Business Cycle

Question 1

Expansion

Answer 1

increasing GDP and decreasing unemployment

Question 2

contraction

Answer 2

decreasing GDP and increasing unemployment

Question 3

Peak

Answer 3

very high GDP and peak employment
Expansion before
Contraction after

Question 4

Trough

Answer 4

very low GDP and high widespread unemployment
after contraction

Question 5

Business Cycle Phases

Answer 5

Trough
Expansion
Peak
Contraction

Question 6

recesssion

Answer 6

2 consecutive quarter of negative GDP growth
not every contraction is a recession but ever recession is a contraction

Question 7

Early Expansion

Answer 7

GDP and Employment rebound
credit and profit grow
policy stimulative
inventory low/sales up

Question 8

Mid Expansion

Answer 8

Growth peaking
Credit growth strong
profit peaks
policy neutral
inventory and sales grow, equilibrium reached

Question 9

Late Expansion

Answer 9

Growth moderates
Credit Tightens
Earnings Under Pressure
Policy Contractionary
Inventory grows, sales drop

Question 10

Contraction descriptors

Answer 10

Falling Activity
Credit dries up
profits decline
policy eases
inventory and sales fall

Question 11

Why is GDP important?

Answer 11

indicates pace of growths or decline
determines which sectors are over/under performing
compare economy to other economies in the world

Question 12

GDP Includes

Answer 12

market value of goods and services
income of foreigners working in US
profits that foreign companies earn

Question 13

GDP Formula

Answer 13

Y= C+I+G+(X-M)
c= consumer spending (durable and nondurable)
i= investments made by industry (fixed investments and change in private inventory)
G= govt. spending
X-M= excess of exports over imports or net exports

Question 14

Price Elasticity

Answer 14

the quantity demanded of a good in response to changes in that good’s price

Question 15

elastic

Answer 15

quantity demanded responds greatly to price changes

Question 16

inelastic

Answer 16

quantity demanded responds little to prices changes

Question 17

marginal utility

Answer 17

additional benefit received from the consumption of an additional unit of good- as the rate of consumption increases the marginal utility will decline

Question 18

Fiscal policy

Answer 18

implemented by Congress using taxation and govt spending
fisCal= Congress

Question 19

Monetary Policy

Answer 19

Controls money supply, lending rates and impacts economy
Controlled by the FED using Discount rate, reserve requirements, open market activities

Question 20

Contraction/ Restrictive Monetary policy

Answer 20

raise discount rate
raise reserve requirements
Fed sells in the market

Question 21

Expansionary/ Easy Monetary Policy

Answer 21

Lower discount rates
decrease reserve requirements
buy securities to promote growth

Question 22

Total Liabilities equation

Answer 22

Short term + Long Term liabilities

Question 23

Assets Equattion

Answer 23

Liabilities + Net Worth

Question 24

Statement of Cash flow

Answer 24

covers a period of time
breaks cash into sources and uses
identifies source of cash (earnings, loans, investments etc)

Question 25

Liquidity Ratio

Answer 25

determine the ability to meet short term obligations using current ratio: assets/liabilities quick ratio: current asset-inventories/current liabilities working capital: current assets-current liabilities