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56 Cards in this Set
- Front
- Back
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Define Macroeconomics
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Macroeconomics is the study of the economy as a whole. It examines the determinants of national income, unemployment, and inflation and how monetary and fiscal policies affect economic activity.
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Define GDP
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Gross Domestic Product - total mkt value of all final goods and services produced within the borders of a nation. Includes the output of foreign-owned factories in the U.A. but excludes the output of U.S. owned factories operated abroad.
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Define Nominal GDP
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the value of all final goods and services in current prices (no inflation adjustment).
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Define Real GDP
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Value of goods and services in constant prices. GDP is adjusted to account for changes in the price level. Removes inflation by using a price index.
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Real GDP Formula
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=((Nominal GDP)/(GDP Deflator)) x 100
** GDP Deflator is the price index. |
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Real GDP per Capita
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Real GDP divided by population. Used to compare standards of living across countries or across time. Measure of economic growth.
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What are the 5 business Cycles?
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1. Expansionary
2. Peak 3. Contractionary 4. Trough 5. Recovery (aka Expansionary) |
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Definition of a Recession
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two consecutive quarters of falling national output (GDP).
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Define - Depression
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Severe recession, characterized by long periods of stagnation in business activity and high unemployment rates.
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Leading indicators (before)
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- Average unemployment claims
- building permits for residences - average length of the workweek - money supply - prices of selected stocks - orders for goods - price changes of materials - index of consumer expectations |
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Lagging indicators (after)
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- Prime rate charged by banks
- average duration of unemployment - bank loans outstanding |
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Coincident indicators (during/contemporaneously)
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- Industrial production
- manufacturing and trade sales |
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What is the effect on Agg Demand, GDP and price when the demand curve shifts LEFT?
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- Aggragate Demand down
- GDP down - Price down **leads to contraction in economy |
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What is the effect on Agg Demand, GDP and price when the demand curve shifts RIGHT?
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- Aggragate Demand up
- GDP up - Price up **leads to expansion/recovery |
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What is the effect on short run agg supply, GDP and price when the supply curve shifts RIGHT?
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-SRAS up
- GDP up - Price down |
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What is the effect on short run agg supply, GDP and price when the supply curve shifts LEFT?
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-SRAG down
- GDP down - price up |
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What are the primary factors that shift Aggregate Demand?
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Changes in:
Wealth Real Interest Rates Consumer Confidence (expectations about the future outlook) Exchange Rates Government Spending Consumer Taxes |
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Define - multiplier effect
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Increase in consumer, firm or government spending produces a multiplied increase in the level of economic activity. The muliplier effect results from the marginal propensity to consume (MPC).
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Multiplier Formulat
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= (1/(1-MPC)) x change in spending
**MPC is typically less than 1 b/c ppl tend to save part of their income. Thus, 1-MPC is the marginal propensity to save (MPS). |
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Factors that shift SHORT run aggregate supply
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1. Changes in input (resource) prices.
2. Supply Shocks (shortages/excess resources) |
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What are the 2 methods for measuring GDP?
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Expenditure Approach
Income Approach |
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What are the Components of the Expenditure Approach?
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G -Government purchases of goods/services
I - gross private domestic Investment C - personal Consumption expenditures E - net Exports (exports minus imports) - can be a negative # **mnumonic: GICE GPD= G+I+C+E |
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How do you calculate GDP using the Income Approach?
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mnumonic: IPIRATED
Income of proprietors Profits of corporations Interest (net) Rental income Adjustments for net foreign income and misc income Taxes (inderect business taxes) Employee compensation (wages) Depreciation (aka capital consumption allowance) |
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Formula for NDP
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Net Domestic Product =
GDP - Depreciation |
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Define GNP
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Value of final goods and services produced by residents of a country in a given time period.
Example: BMW produces cars in U.S. - counts as GDP but not GNP b/c it is foreign owned. |
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Formula for NNP
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Net National Product =
GNP - Depreciation |
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Formula for National Income
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NNP - Sales Tax (indirect business taxes)
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Formula for PI
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Personal Income
National Income +/- various adj: NI less: undistributed corp profits (RE) Net interest Contributions for social measures (soc security contributions) Corporate income taxes Plus: Government transfer pmts to individuals Personal interest income Business transfer payments/dividends |
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Calculate Disposable Income
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DI = PI - personal taxes
Income households have available to spend or save. |
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Unemployment Rate Formula
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unemployment rate =
(# unemployed/total labor force) x 100 Note: unemployed is a person over 16 who is available for work and has actively sought employment Note 2: total labor force includes all non-institutionalized ppl 16+ who were working or actively looking for work. |
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Identify the types of unemployment
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1. Frictional
2. Structural 3. Seasonal 4. Cyclical |
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Define Consumer Price Index
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CPI is a measure of the overall cost of a fixed basket of goods and ervices purchased by an averae household. Note: PPI is the producer price index, which focuses on purchses by firms).
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Formula for Inflation Rate
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Change in CPI = Inflation Rate
(CPI this period - CPI last period)/CPI last period x 100 |
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Formula for Real Interest Rate
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Nominal Interest Rate - Inflation Rate
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M1, M2 and M3 defined (money supply)
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M1 - $ used for the purchase of goods/services (coins, currency, and checkable deposits).
M2 - M1 plus liquid assets that cannot be used as a medium of exchange (savings, mmf, CD's less than $100,000) M3 - M2 plus CD's greater than $100,000. |
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Ways the FED controls the money supply
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1. Open Market Operations (OMO) (t-bills and bonds)
2. Changes in Discount Rate (int rate charged to banks for ST loans) 3. Changes in the Required Reserve Ratio (RRR) (fraction of total deposits banks must hold in reserve). |
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Identify the steps (in order) in strategic managment (strategic positioning)
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1. Define the firm's vision and mission statements.
2. Set the goals of the firm 3. Define the objectives of the firm 4. Decide what to measure and take a baseline measurement (critical success factors) 5. SWOT (strategic) 6. Create the strategic plan 7. Implement the strategic plan 8. Evaluate and revise the plan as needed. |
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Define change in demand
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Change in the amount of good demanded resulting from a change in something OTHER THAN price. (shift in the demand curve)
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Define change in QUANTITY demanded
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Change in the amount of a good demanded resulting SOLELY from a change in price. (movement along the demand curve)
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Identify the factors that shift the demand CURVE
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Mnemonic: WRITEN
Changes in: Wealth price of Related goods (subs/complements) consumer Income Tastes/preferences consumer Expectations Number of buyers in a mkt |
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Identify the factors that shift the supply CURVE
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Mnemonic: ECOST
Expectations of the supplying firm (prices) production Costs Other goods price/demands (ie new iphone vs. old iphone) Subsidies/taxes production Technology (improvements) |
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What is the effect of a simultaneous change in demand and supply on the equilibrium?
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Demand and Supply - Increase (Decrease)
Quantity - Increase (Decrease) Price - Indeterminate |
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Price Elasticity - supply/demand >1.0
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Elastic
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Price Elasticity - supply/demand < 1.0
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Inelastic
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Unit Elastic
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Supply/Demand = 1
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Cross Elasticity
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% change in the quantity demanded (or supplied) of one good caused by the price change of another good.
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Cross Elasticity: What type of good is it if the coefficient is positive, negative, or zero?
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Positive - Substitutes
Negative - Complements Zero - Unrelated products |
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Positive Income Elasticity
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Demand increases as income decreases.
Normal Good (premium foods such as steak and lobster) |
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Negative Income Elasticity
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Demand decreases as income increases.
Inferior good (canned veggies or hamburger) |
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What are the 4 Market structures (from most competitive to least comp.)
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1. Perfect/Pure Competition
2. Monopolistic 3. Oligopoly 4. Monopoly |
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Attributes of Perfect Competition
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1. No barriers to entry
2. Large # of suppliers and customers 3. Very little product differentiation 4. No individual firm can influence the market price of its product nor shift the mkt supply sufficiently to make a good more scarce or abundant. |
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Attributes of a Monopoly
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1. Strategic plans will likely focus on profitability, not mkt share
2. Single firm w/ a unique product 3. Significant barriers to entry 4. set output and prices 5. No substitute products |
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Attributes of Monopolistic Competition
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1. Numerous firms with differentiated products
2. Few barriers to entry 3. Ability to exert some influence over price and market 4. Significant non-price competition in the mkt (brand loyalty. |
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Attributes of an Oligopoly
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1. Few sellers dominate the sales of a product and entry of new sellers is difficult or impossible (automobiles)
2. Relatively few firms w/ differentiated products 3. Fairly significant barriers to entry 4. Prices tend to be fixed. 5. Tend to face a kinked demand curve |
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Define: Kinked Demand Curve
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Firms match price cuts of competitors but ignore price increases
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What are the characteristics of Stagflation?
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- Occurs when the economy suffers a recession, characterized by falling output, rising unemployment, and rising price levels.
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