GDP, Ordering Quantity

Question 1

GDP formula:

Answer 1

GDP = C + G + I + (X-M)

Question 2

What does the I in GDP formula stand for?

Answer 2

Investment by Business on Plant and Equipment

Question 3

What does the G in GDP formula stand for?

Answer 3

Government Spending (federal + state + municipal)

Question 4

What % of GDP is consumer spending in the USA?

Answer 4

~70%

Question 5

Nominal GDP is also called

Answer 5

Current GDP

Question 6

Nominal GDP is….

Answer 6

the current amount of goods and services * current price of goods and services

Question 7

Real GDP is also called

Answer 7

Constant GDP

Question 8

Constant GDP =

Answer 8

current amounts of goods and services * base year price of goods and services

Question 9

Real GDP means….

Answer 9

GDP without distorting factor of inflation

The base year used for prices had “normal” economic conditions (no high inflation or recession)

Question 10

Potential GDP reflects

Answer 10

if everyone in society works at 100% capacity, including factories

Question 11

How long does ____ GDP need to decrease in order to quality an economy as being in a recession?

Answer 11

REAL

2 consecutive quarters > so 6 straight months

Question 12

Inflation is measured by the

Answer 12

CPI

Question 13

The CPI is an imaginary basket of….

Answer 13

184 goods and services that an average family of 4 uses

Question 14

If the CPI increased by 0.7% last month, what is the projected annual inflation rate?

Answer 14

0.7% * 12 months = 8.4%

Question 15

What is the Fed’s target rate of inflation

Answer 15

2%

Question 16

Who was the chair of the council of president’s economic advisors under George HW Bush who defended that country was not technically in a recession

Answer 16

Dr Michael Boskin

Question 17

What is the trade balance $ in the US

Answer 17

-$1 trillion (more imports than exports)

Question 18

3 Main functions of the FOMC

Answer 18

1. establish reserve requirement
2. establish discount rate
3. buy/sell government securities

Question 19

Excess Reserve =

Answer 19

Amount of money you deposit - reserve requirement

Question 20

The amount of cushion needed as a % over the amount in a deposit/checking account is

Answer 20

the reserve requirement

Question 21

banks pay student loans, business loans, car loans, mortgages, etc out of their

Answer 21

excess reserve

Question 22

In 2007 the discount rate was between

Answer 22

0% to 0.25%

Question 23

Which action does the FOMC take most often?

Answer 23

Buy/Sell federal securities

Question 24

Which action does the Fed take least often?

Answer 24

changing the reserve requirement

Question 25

In an inflationary environment, the Fed may...

Answer 25

Increase the reserve requirement Increase the discount rate Sell government securities

Question 26

By increasing the reserve requirement, the ____ shrinks

Answer 26

money supply

Question 27

By buying government securities the Fed is going to ____ the money supply

Answer 27

expand

Question 28

In a recessionary environment, the fed may ____ government securities

Answer 28

Buy

Question 29

What are the 3 types of leverage

Answer 29

Operating Leverage Financial Leverage Combined Leverage

Question 30

This type of leverage represents, if I can change by net income by 1%, how much change would I see in my EPS

Answer 30

Financial leverage

Question 31

This type of leverage represents, if I can change sales by 1%, how much change would I see in my net income

Answer 31

Operating Leverage

Question 32

This type of leverage represents, if I can change sales by 1%, how much change would I see in my EPS

Answer 32

combined leverage

Question 33

If a company has a contribution of $480k, and fixed cost of $120k, what is it's operating leverage

Answer 33

$480/($480 - $120) = 1.333

Question 34

Contribution =

Answer 34

Quantity * (Price - V Cost)

Question 35

If a company has an EBIT of $360k, and interest of $80k, what is it's financial leverage

Answer 35

$360 / ($360 - $80) = 1.286

Question 36

If a company has an operating leverage of 1.333, and a fixed leverage of 1.286, what is it's combined leverage

Answer 36

1.714

Question 37

At breakeven point, fixed cost =

Answer 37

contribution

Question 38

Combined leverage formula =

Answer 38

Contribution / (Contribution - FC - Interest)

Question 39

If a company has an EBT of $200k and is taxed at 21%, what is it's EAT

Answer 39

$158k

Question 40

What are examples of ordering cost

Answer 40

- cost of sending employees on a trip to find a new product and buy it - processing fees for orders

Question 41

What are examples of carrying costs

Answer 41

- rent of warehouse - warehouse employee's salary - warehouse insurance - warehouse security - utilities

Question 42

EOQ stands for

Answer 42

Economic Order Quantity

Question 43

EOQ indicates how many units of an item we should order to _____ total ____ and total ____

Answer 43

Minimize carrying costs ordering costs

Question 44

EOQ =

Answer 44

sqrt ( (2 * annual sales in units * ordering cost/unit) / carrying cost/unit)

Question 45

What are the 2 underlying conditions for using the EOQ model

Answer 45

1. you are moving or selling at a constant rate | 2. when you sell the last unit you will immediately receive another delivery

Question 46

Average inventory =

Answer 46

= Safety Stock + EOQ/2

Question 47

When managing quantity to keep stocked, a trend is when ordering costs go down

Answer 47

frequency of orders go up

Question 48

A company plans to use/sell 75000 units of a product this year. Their carrying cost is $1.20/unit. Their ordering cost is $2/unit. What is their EOQ?

Answer 48

500 units

Question 49

If a company has an EOQ of 500, and they plan to consume 75000 units this year, how many orders will they place this year?

Answer 49

= 75000/500 = 150

Question 50

Total Carrying Cost =

Answer 50

Average Inventory * Carrying Cost/unit

Question 51

Total Annual Ordering Cost =

Answer 51

= Orders place/year * ordering cost/order