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CFA > SS 5. Macroeconomic Analysis > Flashcards

SS 5. Macroeconomic Analysis Flashcards

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1
Q

When inflation is higher than expected, ______ benefit and the expense of _______.

A

Borrowers, lenders

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2
Q

The effect whereby an increase in Government spending leads to an increase in interest rates, which in turn reduces private sector demand this is called:

A

Crowding out

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3
Q

A _____ index is a geometric average of a Laspeyres Index and a Paasche index

A

Fischer

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4
Q

A metric which shows the current state of economic activity within a particular area is called a:

A

Coincident indicator

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5
Q

What are a firm’s short-run and long-term decisions based on these Revenue/Cost relationships?

TR ≥ TC

TR > TVC but TR < TFC +TVC

TR < TVC

A

TR ≥ TC
Short-Run Decision: Stay in market
Long-Term Decision: Stay in market

TR > TVC but TR < TFC +TVC
Short-Run Decision: Stay in market
Long-Term Decision: Exit market

TR < TVC
Short-Run Decision: Shut down production to zero
Long-Term Decision: Exit market

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6
Q

Complementary goods have (positive/negative) cross price elasticity

A

Negative

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7
Q

Core inflation excludes:

A

Food and energy (highly volatile in the short term)

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8
Q

‘An inferior good, where the income effect outweighs the substitution effect’ is called a:

A

Giffen good

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9
Q

The time needed to identify the need for fiscal change is referred to as:

A

Recognition lag

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10
Q

What kind of inflation occurs when there is excessive growth in aggregate demand?

A

Demand-pull

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11
Q

The Nash equilibrium point for two competing firms will result in:

A

A suboptimal output for the two competing firms

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12
Q

_____ policy concerns money supply and interest rates

A

Monetary

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13
Q

Unemployment rate =

A

Number of unemployed / labor force

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14
Q

Substitutes have (positive/negative) cross price elasticity

A

Positive

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15
Q

Attempting to turn consumers surplus into economic profit is:

A

Price discrimination

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16
Q

‘The smallest quantity of output where long-run average costs reach a minimum’ is the:

A

Minimum efficient scale

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17
Q

(S-I) =

A

Private saving over private investments

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18
Q

‘An industry in which many firms offer products or services that are similar, but not perfect substitutes’ describes:

A

Monopolistic Competition

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19
Q

The time taken to enact relevant legislation is referred to as:

A

Action lag

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20
Q

What kind of inflation occurs after a supply shock such as a natural disaster?

A

Cost-push

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21
Q

Monetarist economists are most likely to believe that an under performing economy:

A

needs to be repaired through monetary policy

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22
Q

Name 3 factors that influence the price elasticity of demand

A
  1. Availability of substitutes (more substitutes = higher elasticity)
  2. Percentage of income spent on the good (greater the %, the greater the elasticity)
  3. Time elapsed since price change (greater the time since price change, the greater the elasticity)
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23
Q

Perfect price discrimination means that the marginal revenue curve:

A

becomes the demand curve

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24
Q

Explicit costs + implicit costs =

A

Total cost

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25
Q

MV = PY stands for:

A 
M: Money Supply
*
V: Velocity of circulation
=
P: Price level
*
Y: Real GDP
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26
Q

Which of the following measures of profit is most likely necessary for a firm to stay in business in the long run?

A

Normal profit

Normal profit is the level of accounting profit needed to just cover the implicit opportunity costs ignored in accounting costs. This profit is all that a firm needs to earn in the long run to remain in business. Failing to earn normal profits over the long run has a debilitating impact on the firm’s ability to access capital and to function properly as a business enterprise. Economic profit (also known as abnormal or supernormal profit) is accounting profits in excess of implicit opportunity costs.

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27
Q

Labor force participation rate =

A

Labor force/Working age population

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28
Q

Normal products have income elasticity of:

A

Between 0 and 1

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29
Q

The amount of money created by the central bank by placing a $1,000 deposit in a commercial bank is calculated as:

A

Deposit amount
/
Reserve requirement

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30
Q

The average fixed cost curve is always:

A

Downward sloping

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31
Q

When a firm is unable to influence the market price for their industry, they are said to be:

A

Price takers

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32
Q

National income =

A

GDP - Statistical discrepancy - Capital consumption allowance

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33
Q

Disinflation is a situation when:

A

Prices are rising but slower than previously

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34
Q

(G-T) =

A

Government budget deficit

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35
Q

Total revenue - total cost =

A

Economic profit

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36
Q

Keynesian economists are most likely to believe that an under performing economy:

A

needs to be repaired through fiscal policy

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37
Q

Unemployment rate =

A

Unemployed/Labor force

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38
Q

(Marginal benefit - price paid) * quantity bought =

A

Consumer surplus

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39
Q

Classical economists are most likely to believe that an under performing economy:

A

will eventually repair itself

40
Q

_____ policy concerns government income and expenses

A

Fiscal

41
Q

A ____ index is when you always use the current consumption basket

A

Paasche

42
Q

Minimum wage is an example of a:

A

Price floor

43
Q

Personal Disposable Income =

A

Income - taxes

44
Q

The marginal cost curve intersects the average total cost curve at its:

A

Minimum point

45
Q

Normal profit =

A

Zero economic profit

46
Q

Name the 3 types of unemployment:

A

Frictional unemployment

Cyclical unemployment

Structural unemployment

47
Q

The time it takes for a fiscal policy action to affect the economy as intended is best described as:

A

Impact lag

48
Q

Luxury products have income elasticity of:

A

More than 1

49
Q

‘The action of selling the same product at different prices to different buyers, in order to maximize sales and profits’ describes:

A

Price discrimination

50
Q

‘The practice of lending customers’ money to others on the assumption that not all customers will want all of their money back at any one time’ is known as:

A

Fractional reserve banking

51
Q

‘As the price of a good declines, one has more disposable income to substitute for more of the same good’ describes:

A

The income effect

52
Q

Inferior products have income elasticity of:

A

Below 0

53
Q

The marginal propensity to save is:

A

1 - marginal propensity to consume

54
Q

Advertising is an attempt to make the demand curve (flatter/move to the left/steeper)

A

Steeper

55
Q

The difference between total revenue and total cost =

A

Economic profit

56
Q

‘The addition to total revenue from selling one more unit’ is a definition of:

A

Marginal revenue

57
Q

Name 5 major functions of a central bank:

A
  • Keeping inflation within an acceptable range
  • Controlling the money supply
  • Promoting a sustainable economic growth rate
  • Issuing currency
  • Regulating banks
58
Q

What shape is the money supply curve?

A

Vertical (money supply is determined by Central Bank Authorities)

59
Q

________ unemployment is due to changes in the economy that eliminate some jobs while generating job openings for which unemployed workers are not qualified

A

Structural

60
Q

What are the three automatic mechanisms that help stabilize the economy?

A
  1. Corporate taxes
  2. Personal taxes
  3. Transfer payments/social security benefits
61
Q

_______ unemployment is due to constant changes in the economy that prevent qualified workers from being immediately matched with existing jobs

A

Frictional

62
Q

A price index where the consumption basket is held constant is called a:

A

Laspeyres Index

63
Q

Disposable income =

A

Personal income - taxes

64
Q

‘Someone earning less than they could but unable to find that high paid work’ describes:

A

Underemployment

65
Q

Over what period would a decline in real gross domestic product (GDP) be defined as a recession?

A

2 quarters

66
Q

Constant returns to scale exist when:

A

The long run total average cost curve is flat

67
Q

In monopolistic competition in the long run, firms are all producing (at/above/below) average cost.

A

Above

68
Q

(X-M) =

A

Trade surplus

69
Q

‘Producing at below minimum efficient scale’ is an inefficiency in a:

A

Monopoly market

70
Q

Name the 4 types of macroeconomic equilibrium:

A

Long-run full employment

Short-run recessionary gap

Short-run inflationary gap

Short-run stagflation

71
Q

______ unemployment happens when the economy is operating at less than full capacity

A

Cyclical

72
Q

(S-I) = (G-T) - (X-M) stands for:

A 
(S-I): Private saving over private investments
=
(G-T): Government budget deficit
\+
(X-M): Trade surplus
73
Q

The slope (gradient) of the LM curve is:

A

Positive

74
Q

‘A period of time in which all factors of production and costs are variable’ is a definition of:

A

The long run

75
Q

What are the effects on consumption, business investments and real GDP during a period of high inflation?

A

Consumption: Decrease

Investments: Decrease

Real GDP: Decrease

76
Q

‘The sum of the value generated at each stage of production’ describes:

A

The sum-of-value method of calculating GDP

77
Q

In the Austrian school business cycle theory, cycles are caused by:

A

Government intervention (through their fiscal policies of taxation and expenditure)

78
Q

Which price index addresses the substitution bias in calculating CPI data?

A

The Paasche Index

79
Q

‘The process through which the central bank transmits interest rates into the economy to control inflation’ describes:

A

The Monetary Transmission Mechanism

80
Q

The aggregate demand curve during short-run stagflation:

A

remains constant

81
Q

‘Movement of the AD curve to the right, leading to greater aggregate demand’ is the main cause of:

A

Short-run inflationary gap

82
Q

What are the components of national income (3)?

A

Wages and benefits

Interest income

Indirect business taxes, less subsidies

83
Q

‘To provide a gauge of inflation within the economy’ is the main purpose of:

A

the GDP deflator

84
Q

The nominal rate of interest according to the Fisher effect is:

A

Real riskless rate + expected inflation

85
Q

GDP under the expenditure method is the sum of (4):

A

Consumption spending, gross private domestic investment, government spending, and net exports.

86
Q

If a bank in the U.S. needs to borrow funds to cover a temporary shortage in reserves, it can borrow from other banks at:

A

The federal funds rate

87
Q

In a Free trade area:

A

All barriers to import and export of goods and services among member countries are removed.

88
Q

In a Customs union:

A

All barriers to import and export of goods and services among member countries are removed.

In addition, all member countries adopt a common set of trade restrictions with non-members.

89
Q

In a Common Market:

A

All barriers to import and export of goods and services among member countries are removed.

All member countries adopt a common set of trade restrictions with non-members.

In addition, all barriers to the movement of labor and capital goods among member countries are removed.

90
Q

In an Economic Union:

A

All barriers to import and export of goods and services among member countries are removed.

All member countries adopt a common set of trade restrictions with non-members.

All barriers to the movement of labor and capital goods among member countries are removed.

In addition, member countries establish common institutions and economic policy.

91
Q

In a Monetary Union:

A

All barriers to import and export of goods and services among member countries are removed.

All member countries adopt a common set of trade restrictions with non-members.

All barriers to the movement of labor and capital goods among member countries are removed.

Member countries establish common institutions and economic policy.

In addition, member countries adopt a single currency.

92
Q

Reducing the reserve requirement will increase (3):

A

the money supply

money multiplier

new deposits.

93
Q

Assume that a central bank has decided to lower interest rates in the economy. To carry out this policy, the central bank will:

A

Buy securities

In implementing monetary policy, central banks have three primary tools available to them: open market operations, setting the official policy rate, and reserve requirements. When the central bank purchases securities (open market operations), it increases the reserves held by private sector banks. These increased reserves lead to a reduction in interest rates on money market securities and, ultimately, to a reduction in other interest rates in the economy.

94
Q

The late expansion phase is characterized by (3):

A

Acceleration of growth rate

Decreasing of unemployment rate

Increasing of inflation rate

95
Q

The Capital Consumption Allowance is:

A

The amount of money a country has to spend each year to maintain its present level of economic production.

96
Q

GDP = (formula)

A

GDP = C + I + G + (X - M)

C = Consumption spending

I = business Investment

G = Government spending

X - M = Net exports

CFA (20 decks)

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