages

A

2.17% = 0.93% + 1.24%

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12
Q

Increase productivity —–>

A

increase profits

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13
Q

Price rising ——–> increase profits

A
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14
Q

Single family housing starts =

A

535,000

5.5% m/m

29% y/y

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15
Q

Single family permits =

A

512,000

0.2% m/m

25% y/y

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16
Q

Upward momentum is building for ______________

A

residential construction

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17
Q

Residential construction should add _______________

A

0.33% to 2012 GDP growth

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18
Q

Residential Construction Factors:

A

Large inventory of foreclosed homes

homebuilders are more confident home sales on an upward trajectory

low level “dearth”, new home inventory

rising jobs, income, and confidence

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19
Q

Proxy for new housing demand

“measure”

A

Growth in construction < Growth in households

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20
Q

S (savings) =

A

= Sprivate + Spublic

= Y (output) - C (consumers) - G (government)

= Investment

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21
Q

Value of total savings must equal ___________________

A

value of total investment

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22
Q

In U.S., we have an extremely ______ savings rate

A

low

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23
Q

Slonable funds

A

Households willingness to save

Government surplus

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24
Q

Dlonable funds

A

Profitable investment opportunities

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25
∆technology =\> increase profitability =\> increase demand for lonable funds =\> increase LF exchanged and rate=\> increase capital stock
26
Where does purchasing managers index want to be?
over 50
27
Purchasing Managers Index
Measures nationwide goods producing business activity Survey of Business Activity asks: 1. increase 2. decrease 3. or no change in inventories
28
Diffusion Index
% reporting increasing + 1/2% reporting no change \> 50 expansion \< 50 contraction
29
Current PMI (purchasing managers index)
51.5
30
What is the current PMI signaling?
Manufacturing is weak but seems to be stabilizing
31
Manufacturing is weak but stabilizing:
uncertain fiscal policy and global economic growth will weigh on manufacturers weak foreign demand New orders are expanding (52.3) =\> leading indicator Inventories are rising slightly (50.5) Production was slightly contracting (49.5) employment was up (54.7) prices paid were up (58.0)
32
New orders are expanding
52.3 - leading indicator
33
Inventories are rising slightly
50.5
34
Production was slightly contracting
49.5
35
Employment was up
54.7
36
Prices paid were up
58.0
37
Leading indicators: Two "gaps" are proxies of future production
1. New orders - Inventories = 1.8 (good omen for future production) 2. Production - New Orders = -2.8 (foreshadows stronger output)
38
Business have strongly balance sheets and high profits
Record high "quick ratio" = liquid assets (mostly cash) relative to short term liabilities
39
Say's law:
supply creates its own demand
40
Keynes on why GDP fluctuate in short run
aggregate expenditures (demand) determine supply
41
Budget constraint: Income + ∆debt =
taxes + interest debt + consumption + savings
42
future income =
∆debt
43
20 year average monthly change = in credit
$6.7 billion
44
August monthly change = in credit
$18 billion
45
20 year average Y-O-Y growth rate = in credit
7.7%
46
August Y-O-Y growth rate = in credit
5.5%
47
Surging credit due to:
rising non-revolving credit (financing for big ticket items) rising auto loan and government backed student loans increase debt =\> increase spending =\> ∆Y/Y
48
Supply side of credit
better access to credit to release pent-up demand
49
Demand side of credit
better labor market =\> improving financial positions (ability) =\> rising consumer confidence (willingness) =\> credit financed consumption
50
Full capacity utilization =
82-84%
51
at Y potential
Unemployment rate = 5% Capacity utilization = 82-84%
52
U.R \> U.R natural =\>
Y \< Ypotential
53
In long run, Ypotential =
f( # workers K stock technology \*not Price Level
54
Ypot =
f( - normal production capacity - full employment)
55
2 simplifying assumptions of static model
no inflation no change in long-run aggregate supply
56
Gross debt 2012 =
$16 trillion
57
Nominal GDP 2012 =
$16 trillion
58
Debt-to-GDP 2012 =
103%
59
More important about debt?
debt relative to economy
60
Fed. Reserve holds
$1.9 trillion
61
SS trust bonds / treasury bill =\>
$2.9 trillion
62
Public debt 2012 =
$11.2 trillion
63
Public debt to GDP 2012:
72.5%
64
Rogoff/Reinhart public debt to GDP limit
90% limit for public debt to GDP - would slow GDP growth by 1% from 3% to 2%
65
Is our D/Y a problem?
default risk =\> no purpose of debt: **consumption** or investment Large iD (int. x Debt) =\> increase Taxes or decrease Government spending High D/Y =\> increase int. rates =\> decrease inventory =\> decrease Y/L =\>decrease ∆Y/Y
66
Analogy Test:
essential similarities \> essential differences
67
2009 things
decrease in optimism decrease in wealth increase in exchange rate decrease Yrow
68
Housing Demand drops
decrease Investment residential shift left AD
69
Price homes fall, price stocks flat
Wealth decreases shift AD left
70
Price of oil increases =. input price increases
shift AS to left shift AD to left
71
Decrease Consumer/business confidence
decrease Consumption and investment shift AD left
72
Dollar falls =\>
increase exports, decrease M shift AD right
73
Foreign economies grow 5%
increase exports shift AD right
74
Discretionary macro policy response to 2007
Fed Reserve decrease interest rates to move AD right doesnt work - prices rise people dont spend because busy deleveraging
75
Automatic Mechansim
fix itself in time - milton friedman "long run it will work itself out"
76
Discretionary Policy
Johy Maynard Keynes long run we are all dead
77
Self-adjusting model:
When S curve shifts to the left: wages are falling - drops morale and worker productivity in theory: 1. workers will accept lower wages 2. lenders accept lower interest rates 3. producers accept lower price of inputs
78
Recession:
AD to the left; AS to the left or Y potential decreases Price is low relative to production costs
79
Expansion:
AD to the right; AS to the right Price is high relative to production costs
80
Labor Costs are _____ of total
70%
81
Unit labor cost -------\>
measure of inflation (roughly)
82
Equilibrium condition of new orders
new orders = shipments
83
shipments/sales =
Production - ∆inventory
84
During Recession:
New and Factory Orders plummeted and companies like Chyrsler and GM had to be bailed out of bankruptcy
85
shipments =
coincident economic indicator------good measurement of how the current economy is doing
86
New orders =
Leading indicator of future
87
Unfilled orders =
leading indicator of future production
88
Factory orders fell _____ in August
-5.2%
89
Nondurable good orders rose \_\_\_\_\_\_\_
2.2% (not good indicator)
90
Durable goods orders fell \_\_\_\_\_\_\_
-13.2%
91
Core capital goods new orders
rose 1.1%
92
business investment:
non defense capital goods, excluding aircraft
93
Leading indicator of future hiring
Core capital goods
94
Business investment spending
slowed preupitously in the 3rd quarter
95
Above 50 Business Baromete Index
expansion
96
Below 50 Business Barometer Index
contraction
97
Business Barometer Index: survey of business activity asks
Increasing Decreasing or No change
98
Business Barometer Index: assyne
increasing = 44.7% No change = 10% Decreasing + 45.3% Index = 44.7 + 5 = 49.7
99
Business Barometer Index in September
49.7 (contraction territory)
100
Manufacturing in Midwest is \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
contracting for the first time in 3 years
101
Vehicle production is \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
moderating - still growing but slowing down
102
Rising uncertainty over (bbi):
Global Economy Fiscal Cliff
103
Slumping foreign demand for (bbi):
industrial equipment
104
New orders (bbi):
47.4 leading indicator says a turnaround is not imminent, new orders falling
105
Production (bbi) =
55.4 firms are keeping production in line with new orders
106
Order backlog (bbi) =
41.6 signals weak production levels in future
107
Employment (bbi) =
52.0 firms are hiring to ramp up production to meet demand
108
Inventories (bbi) =
51.1 inventories are still rising
109
Prices paid (bbi) =
63.2 building input price pressures with little "pricing power" - falling profits
110
Pricing power
If you have this you can raise the price without losing business
111
New orders - inventories (bbi)
-3.7 Negative gap is omen for weaker production
112
New orders - Production (bbi)
-8 negative gap foreshadows weaker production
113
Shipments
Production - change in inventories
114
Production =
F(employment)
115
Increase in expected future price level would \_\_\_\_\_\_\_\_\_\_\_\_\_
shift supply curve to the left
116
Closed Economy investment
Y - C - G
117
A manufactuerer's unfilled orders will be unchanged if during the month
New Orders = Shipments
118
Investment in Closed Economy
Y - C - G
119
What increases the equilibrium interest rate?
Increase in the budget deficit
120
The demand for durable goods
declines by a greater percentage than does GDP during a recession
121
The response of investment spending to an increase in the government budget deficit is called \_\_\_\_\_\_\_\_\_\_
crowding out
122
What happens to unemployment as an economy begins to emerge from a recessionary phase of the business cycle
unemployment continues to rise
123
What will raise consumer expenditures?
An increase in expected future income
124
A decrease in the growth rate of domestic GDP relative to the growth rate of foreign GDP would \_\_\_\_\_\_\_\_
shift demand curve out
125
When a government runds a budget deficit, we expect \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
investment will fall
126
Financial intermediary's main function:
match households with excess funds to firms who want to borrow funds
127
An increase in the price level will
Move the economy up along a stationary short run aggregate supply curve
128
The international trade effect states that:
An increase in the price level will lower net exports
129
When price level in US rises to the price level of other countries
Imports will rise exports will fall net exports will fall
130
National income =
Consumption + Savings + Taxes
131
Labor Productivity
The quantity of output produced in one hour by one worker
132
The 45-degree line shows points such that
Real aggregate expenditure equals real GDP
133
Increase expectation in inflation results in:
shift the short run aggregate supply curve to the left
134
Private savings
Y + Tr - C - T
135
Countries with a strong rule of law:
have a faster economic growth
136
Increase in aggregate demand causes:
Increase in real GDP in short run Increase in price level in short run and long run
137
Best Measure of the standard of living
real GDP per capita
138
Potential GDP
The level of GDP attained when all firms are producing at capacity
139
wL =
70% of total costs
140
wage/salary costs (70%)
rose 1.7% y-o-y
141
Benefit costs (30%)
rose 2.1% y-o-y
142
Total Compensation rose
1.8% .7 x 1.7% + .3 x 2.1%
143
Employment Cost Index: This will:
1. Contain broader inflationary pressure 2. Allow FED to maintain low interest rate policy
144
Rising \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
retirement and health benefits
145
Firms are focusing on \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
containing wage growth in an attempt to save costs and remain profitable
146
Firms health insurance costs are \_\_\_\_\_\_\_\_\_\_\_\_\_\_
slowing as they pass along benefit costs to employees
147
\_\_\_\_\_\_\_\_\_\_\_\_\_ will keep consumers' spending under pressure
slow wage expansion
148
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ will limit wage gains going forward
Labor market slack and extended periods of weak job growth
149
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ will push wages and salries lower and slow benefit growth
150
Deficit 2009 =
$1.4 trillion
151
1993 Deficit reduction act
Increase Taxes Cap growth of government spending
152
Debt
sum of all deficits
153
Deficit
G - T in given period
154
If deficit to GDP = 3%
_Debt_ GDP is constant
155
If deficit to GDP \< 3%
_Debt_ GDP is falling
156
When unemployment reaches \_\_\_\_\_\_\_\_\_, deficit to GDP rises above 3%, increasing Debt/GDP to 90%
6%
157
AFDC example of
transfer payments
158
\_\_\_\_\_\_\_\_\_\_\_ helps the US economy to be self correcting
The Federal Budget