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What are the 2 inputs that increase short-run aggregate supply? What are the results of this increase?
- CAUSES
- Input prices decrease
- Resources become more readily available (raw materials, employee workforce)
- RESULTS
- Increase in production, which increases GDP
- Decrease in price (deflation) of the product/service
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What is the effect of a decrease in short-run aggregate supply?
Not only is there a decrease in GDP, but there is also an increase in price (there are fewer units produced, but each of those units cost more to make).
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What are the effects on GDP, price, & employment for each of the following (1) increase in short-run aggregate supply, (2) increase in aggregate demand, (3) decrease in SRAS, (4) decrease in AD
- (1) expansion, deflation, employment
- (2) expansion, inflation, employment
- (3) contraction, inflation, unemployment
- (4) contraction, deflation, unemployment
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What is the effect of home prices decreasing by 10%?
Personal wealth decreases, people buy less stuff, results in economic contraction and deflation.
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When the following occur, which one shifts (a) SRAS or (b) AD, and what is the effect on the economy: (1) US dollar strengthens, (2) consumer taxes decrease, (3) resources become readily available
- (1) AD shifts left, contraction, deflation b/c foreign purchasing of our products declines
- (2) AD shifts right, expansion, inflation b/c we have more money to spend
- (3) SRAS shifts right, expansion, deflation b/c per unit cost decreases
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When the following occur, which one shifts (a) SRAS or (b) AD, and what
is the effect on the economy: (1) wealth increases, (2) consumer confidence declines, (3) input prices increase
- (1) AD shifts right; expansion, inflation b/c we have more money to spend
- (2) AD shifts left; contraction, deflation b/c we're scared to spend money
- (3) SRAS shifts left; contraction, inflation b/c each unit costs more to produce
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When the following occur, which one shifts (a) SRAS or (b) AD, and what
is the effect on the economy: (1) interest rates increase, (2) government spending increases, (3) the US dollar weakens
- (1) AD shifts left; contraction, deflation b/c consumers don't take loans and less money is in the system
- (2) AD shifts right; expansion, inflation b/c more money is the system
- (3) AD shifts right; expansion, inflation b/c foreigners can now afford our products
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The trough of a business cycle is generally characterized by which of the following: productive capacity, investment, purchasing power, shortages of materials
- unused productive capacity
- unwillingness to risk investment
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What is the marginal propensity to consume (MPC)?
For every dollar received, a portion will be saved and a portion spent. The MPC is the portion spent.
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Nominal GDP means what...
- N = "Not"
- Nominal GDP is not adjusted for inflation; it's measured at current prices of the time.
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What is the formula to determine the multiplier and the increase in total economic spending?
- 1 / (1-MPC) = multiplier
- Multiplier x $ spent = increase in total economic spending
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What is the formula for Real GDP?
(Nominal GDP / GDP deflator) x 100
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What is the formula to measure the change in real GDP?
- (current yr real GDP / past yr real GDP) - 1
- The typical change formula isn't used because the change in one year to the next occurred when converting nominal GDP into real GDP.
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What is a horizontal business combination, what is the benefit?
When companies in the same industry that produce the same goods / services join together.
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What is a vertical business combination?
When companies at different stages of the production process combine.
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What is a circular business combination?
When different units with relatively remote connections come together under a single management.
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What is a diagonal business combination?
When one company purchases another company that provides ancillary support. (ex=ACorp purchases delivery company BCorp who takes their products to the retailers)
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What are the 4 primary methods of acquiring another company and provide a brief explanation?
- Merger: two entites combine to form a new corp.
- Acquisition: one company outright buys another; the purchased corp may or may not retain its separate legal entity status
- Tender Offer: ACorp offers a price/share to shareholders of BCorp
- Purchase of Assets: ACorp offers to purchase all assets and take on all liabilities of BCorp. Shareholders must approve this deal.
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What are the 3 primary methods of disposing of a component or business unit?
- Sell-off: sale for cash 2° lack of alignment or synergy b/t the two companies
- Spin-off: creates a new, independent company. No cash involved. Shareholders receive shares in the new company either by a stock dividend (retain shares in the parent) or switching new stock for old stock (no longer retains shares in the parent).
- Equity Carve-out: creates a new company, offers an IPO but parent corp retains control, selling off a non-controlling interest to raise capital
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What is the definition of GDP?
The total market value of all final goods and services produced within the borders of a nation in a particular period.
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What is the definition of a recession?
When the economy experiences negative real economic growth for two consecutive quarters.
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Define (1) leading economic indicators, (2) lagging indicators, and (3) coincident indicators.
- Leading indicators predict future economic activity.
- Lagging indicators confirm or dispute previous forecasts and the effectiveness of policy directives.
- Coincident indicators occur at apprx the same time as the change in economy and are used to identify peaks & troughs.
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