Economics/Markets Flashcards
(41 cards)
Economic Expansion: GDP (increases/decreases) and unemployment (increases/decreases)
increases; decreases
Economic Contraction: GDP (increases/decreases) and unemployment (increases/decreases)
decreases; increases
Gross Domestic Product (GDP)
Definition
The market value of goods and services produced by labor and property in the US
Recession
Two consecutive quarters of negative GDP growth
- Not every contraction is a recession, but every recession is a contraction
Characteristics of Early Expansion
- Activity rebounds (GDP, unemployment)
- Credit begins to grow
- Profits grow rapidly
- Policy still stimulative
- Inventories low; sales improve
Characteristics of Mid Expansion
- Growth peaking
- Credit growth strong
- Profits growth peaks
- Policy neutral
- Inventories, sales grow; equilibrium reached
Characteristics of Late Expansion
- Growth moderating
- Credit tightens
- Earnings under pressure
- Policy contractionary
- Inventories grow; sales growth falls
Characteristics of Contraction
- Falling activity
- Credit dries up
- Profits decline
- Policy eases
- Inventories, sales fall
The Business Cycle
Expansion –> Peak –> Contraction –> Trough –> Expansion
GDP is important because it…
- Indicates the pace of growth or decline of the economy relative to history
- Determines which sectors are over or under-performing
- Can compare the size and growth rate of economies throughout the world
Real GDP Includes:
- Market value of all final goods and services produced within an economy
- Income of foreigners working in the US
- Profits that foreign companies earn in the US
Real GDP Excludes:
- Imports
- Inflation
- Transactions where money changes hands but no new goods or services are produced
- Income of US citizens working abroad
- Profits earned by US companies in foreign countries
GDP Formula
Y = C + I + G + (X - M)
C - consumer spending
I - investment made by industry
G - government spending
(X-M) - excess of exports over imports (may see this listed as NE (Net Exports))
A good is __________ when its quantity demanded responds greatly to price changes.
elastic
A good is _________ when its quantity demanded responds little to price changes.
inelastic
In theory, all items are (elastic/inelastic) over the long term.
elastic
Goods are considered __________ when an increase in the price of one causes an increase in the demand for the other.
substitutes
Goods are considered __________ when a decrease in the price of one causes an increase in the demand for the other.
complements
__________ __________ is the additional benefit received from the consumption of an additional unit of a good.
Marginal utility
As the rate of consumption increases, the marginal utility derived from consuming additional units will (increase/decrease).
decrease (known as diminishing marginal utility)
Who controls Fiscal Policy?
Congress
What tools does Congress use to control Fiscal Policy?
- Taxation
- Government Spending
__________ is the only means of revenue generation for the government.
Taxation
(Increases/Decreases) in government spending are used to promote economic growth and/or recovery.
Increases
