1 General Economics Flashcards
(22 cards)
Which law indicates that supply for an economic product will vary directly with its price?
1.30
The law of supply
Phases of the business cycle
1.30
- Expansion
- Peak
- Contraction
- Trough
GDP & unemployment during an Expansion
1.30
- increasing GDP
- decreasing unemployment rate
GDP & unemployment during a Contraction
1.30
- decreasing GDP
- increasing unemployment
Recession
1.30
Two consecutive quarters of negative GDP growth
(not every contraction is a recession)
Features early in an expansion
(credit, profits, policy, sales)
1.30
- GDP & employment rebounding
- Credit begins to grow
- Profits grow rapidly
- Policy is still stimulative
- Sales improve, inventories low
Features of mid-expansionary phase
1.30
- Growth peaking
- Credit growth strong
- profit growth peaks
- Policy neutral
- Inventories & sales grow; equilibrium reached
Features of late expansionary phase
1.30
- growth moderating
- credit tightens
- earnings under pressure
- Policy contractionary
- inventories grow; sales growth falls
Features of the contraction
1.30
- falling activity
- credit dries up
- profits decline
- policy eases
- inventories & sales fall
Formula for GDP & Real GDP
Y = C + I + G + (X - M)
or Y = C + I + G + NE
GDP = Consumer Spending + Invmt by Industry + Gov Spending + Net Exports
(i.e., Exports – Imports)
Real GDP excludes inflation
Includes income of foreigner workers & firms in the US, excludes Americans abroad.
Price Elasticity
How much demand changes in response to changes in price
In theory, all items are elastic over the long-term
Is gasoline elastic? Why?
Gasoline is inelastic because its quantity changes little in response to price.
How complements (complementary goods) affect supply & demand
1.38
If the price of one decreases, then demand for the other increases
How substitutes affects supply & demand
1.38
If the price of one increases, then demand for the other increases
What is marginal utility?
The additional benefit (utility) derived from consumption of an additional unit of a good
Law of Demand
1.40
The law that states that demand for an economic product will vary inversely with its price.
Fiscal Policy
- Who controls?
- Components?
1.42
Congress controls it.
Tools:
1. Taxation
2. Expenditures
3. Debt management
What fiscal policies stimulate the economy?
1.42
- Lowering taxes
- Increasing spending (eye roll)
- Deficit spending
Three tools of the Fed
1.46
- Discount rate (at which member banks borrow money from the Fed)
- Reserve requirements
- Open market activity
Mandates of the Fed
1.46
Dual mandate:
1. Low unemployment (employment-maxing)
2. Low inflation (“stabilize prices”, CPI)
Also:
- Maintain sustainable long-term growth as measured by GDP (per BIF)
- Maintain financial system stability
- Regulate & supervise banks
- Facilitate payment systems (eg, Fedwire)
What contractionary actions can the Fed take?
1.46
- Increase discount rate
- Increase reserve requirement
- Sell securities on the market
Utility Stocks vs Economic Cycles?
Expansion: Underperform
Peak: Underperform
Contraction: Outperform
Trough: Outperform
Considered a defensive stock. Fixed/regulated/inelastic pricing means they suffer from inflation and can’t pass inflation to consumers.
