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BEC 2014 > Economics Basics > Flashcards

Economics Basics Flashcards

1
Q

What is the business cycle?

A

Expansion - Peak - Contraction - Trough - Recover (“Every peak contracts through recovery”)

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2
Q

What is GDP?

A

measurement of economic output WITHIN a country’s borders. All FINAL goods AND services

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3
Q

What measures economic growth?

A

change in real GDP over time

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4
Q

What helps predict business cycles?

A

leading, lagging, and coincident indicators

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5
Q

What influences LRAS?

A

factors of productions ONLY. NOT price level

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6
Q

What heavily influences shift in the SRAS curve?

A

profit opportunity

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7
Q

Real GDP

A

= nominal GDP/ GDP deflator x 100

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8
Q

Multiplier Effect

A

= change in REAL GDP resulting from an increase in spending

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9
Q

Multiplier

A

= 1/(1-MPC) or 1/MPS

a higher MPC will result in a larger multiplier… more consumption has larger effect on GDP

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10
Q

How can we measure GDP?

A

Expenditure approach or Income Approach

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11
Q

What are the economic indicators/measures?

A
  1. Real GDP
  2. Unemployment Rt
  3. Inflation Rt.
  4. Interest Rt
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12
Q

Unemployment Rate

A

= Unemployed (seeking past 4 weeks)
___________________________________
Total Labor (seeking, >16, non-institutional)

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13
Q

Expenditure Approach to GDP

A

= Government spending + Gross Investment + Household Spending + Net Exports (GICE)

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14
Q

National Income (NI)

A
  1. Gross National Product (GNP) - economic depreciation - Indirect business tax
  2. Net national product (NNP) - indirect business tax
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15
Q

Disposable income

A

Personal income - income taxes

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16
Q

Income Approach to GDP

A

Income of proprietors + profits of corporations + interest + rental income + adjustments for net foreign income and misc + taxes + employee comp (wages) + depreciation (IPIRATED)

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17
Q

Natural rate of unemployment

A

structural (skills), frictional (temp overturn/ job seeking), seasonal (change in demand)
@ natural rt. when economy is at POTENTIAL GDP

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18
Q

Full Employment

A

No cyclical (a result of BUSINESS CYCLE and recession/ decrease in real GDP)

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19
Q

Stagflation

A

low GDP
high unemployment
inflation

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20
Q

Measurement of inflation

A

% change in the consumer price index

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21
Q

Causes of inflation

A
  1. Demand pull (good) : increase in AD

2. Supply push (bad): decrease in SRAS

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22
Q

Philips Curve

A

Shows that inflation and unemployment have an inverse relationship (except in stagflation)

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23
Q

Fed Monetary Policy

A
  1. Open market operations (buy/sell securities)
  2. Change the discount rate (charged to commercial bank)
  3. Changing the reserve ratio
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24
Q

Gov’t Fiscal Policy

A

Taxes (revenue) and Spending (expenses)

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25
Q

How the gov’t finances spending

A
  1. Taxes (revenue)
  2. issuing debt (borrowing)
  3. printing money (inflation)
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26
Q

Surplus/Deficit and GDP

A 
Surplus = decrease in GDP
Deficit = Increase in GDP (expenditure approach to measuring GDP)
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27
Q

M1

A

Currency, coins, CHECKing accounts, travelers CHECK

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28
Q

M2

A

M1 + savings, money market, mutual funds, CDs < $100k

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29
Q

Elasticity

A

% change in Qd / % change in P (slope formula)
> 1 = elastic
< 1 = inelastic
1 = unit elastic

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30
Q

Cross Price Elasticity

A

% change in Qdx / % change in Py
Positive = substitute goods
Negative = complementary goods

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31
Q

Income Elasticity

A

% change in Qd/ $ change in Income
Positive = normal goods
Negative = inferior goods

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32
Q

Major cost functions

A
  1. Marginal Cost
  2. Average Total Cost
  3. Average Variable Cost
  4. Average Fixed cost
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33
Q

Marginal Cost

A

= change in TC/ change in Q (slope formula)

  • intersects ATC and AVC at lowest points
  • produce where MC = MR
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34
Q

SWOT Analysis

A
  • used to develop appropriate strategic plan
  • SW (internal)
  • OT (external)
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35
Q

Factors of production

A

CELL

  1. capital goods
  2. entrepreneurial talent
  3. land
  4. labor
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36
Q

SCOR Metrics

A
  1. responsiveness
  2. agility
  3. reliability
  4. cost
  5. assets (ROA…)
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37
Q

SCOR Model

A

Plan –> Source –> Make –> Deliver –> Return

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38
Q

Oligopoly Kinked Demand

A

MATCH price cuts and IGNORe price increase

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39
Q

Nominal Interest rate

A

= REAL time value of money Interest + inflation

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40
Q

Recession

A

2 successive quarters of shrinkage in the economy (decrease in GDP)

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41
Q

Business Process Management

A

“Plan Do Check Act (PDCA) Model

  • fully ALIGN resources to achieve customer satisfaction as efficiently as possible, emphasizing continuous quality improvement
  • INCREMENTAL change
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42
Q

Rational Assessment Plan

A
  1. Strategic Gap analysis (industry v. us)
  2. Review of Competitive priorities
  3. Review of Production objectives
  4. Selection of Improvement program
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43
Q

Business Process Reengineering

A

Radical changes, often driven by technology

44
Q

TQM

A

org commitment to customer-focused performance emphasizing quality and CONTINUOUS improvement (included quality circles/ collaboration)

45
Q

Quality Costs

A

Conformance: Prevention and Appraisal
Nonconformance (failure): Internal and External failure
- inverse relationship between the two

46
Q

Demand flow Performance Improvement

A

use customer demand as the basis for resource allocation (v. sales forecasts or master schedule)

47
Q

Six Sigma

A
  • rigorous metrics of evaluation of goal achievement (CONTINUOUS quality- improvement program requiring SPECIALIZED training)
  • emphasis on COST REDUCTION (DMAIC & DMADV)
  • DMAIC = define, measure, analyze, improve, control (sustain)
48
Q

Project Life Cycle

A

Authorize (charter and statement of work docs) –> Plan –> Implement –> Monitor –> Close

49
Q

Project Deliverable Criteria

A

Smart, Measurable, Attainable, Relevant, Timely (SMART)

50
Q

Executive Steering Committee

A

Overall strategic guidance and approve deliverables

51
Q

Measuring globalization

A

% of World Trade / GDP

52
Q

Motivation for globalization

A

comparative advantage, imperfect markets, product cycle

53
Q

Developed Nations (G7)

A

US, Japan, UK, France, Germany, Italy, Canada

-Usually trade deficits (net imports)

54
Q

Emerging Nations (BRIC)

A

Brazil, Russia, India, China

-Usally trade surpluses (net exports)

55
Q

Required Rate of Return

A

Nominal Interest (real + inflation) + Maturity risk (interest rate) + liquidity premium + default premium

56
Q

Perpetuity Value

A

Dividend/ Required Return

57
Q

Gordon Growth (Constant)

A

D1/ ( r - g)

58
Q

Leading PE Ratio

A

P0/ E1

59
Q

PEG Ratio

A

PE Ratio / (Growth rt x 100)

60
Q

Price to Sales Ratio

A

P0/ S1

61
Q

Price to Cash Flow

A

P0/ CF1

62
Q

EBOCA

A

Control Environment Principles:

  1. Ethics
  2. Board Oversight
  3. Org Structure (structure, authority, responsibility)
  4. Commitment to competence
  5. Accountability
63
Q

COSO Internal Control Objective

A

To provided reasonable assurance that an entity will achieve its stated objectives (ORC)

64
Q

Components of ERM

A
  1. Internal Environment
  2. Setting Objectives
  3. Event ID
  4. Assess Risk
  5. Respond to risk
  6. Activities (control)
  7. Information and communication
  8. Monitoring
65
Q

Change control Process

A

Control baseline –> change identification –> change management –> change update

66
Q

Total Factor Productivity

A

Output
_________
Total Prime Cost

67
Q

Partial Factor Productivity

A

Output
___________
Specific Quantity (Material OR Labor

68
Q

Internal Performance Benchmarks

A

control charts, pareto diagrams, cause & effect (fishbone diagram)

69
Q

FIFO Costing

A

Current Cost
________________
Beg. Inv. to complete + Started and Completed + End %

70
Q

Weighted Average Costing

A

Beg. WIP Cost + Current Cost
________________________
Units Completed + End %

71
Q

ABC Service Cost Allocation

A

Direct or Step - down

72
Q

Byproduct Selling Price

A

Apply to main produce as reduction of COGS or misc income

73
Q

Abnormal spoilage

A

period expense in COGS

74
Q

Profitibility Index

A

PV of future CF/ initial investment

75
Q

Degree of Operating Leverage

A

% Change in EBIT
_______________
% Change in Sales

76
Q

Degree of Financial Leverage

A

% Change in EPS
______________
% Change in EBIT

77
Q

Degree of Combined Leverage

A

% Change in EPS
_______________
% Change in Sales

78
Q

Equity Cost of Capital options

A
  1. cost of issuing new stock

2. cost of retained earnings = CAPM, DCF, BYRP, (D1/P0) + g

79
Q

Optimal Capital Structure

A

Lowest WACC (produces the highest valuation)

80
Q

Aggressive WC policy

A

Working capital financed with ST liabilities

81
Q

Cash Conversion Cycle

A

Days in AR + Days in Inventory - Payables Deferral

82
Q

Primary source of ST financing for firm

A

Trade Credit

83
Q

ROI/ ROE

A

Income
_______________ or Profit Margin X Total Asset Turnover
Invested Capital

84
Q

Cost of Debt

A

EFFECTIVE / Market / YTM Interest
___________________________
Debt cash available

85
Q

EVA

A

Residual Income method using WACC (can refine with adjustments)

86
Q

Times interest earned

A

EBIT/ Total Interest Expense

87
Q

Average Receivables

A

Average Daily Sales * Average Collection Pd

88
Q

Reorder Point

A

Safety Stock (units) + normal consumption during lead time (reorder level)

89
Q

Economic Order Quantity (EOQ)

A

(2* annual Sales*Order cost/ Carrying cost per unit) ^ 1/2

90
Q

Breakeven Point

A

Total Revenue = Total Cost

91
Q

Contribution Margin Ratio

A

Contribution Margin / Revenue

92
Q

Increase in Inventory (Absorption v. Variable NI)

A

Absorption net income HIGHER

93
Q

Breakeven point in Units

A

Fixed Cost/ CM per unit

94
Q

Breakeven point in $

A

Fixed Cost/ Contribution margin ratio

95
Q

Marginal Cost

A

variable cost + avoidable fixed costs

96
Q

Special Order Decision

A

Accept if: SP per unit > relevant cost

97
Q

Make v. Buy Decision

A

Accept if: Outside purchase price > relevant cost

98
Q

Sell or Process Further Decision

A

Accept if: incremental revenue > incremental cost

99
Q

Keep or Drop segment

A

Keep Segment: lost contribution margin > avoidable fixed cost

100
Q

Margin of Safety ($)

A

Total Sales - Breakeven Sales $

101
Q

Margin of Safety (%)

A

Margin of safety (%)
_______________
Total Sales

102
Q

Tactical Plan length

A

18 months

103
Q

Financial Scorecard for SBUs

A
  1. Cost
  2. Revenue
  3. Profit
  4. Investment
104
Q

Balanced Scorecard Critical Success Factors

A
  1. Financial
  2. Internal Business
  3. Customer
  4. Advancement of HR
105
Q

Balance Scorecard Characteristics

A
  1. Accurate
  2. Timely
  3. Understandable
  4. Specific Accountability

BEC 2014 (10 decks)

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