BUS200 EXAM1

Federal Reserve

central bank

"The feds"

Treasury department

Federal Government

president and congress

Good

tangible product that fulfills a need or a want

Service

fulfills a need or want but is not tangible

Entrepreneur

a person who takes a risk with the objective of earning money

Revenue

sales of a firm/ money the firm takes in ... (price x quantity)

Profit

(revenue - cost)

cost

expenditures of a firm

Capital

the physical inputs to the production process

What does a firm use to produce outputs?

inputs

Labor

human work effort

Loss

when revenue is smaller than cost

Two most important inputs

capital and labor

In the university of miami example, who is the consumer?

students

In the university of miami example what is an example of capital?

every physical thing on campus except people (land, facilities, etc.)

Outsourcing

when you go outside the business for a certain function (UM outsources the food aka another company provides the food) (could be domestic or foreign)

Offshoring

outsourcing outside the country (for example: nike has other countries make their shoes)

Productivity

(labor productivity- the output per unit of labor) generally means workers are paid the value of the margin product of labor (value of what you produce)

Import

bring good in from another country

export

send goods to another country for sale

Trade deficit

if imports greater than exports

Trade Surplus

opposite of trade deficit (if exports are greater than imports)

Ceteris paribus

all else equal

Normal good

good that when your income goes up you consume more of it

Inferior good

good that when your income goes up you consume less of it

What does "budget" refer to

federal/ national government

who determines the budget of the federal government?

congress

who controls fiscal policy?

the president and congress

who controls monetary policy?

the fed

taxes

revenue to the government

If gov expenditures are greater than taxes the gov has...

a budget deficit

GDP or gross domestic product

total value of all goods and services produced in a country over a period of time

one quarter is how long?

3 months

what is the yearly growth weight of the US economy?

3% (adjusted for inflation)

nominal GDP

6%

Exchange rates

price of one versus another between currencies

Tariff

tax on imports

International monetary fund

help out during times of international financial imbalances (for example thru a loan) ("bad cop" in that they will help but there is a catch)

What drives the stock market?

Earnings

When interest rates go down...

that is good for stocks

Consumption

spending by individuals for their private selves (average ppl)

Suppliers

ppl that have a product to sell (ex: firms sell goods and services)

Equilibrium

the system is at rest

Movement along the Supply and Demand curve is a change in

endogenous variables

Everything in the S&D graphs is symmetric except...

technology

Technology

how we organize capital and labor to produce better products (only affects supply and increases supply)

What does it mean to say that "price expectations are always self fulfilling"?

if consumers think prices will go up they will go up and if producers think prices will go down then they will go down

Comparative advantage

the ability of an individual or group to carry out a particular economic activity (such as making a specific product) more efficiently than another activity

Fiscal policy

involves the president - enacted by the president and congress (related to gov spending and taxes)

Monetary policy

policy controlled around the world by the central banks

When the fed wants to sped up the economy what do they do?

lower interest rates

When the fed wants to slow down the growth rate of the economy what do they do?

higher interest rates

potential GDP

trend growth in GDP

Recession

two or more quarters of negative GDP growth

M

money supply

M1=

currency + demand deposits

MB (monetary base)=

currency + reserve

Required Reserve Ratio

10% of deposits are held as reserves in the bank

Commercial bank

takes deposits and makes loans

what is the mantra of economics

the fed buys bonds → price of bonds go up → interest rates go down

DeltaM =

(1/rr)

DeltaMB =

100

In the bank problems... If loans go up deposits go up and if loans go down

deposits go down also

In the bank problems... both sides of assets and liabilities have to be

equal

The open market operation is always this way:

-Buyers sell bonds

- and then the bank will need to rebalance

What is the first phase of the open market operation?

bonds for reserves

Phases of business cycle:

peak/recession/trough/recovery/expansion

Budget

fiscal deficit/surplus - trade deficit/surplus

Demand keywords

consumers people buyers individuals

Supply keywords

Sellers firms suppliers companies

Fed lowers interest rates

this stimulates economic growth

what is the accounting equation?

assets= liabilities + owners equity (aka shareholders equity)

What is on a balance sheet?

On one side there is current assets + (PP and E) = total assets and on the other side there is current liabilities + LT liabilities = total liabilities and owners equity

budget deficit

if the government has more expense than revenue

budget surplus

if the government takes in more revenue than it spends

appreciation

when the dollar is getting stronger (bad for exporters)