General Flashcards
GDP
Real GDP includes:
Market value of all final goods and services produced within a country. For example, if a U.S. company makes shoelaces that are used to make shoes in the U.S. then only the value of the shoe is counted.
Income of foreigners working in the U.S.
Profits that foreign companies earn in the U.S.
inflation
Inflation is an increase in prices, combined with low unemployment and high wages, rapid economic growth and rising levels of credit.
Inflation occurs when demand exceeds supply at current prices, due to excessive spending financed by credit markets and bank loans.
Market Segmentation Theory
The Market Segmentation Theory asserts that the yield curve is composed of a series of independent maturity segments.
The theory states that the yield curve is shaped based on the supply and demand of each segment of the yield curve (debt market) rather than expectations of future interest rates.
Law of supply
The law of supply: An increase in market price will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity supplied.
Changes in the quantity of a good or service supplied by the producers result in a move along the supply curve.
Leading Indicators
The law of supply: An increase in market price will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity supplied.
Changes in the quantity of a good or service supplied by the producers result in a move along the supply curve.
Price elasticity of demand
Price elasticity of demand is a measure of a buyer’s responsiveness or sensitivity to changes in price.
In the short run, a change in price for a product without substitute can be effective because it is price inelastic. Consumers who want or need the product would still buy it, regardless of the price, so they are insensitive to the price change.
Conditions in the market
At any moment, one of the three following conditions prevails in every market:
Excess demand
Excess supply
Equilibrium
Lagging indicators
Lagging indicators tend to follow or lag economic performance.
The average duration of unemployment and changes to CPI are considered lagging indicators.
Initial claims for unemployment insurance serve as a leading indicator.
Manufacturing sales are a coincident indicator.
Monetary Policy
When the government spends less and/or increases taxes when the economy is overheating, it drains spending from the economy, reducing total demand and cooling inflationary pressures.
Control over the discount rate, and federal funds rate in turn, and adjustments to reserve requirements are monetary strategies that are implemented by the Fed.
Monetary Policy
Tight monetary polices refer to the Fed decreasing the money supply in an effort to restrain the economy to slow down inflation (rise in general price of goods and services). The Fed sells securities, buyers withdraw funds from their banks which lowers bank reserves, which reduces the amount of money banks have to lend, which curtails borrowing and demand, and drives up interest rates.
Aggregate output
Aggregate output is the sum of total consumption, plus capital investments of firms, net exports, and total amount that the government spends.
deflation
Deflation is a decrease in the overall price level. It occurs when many prices decrease simultaneously.
The last time the U.S. experienced deflation was in the era of the Great Depression. The consensus for economists is that modest inflation, with rates between 1 and 3 percent, is a more likely long run scenario.
Deflation is a decrease in the overall price level. It occurs when many prices decrease simultaneously.
The last time the U.S. experienced deflation was in the era of the Great Depression. The consensus for economists is that modest inflation, with rates between 1 and 3 percent, is a more likely long run scenario
