Unit 6: Basic Economic Concepts

Question 1

Business Cycle

Answer 1

Expansion, Peak, Contraction, Trough

Question 2

Expansion

Answer 2

Increasing demand for goods and services
increasing: employment, inflation, and values

Question 3

Peaks

Answer 3

GDP/employment growth slow down, but inflation increases

Question 4

Contraction

Answer 4

increasing: Defaults, Unemployment, inventories
decreasing: inflation, GDP

Question 5

Trough

Answer 5

GDP turns positive
OT/temp workers/consumer demand start to increase
moderate inflation rate

Question 6

Stages of industry

Answer 6

intro, growth, maturity, decline

Question 7

Cyclical industries

Answer 7

follow the business cycle
perform best during expansion

Question 8

yield curve

Answer 8

normal curve slopes up
inverted slopes down

Question 9

higher yield spread means

Answer 9

worsening economic conditions

Question 10

Fiscal policy

Answer 10

Govt use of spending and taxation to influence economy

Question 11

Monetary policy

Answer 11

Central bank determining quantity of money and credit in the economy
-increase in money supply is expansionary policy, decrease is contractionary

Question 12

Federal Reserve tools

Answer 12

1. Reserve requirement- multiplier effect
2. Discount Rate- lending to banks
3. Open Market Operations- buying treasuries from banks

Question 13

Overnight rate

Answer 13

banks charge this to each other
not determined by Fed, but highly influenced.

Question 14

Prime rate

Answer 14

determined by commercial banks

Question 15

Trade debits

Answer 15

imports, US spending/lending/investing abroad, US foreign aid

Question 16

Trade credits

Answer 16

exports, foreign spending/investing in US

Question 17

Import

Answer 17

Money flows out of US. GDP decreases

Question 18

Export

Answer 18

Money flows in to US. GDP increases

Question 19

Inflation

Answer 19

general increase in prices, has lagging effect

Question 20

GDP

Answer 20

Total US production, not profit

Question 21

Leading indicators

Answer 21

Money supply, building permits, unemployment claims, consumer expectations, manufacturing orders, stock prices

Question 22

Current indicators

Answer 22

non-ag employment, personal income, industrial production, manufacturing/trade sales

Question 23

Lagging indicator

Answer 23

Avg duration of unemployment, credit income ratio, prime rate, change in CPI, outstanding loans

Question 24

Core CPI

Answer 24

CPI without food/energy due to short term volatility

Question 25

Devalued currency caused by

Answer 25

trade deficit, import > export

Question 26

Annual budget submitted by

Answer 26

president, to congress

Question 27

Durable goods are considered

Answer 27

sensitive to the business cycle.

Question 28

Inertial Inflation

Answer 28

Inflation is not expected to change until an economic event shocks the system