External Factors Part 2

Question 1

what is the multiplier effect and what is it dependent on?

Answer 1

how much an initial increase in spending will generate in terms of additional GDP
dependent on:
1. marginal propensity to consume (MPC)
2. marginal propensity to save (MPS)
MPC+MPS =1

Question 2

what is macroeconomics and what are some examples?

Answer 2

the study of the economy as a whole
-contraction/unemployment
-expansion/inflation
-national output/income
-national/global economics
-economic growth
-government budget deficits

Question 3

what is microeconomics and what are some examples?

Answer 3

the study of prices of goods and services as they affect individual units of the economy
-price elasticity
-income distribution
-exchange rates
-supply and demand
-interest rates
-inflation

Question 4

law of diminishing returns

Answer 4

relates to the fact that the value of goods decreases as more are made available (too much of a good thing)

Question 5

comparative advantage

Answer 5

refers to the ability of one country to produce goods or services at a lower opportunity cost than another country

Question 6

to address unemployment, congress should

Answer 6

1. reduce taxes
2. increase government expenditures

Question 7

how is a government deficit created?

Answer 7

by increasing spending levels without corresponding increases in tax revenues to cover the expenditures

Question 8

hyperinflation

Answer 8

rapid increase, more than 50% in a month

Question 9

how does expansion affect the housing sector and trade balance?

Answer 9

1. increasing activity
2. increasing imports leading to bigger deficits/smaller surpluses
   ex. increase in export subsidies

Question 10

how does contractions affect the housing sector and trade balance?

Answer 10

1. decreasing activity
2. decreasing imports leading to smaller deficits/bigger surpluses
   ex. reduction in export subsidies

Question 11

seasonal demand is reflected in a consistent revenue pattern with increases and decreases occurring at the same time each year. the entity should do what to match its business cycle?

Answer 11

manage inventory and cash flow

Question 12

producer price index (PPI)

Answer 12

measures the average change over time in the selling prices by domestic producers for their output

Question 13

Gross Domestic Product Deflator

Answer 13

measure the impact of inflation/deflation on the GDP

Question 14

Employment Cost Index (ECI)

Answer 14

measures the changs in the cost of labor on a quarterly basis