Economics Flashcards Preview

CFA Level I (Joeker) > Economics > Flashcards

Flashcards in Economics Deck (30):
1

Elasticity of Supply

(►Q / Avg Q)

————————

(►P / Avg P)

2

Economic Profit

Total Revenue - Total Costs

Both Implicit and Explicit

3

Marginal Propensity

to Consume

MPC

Consumption

———————

(1 - t)

(Consumption / Disposable Income)

4

Fiscal Multiplier

1

———————

1 - MPC(1 - t)

5

Unemployment Rate

Unemployed

———————

Labor Force

6

Current Account

of a Country

S - I + (T - G - R)

Savings - Investments + (Taxes - Gov't Spending - Transfers)

7

Tools of Fiscal Policy

  • Taxation
  • Government Spending

8

Tools of Monetary Policy

  • Open Market Operations
  • Discount Rate
  • Reserve Ratios

9

Consumer Price Index

CPI

 ΣQc * Pc

————— * 100

 ΣQb * Pb

Percent change of CPI basket relative to the base * 100.

10

Crowding-Out Effect

When a government budget deficit causes a decrease in private investment.

11

Marginal Product

MP

►Total Product

—————————

►Labor

Amount of additional output resulting from one additional unit of input.

12

Marginal Revenue Product

MRP

  ►Total Product

 —————————  *  Price

        ►Labor

or

MP * P

13

Giffen and Veblen Goods

Giffen Goods

Inferior, Do not violate fundamental axioms

Veblen Goods

High-Status, violate fundamental axioms

14

Nominal GDP

Σ(P*Q)

The sum of price times quantity of goods and services. Based on current prices so inflation increases nominal GDP.

15

Real GDP

Σ(Pt-n*Q)

The sum of price (in year n) times quantity (current year) of goods and services. Realative to a base year. Ignores inflation.

16

GDP Deflator

Nominal GDP

————————

Real GDP

17

GDP

Expenditure Approach

C + I + G + (X - M)

C = Consumption spending
I = Investment in business
G = Gov't purchases
X = Exports
M = Imports

18

GDP

Income Approach

National Income
+
Captial Consumption
+
Statistical Discrepency

19

Neoclassical Economics

  • Supply creates it's own demand.
  • Shifts in aggregate supply/demand are primarily driven by changes in technology.
  • Economies have a strong tendency toward full-employment equilibrium.
  • Recessions put downward pressure on the money wage rate.
  • Over-full employment puts upward pressure on the money wage rate.
  • Business cycles are temporary deviations from long-run equilibrium.

20

Keynesian Economics

  • Wages and prices of productive inputs (other than labor) are "downward sticky".
  • Use monetary and fiscal policy to increase aggregate demand.

21

Monetarist Economics

  • Variations of aggregate demand are caused by inappropriate decisions made by monetary authorities.
  • Recessions can be created by inappropriate decreases in the money supply or external shocks.
  • Central bank should increase the money supply steadily and predictably. 

22

Austrian Economics

  • Business cycles are caused by government intervention in the economy.

23

New Classical Economics

  • Real Business Cycle Theory (RBC)
  • Emphasizes effect of real economic variables such as changes in technology and external shocks.
  • Applies Utility Theory to Macroeconomics.
  • Individuals and firms maximize utility.
  • Policymakers should not try to counteract business cycles.

24

Frictional Unemployment

The time lag necessary to match employees who seek work with employers needing their skills.

25

Structural Unemployment

Caused by long run changes in the economy that eliminate some jobs while creating others for which  unemployed workers are not qualified.

26

Cyclical Unemployment

Caused by changes in the general level of economic activity. Positive when the economy is operating at less than full capacity and can be negative when employment is over the full employment level.

27

Disinflation

Inflation rate that is decreasing but remains greater than zero.

28

Fisher Index

Geometric mean of Laspeyres and Paasche indexes

 

29

Cost-Push Inflation

  • Results from a decrease in aggregate supply caused by an increase in real price of a factor of production (wages/labor, energy)
  • Decreases GDP

30

Demand-Pull Inflation

  • Results from an increase in aggregate demand
  • Increases GDP