Bec4 - Macroeconomics

Front 1

What is macroeconomics?

Back 1

It looks at the economy as a whole.

Front 2

What is the nominal GDP?

Back 2

The price of all goods and services produced by a domestic economy for a year at current market prices.

Front 3

What is the real GDP?

Back 3

The price of all goods and services produced by an economy at price level adjusted prices.

Front 4

What is the potential GDP?

Back 4

The maximum amount of production that could take place in an economy without putting pressure on the general level of prices.

Front 5

What is the net domestic product (NDP)?

Back 5

GDP minus depreciation.

Front 6

What is the gross national product (GNP)?

Back 6

The price of all goods and services produced by labour and property supplied by the nation's residents.

Front 7

What is the unemployment rate?

Back 7

The percent of the total labor force that is unemployed at a given time.

Front 8

Name the three types of unemployment.

Back 8

1. frictional unemployment
2. structural unemployment
3. cyclical unemployment

Front 9

What is frictional unemployment?

Back 9

The unemployment that occurs because individuals are forced or voluntarily change jobs.

Front 10

What is structural unemployment?

Back 10

The unemployment that occurs due to changes in demand for products or services, or technological advances that cause changes in needed skills.

Front 11

What is cyclical unemployment?

Back 11

The unemployment caused by economic conditions.

Front 12

What is inflation?

Back 12

The rate of increase in the price level of goods and services, usually measured on an annual basis.

Front 13

What is deflation?

Back 13

The rate of decrease in the price level of goods and services, usually measured on an annual basis.

Front 14

Name the three measures of price index (inflation).

Back 14

1. consumer price index
2. producer price index
3. the GDP deflator

Front 15

What is the consumer price index?

Back 15

Measures price changes in products bought by urban consumers.

Front 16

What is the producer price index?

Back 16

Measures price changes at the wholesale level.

Front 17

What is the GDP deflator?

Back 17

Measures price changes for net exports, investments, government expenditures and consumer spending.

Front 18

Which measure of price index (inflation)is the most comprehensive?

Back 18

The GDP deflator.

Front 19

What is personal disposable income?

Back 19

The amount of income that individuals receive and have available to purchase goods and services.

Front 20

Name the two types of interest rates.

Back 20

1. real interest rates
2. nominal interest rates

Front 21

What are real interest rates?

Back 21

The interest rate in terms of goods.

Front 22

What are nominal interest rates?

Back 22

The interest rate in terms of the nation's currency.

Front 23

What is the government budget surplus (deficit)?

Back 23

The excess (deficit) of government taxes in relation to government transfer payments and purchases.

Front 24

What does an aggregate demand curve depict?

Back 24

The demand of consumers, businesses, government, and foreign purchasers.

Front 25

What does an aggregate demand curve look like?

Back 25

Much like the demand curve for an individual product.

Front 26

What does the aggregate supply schedule depict?

Back 26

The relationship between goods and services supplied and the price level.

Front 27

What is equilibrium GDP?

Back 27

When the output level of the economy creates just enough sending to purchase the entire output.

Front 28

What is the GDP multiplier?

Back 28

It refers to the fact that an increase in spending by consumers, businesses, or the government has a multiplied effect on equilibrium GDP.

Front 29

How is the GDP multiplier calculated?

Back 29

By dividing one by the marginal propensity to save.

Front 30

What is a business cycle?

Back 30

A fluctuation in aggregate economic output that lasts for several years.

Front 31

How are business cycles depicted?

Back 31

As a series of peaks and troughs.

Front 32

What does a peak in the business cycle depict?

Back 32

The end of a period of economic expansion and the beginning of a contraction.

Front 33

What does a trough in the business cycle depict?

Back 33

The end of a recession and the beginning of an economic recovery.

Front 34

How are business cycles predicted?

Back 34

With leading economic indicators.

Front 35

What is investment?

Back 35

It includes expenditures for residential construction, inventories, and plant and equipment.

Front 36

What is the most important determinant of business investment?

Back 36

Expectations about profits.

Front 37

What is accelerator theory?

Back 37

It states that as economic activity increases, capital investment must be made to meet the level of increased demand, and this increased capital investment in turn creates additional economic demand.

Front 38

Name the two possible causes of inflation.

Back 38

1. demand-pull inflation
2. cost-push inflation

Front 39

What is demand-pull inflation?

Back 39

It occurs when aggregate spending exceeds the economy's full-employment output capacity.

Front 40

What is cost-push inflation?

Back 40

It occurs from an increase in the cost of producing goods and services.

Front 41

Name the two ways in which the government regulates the economy.

Back 41

1. monetary policy
2. fiscal policy

Front 42

Name three methods of monetary policy regulation.

Back 42

1. Change in the reserve requirements.
2. Engaging in open-market operations.
3. Change in the discount rate.

Front 43

What are the reserve requirements?

Back 43

The amount of cash banks must hold in reserve.

Front 44

What are open-market operations?

Back 44

The purchase and sale of government securities.

Front 45

What is the discount rate?

Back 45

The rate at which a bank may borrow money from the Federal Reserve.

Front 46

Name two methods of fiscal policy regulation.

Back 46

1. Changes in the income taxes.
2. Changes in the level of government spending.

Front 47

Why does international trade exist?

Back 47

Countries have advantages with regard to the production of certain goods.

Front 48

What is absolute advantage?

Back 48

When a country can produce the products at a lower cost than other countries.

Front 49

What is comparative advantage?

Back 49

When the country has no alternative uses of its resources that would involve a higher return.

Front 50

What is the balance of payments?

Back 50

An account summary of a nation's transactions with other nations.

Front 51

What is a foreign exchange rate?

Back 51

The relationship between the values of two currencies.

Front 52

Name three factors affecting exchange rates.

Back 52

1. inflation
2. interest rates
3. balance of payments

Front 53

How can firms eliminate or reduce the risk of fluctuations in exchange rates when conducting business internationally?

Back 53

Hedging.

Front 54

Name three types of hedging.

Back 54

1. forward exchange market hedges
2. money market hedges
3. currency futures market hedges

Front 55

Describe forward exchange market hedges.

Back 55

Purchasing and selling currency forward exchange contracts.

Front 56

Describe money market hedges.

Back 56

Borrowing and lending funds of another country.

Front 57

Describe currency futures market hedges.

Back 57

Purchasing and selling contracts to deliver foreign currency at a specified price.

Front 58

How can a firm with international operations maximize income?

Back 58

By using transfer pricing.

Front 59

What is transfer pricing?

Back 59

The price at which services or products are bought and sold across international borders between related parties.

Front 60

How can firms minimize their overall tax burden using transfer pricing?

Back 60

By minimizing net income in jurisdictions with higher tax rates.