Economic Concepts

Question 1

Law of Supply

Answer 1

increase in market price = increase in quantity supplied
decrease in market price = decrease in quantity supplied

Question 2

Law of Demand

Answer 2

price goes down = demand goes up
price goes up = demand goes down

Question 3

what causes a Shift in supply curve

Answer 3

FACTORS OTHER THAN PRICE like technology, price of related goods and special influences

Question 4

Equilibrium price

Answer 4

where supply curve intersects demand curve - shift in supply or demand sets new equilibrium price - bad news for a stock - same supply of shares but price drops

Question 5

Elastic price

Answer 5

think luxury goods

Question 6

Inelastic Prices

Answer 6

think food water consumer staples

Question 7

Fiscal Policy

Answer 7

Government’s tax and spending policy

Question 8

How can the government spur economic activity?

Answer 8

tax less and spend more

Question 9

How does the Treasury “borrow”

Answer 9

By issuing bonds that are purchased by banks and investors

Question 10

How do banks pay for bonds?

Answer 10

Crediting the checking account of the US Treasury, which increases the money supply

Question 11

What is Monetizing the debt?

Answer 11

When banks buy bonds from the US Treasury

Question 12

What has an immediate effect on the economy?

Answer 12

Government spending. Taxes increases have a delayed effect

Question 13

Government spending has an immediate effect but tax increases have what

Answer 13

Delayed effect

Question 14

Economy in a recession means what for tax revenue?

Answer 14

Less income to be taxed on

Question 15

Inflation often picks up when the economy is doing what

Answer 15

expanding

Question 16

Automatic Stabilizers

Answer 16

revenue and expenditure items in the federal budget that automatically change with the state of the economy and tend to stabilize GDP

Question 17

Economists make budget projections based on what

Answer 17

the economy producing at full employment level of output

Question 18

3 Ways Fed Influence economic activity

Answer 18

1. Setting short term interest rates
2. buying/selling treasury securities to increase/decrease money supply
3. Setting bank reserve requirements to increase/decrease funds available for loans

Question 19

3 Primary Monetary Policy tools to regulate money supply

Answer 19

1. Manipulate the Required Reserve Ratio
2. Manipulation of the Discount Rate
3. Engaging in open market operations

Question 20

Required Reserve Ratio

Answer 20

amount of TOTAL deposits member BANKS must KEEP with THE FED at the end of the day

Question 21

Bank Discount Rate

Answer 21

interest rate that banks pay the fed

Question 22

Federal Funds Rate

Answer 22

rate banks charge other banks on overnight loans - this is set by the FOMC

Question 23

Open market operations

Answer 23

Feds preferred means of controlling the money supply
Increase supply = buy treasuries (pay banks $)
Decrease supply = sell treasuries (banks pay $)

Question 24

What Fed uses to measure overall inflation

Answer 24

CPI

Question 25

GDP

Answer 25

total market value of all final goods and services produced within a given period of time

Question 26

Business Cycle

Answer 26

short run fluctuations in the economy as influenced by the forces of supply and demand

Question 27

Recession

Answer 27

2 quarters of declining GDP

Question 28

Business cycle trough to peak

Answer 28

expansion or boom

Question 29

Business cycle peak to trough

Answer 29

contraction, recession, slump

Question 30

Inflation

Answer 30

increase in prices, low unemployment, high wages

Question 31

Stagflation

Answer 31

Inflation but no economic growth

Question 32

Upward sloping yield curve

Answer 32

Longterm is higher think about what this looks like - draw a chart

Question 33

Flat yield curve

Answer 33

Flat - short and long term rates are the same

Question 34

Downward sloping

Answer 34

short term rates higher than long term

Question 35

Contractionary policy means the government does what re: borrowing?

Answer 35

Government borrowing will DECREASE in contractionary policy

Question 36

Contractionary Policy

Answer 36

Taxes go UP Public Spending goes DOWN Borrowing goes DOWN

Question 37

Expansionary Policy

Answer 37

Taxes go DOWN Public Spending goes UP Borrowing goes UP

Question 38

Taxes go up - expansionary or contractionary?

Answer 38

Contractionary

Question 39

Does the law of demand have an inverse relationship?

Answer 39

Yes - law of demand demonstrates an inverse relationship between the price consumers are willing to pay and the amount they are willing to purchase

Question 40

Are consumers more responsive to price when a substitute is available?

Answer 40

Yes - if I can get a substitute item then price is going to play a big factor. Which one is cheaper for the same thing?

Question 41

Demand curve slopes how

Answer 41

Down and to the right - as price decreases demand increases

Question 42

Higher the price what does supply do?

Answer 42

Supply goes up

Question 43

Lower prices means what supply?

Answer 43

Lower supply

Question 44

Supply goes up price does what Supply goes down price does what

Answer 44

Supply goes up price goes up Supply goes down price goes down

Question 45

When the price of a product increases, consumers will reduce their consumption more when? (long run or short run)

Answer 45

in the long run than the short run.

Question 46

When is demand for products more elastic

Answer 46

in the long run

Question 47

What causes change in the demand curve? (who would cause that change?)

Answer 47

Changes in INCOME Changes in PRICE of COMPLEMENT and SUBSTITUTE goods Changes in EXPECTATIONS Changes in TASTE and PREFERENCES

Question 48

A change in quantity supplied is identified as what on the supply curve

Answer 48

MOVEMENT along the supply curve. Willingness of producers to offer the same product at different prices

Question 49

Change in consumer sentiment is leading or lagging?

Answer 49

Leading

Question 50

Avg prime rate charged by banks is leading or lagging?

Answer 50

Lagging

Question 51

Change in CPI is leading or lagging?

Answer 51

lagging

Question 52

Orders for durable goods, leading or lagging?

Answer 52

Leading

Question 53

Avg duration of unemployment leading or laggging

Answer 53

lagging

Question 54

Change in money supply leading or lagging?

Answer 54

leading

Question 55

Housing starts leading or lagging indicator?

Answer 55

Leading

Question 56

Which of the following would cause a shift in the SUPPLY curve: Change in resource price change in technology natural disaster political disruption

Answer 56

All of the above can cause a shift in the supply curve

Question 57

Quantity Demanded

Answer 57

amount of a product a household would buy if it could buy all it wanted at current market price

Question 58

Price rises quantity demanded does what

Answer 58

falls

Question 59

Price falls quantity demanded does what

Answer 59

Goes up

Question 60

what creates movement along the demand curve

Answer 60

change in quantity demanded

Question 61

Changes in demand

Answer 61

a shift in the demand - rumor re:mad cow disease may decrease demand for beef and increase for substitute like chicken

Question 62

excess demand

Answer 62

quantity demanded exceeds quantity supplied - INCREASE in price- think taylor swift tickets

Question 63

excess supply

Answer 63

quantity supplied exceeds demand - PRICE DROPS

Question 64

Shift in demand or supply sets a what

Answer 64

new equilibrium price

Question 65

availability of substitutes

Answer 65

more substitutes means an increase in price would cause a drop in demand - consumers would buy the other cheaper option

Question 66

relevance to budget

Answer 66

if product is small part of budget, small price increase may not change quantity demanded

Question 67

Short run

Answer 67

in short run a change in price may not effect quantity demanded bc consumers will still buy it. In the LONG RUN they may be able to find a substitute so demand would fall in the long run

Question 68

price elasticity of demand

Answer 68

measures buyers responsiveness or sensitivity to change in price

Question 69

inelastic product price change

Answer 69

won’t have effect on demand bc consumers need it

Question 70

elastic product price change effects demand how

Answer 70

it will effect demand because consumers don’t necessarily need to buy it

Question 71

perfect inelasticity

Answer 71

demand does not change with price - think insulin people would still need it

Question 72

inelasticity

Answer 72

percentage demanded changes somewhat, but not much compared to price

Question 73

unitary elasticity

Answer 73

% change in demand = % change in price

Question 74

Elastic

Answer 74

% demand change > % in price change -think increase iceberg lettuce price people will just buy romaine

Question 75

perfectly elastic

Answer 75

a slight change in price will cause demand to go to 0