GDP v. GNP
� GDP: all produced within the US, including foreign co's in US (no US firm production abroad)
� GNP: all produced by US firms, even abroad (no foreign firms production in the US)
D = on our soil, N = by our companies
Real v. Nominal GDP
� Nominal GDP: actual GDP in current year, including inflation
Nominal = Not adjusted
� Real GDP: removes the effect of inflation (using GDP deflator)
Base GDP amount so you can compare different years without effect of inflation
NIPA: measuring GDP - expenditure approach
GICE
Gov spending
Investment
Consumption
Exports (less imports)
NIPA: measuring GDP - income approach
I PIRATED
Income of proprietors
Profit of corporations
Interest
Rental income
Adj. for foreign income
Taxes
Employee wages
Depreciation
Included in total labor force
Non-institutionalized
Over 16
Working/actively looking for work
Types of Unemployment
Frictional, structural, seasonal, cyclical
Frictional: between jobs (quit/fired)
Structural: job not available for your skill/where you live
Seasonal: no demand for your job right now
Cyclical: due to contraction/recession
Natural rate of unemployment
Full employment
Natural = Frictional + structural + seasonal
(not cyclical)
Full = when cyclical = 0
Cash types (1,2,3)
M1: cash, checkable deposits, traveler's checks
M2 = M1 + accounts + DC under 100,000
M3 = M2 + CD over 100,000
To increase money supply, gov can:
-Buy gov securities - puts more money into circulation
-Lower discount rate - people more willing to borrow from gov
-Lower required reserve - don't need to have as much on hand
Business Combinations: horizontal, vertical, circular, diagonal
Horizontal: merging competitors
Vertical: merging with supplier or retailer
Circular: merging with slightly related companies i.e. advertising, real estate company
Diagonal: merging with supporting activity i.e. transportation
Transactions to Combine Businesses: Merger, acquisition, tender offer, asset purchase
Merger: A+B=C
Acquisition: A+B=A
Tender offer: offer directly to shareholders to purchase outstanding shares
Asset purchase: buy company's assets
(Still need shareholder approval)
Divestitures: Sell-off, spin-off, equity carve-out
Sell-off: parent sells sub
? Lack of synergy
? Need to improve stock price
Spin-off: parent & sub separate
? Either give shareholders subs stock as a dividend, or offer sub stock in exchange for existing parent stock
? Sub is less profitable than parent b