ECON 211 Test 3
Output gap formula
((Actual output - Potential output)/Potential output)*100
Compounding Formula (Future value in x amount of years)
Future value in t years = Present value * (1 + r)^t
Holding everything else equal, the _____ the interest rate on saving, the _____ the future value of that saving.
higher; greater
Present value of a stream of payments
= Next year's revenue/(r+d)
A bank run occurs when:
Many bank customers try to withdraw their savings at the same time
The Great Moderation refers to the:
Decreased volatility of the US economy
Based on Okun's rule of thumb, if you forecast that the output gap will decline from 0% to -3%, the unemployment rate will:
Rise by 1.5%
Equilibrium in the loanable funds market determines the:
equilibrium real interest rate
Suppose that an economy is in a recession. You would expect to see the unemployment rate:
rise above the equilibrium unemployment rate
The liquidity of an asset is defined as the:
Ability to quickly and easily convert the asset to cash, with little or no loss in value
The efficient market hypothesis states that:
At any point in time, stock prices reflect all publicly available information
What is the price to earnings ratio?
Price per share/earnings per share
An initial public offering occurs when a company:
First sells stock directly to the public
Which economic indicator tells you about the future expected profits of businesses?
S&P 500
What kind of data adjustment removes the effect of sales spikes due to the holiday season?
Seasonally adjusted data
Which economic indicator tells you how fast wages and benefits are rising?
The employment cost index
Business Cycle
The fluctuations of GDP around the potential output
User Cost of Capital
User cost of capital = (r+d) * C
If the government lowers the corporate tax rate, then the ______ loanable funds shifts to the _______ .
demand for; right
In macroeconomics, the difference between saving and investment is that:
saving is the money left over after paying for spending, and investment is the purchase of new capital
Stock prices are an important macroeconomic indicator because they:
Can predict changes in GDP
A bond that is issued by a firm in financial distress is most likely to have:
Default risk
The three major pillars of the financial sector are the:
Stock market, bond market, and the banks
An example of a leading indicator is:
The stock market
Marginal Propensity to Consume (MPC)
Change in consumption/change in income
Business investment includes:
Equipment, business structures, and intellectual property
If the fundamental value of a stock is above the current market price of the stock, there will be a:
Rise in the price and demand of its stock
Level of Saving
Saving = Income - Consumption
An economy's potential output level is:
The output that is possible when all resources are fully employed
The neutral interest rate occurs when the economy is:
at its potential
Okun's Rule of Thumb
For every percentage point that actual output falls below potential output, the unemployment rate increases around half a percentage point
The Discounting Formula (Present value)
Present value = Future value in t years * (1/((1+r)^t))
The fundamental value of a business is the:
Present value of the future profits it will earn
What will fall when the economy is expanding?
Applications for unemployment benefits
When presented with a table that contains information about a company's stock, which value represents the company's worth?
Market cap
The four stages of the business cycle are:
Peak, recession, trough, and expansion