Chapters 4 and 5

Question 1

What is known as the process of understanding the financial choices that people make.

Answer 1

Economics

Question 2

Two branches of microeconomics

Answer 2

microeconomics and macroeconomics

Question 3

individual markets of goods and services, looking at how businesses decide what to produce and who to produce it for, and how individuals and households decide what to buy, is known as

Answer 3

Microeconomics

Question 4

Which branch of economics focuses on broader issues such as employment levels, interest rates, inflation, recessions, government spending, and the overall health of the economy

Answer 4

Macroeconomics

Question 5

Three broad group that interact in the economy include

Answer 5

1. Consumers
2. Businesses
3. Governments

Question 6

value of all goods and services produced in a country in a given time period, usually a quarter or year is known as?

Answer 6

gross domestic product
GDP

Question 7

Three approaches to measuring GDP

Answer 7

1. expenditure approach
2. income approach
3. production approach

Question 8

value of all goods and services produced in that year in that year’s prices.

Answer 8

Nominal GDP

Question 9

dollar value of all goods and services valued at prices in some base year

Answer 9

Real GDP

Question 10

Growth in GDP results from

Answer 10

1. Technological advances
2. population growth
3. Improvements in training, education and skills.

Question 11

5 phases of business cycle

Answer 11

1. expansion
2. peak
3. contraction
4. trough
5. recovery

Question 12

Most important leading indicators

Answer 12

housing starts, manufacturers’ new orders, commodity prices, average hours worked per week, stock prices and the money supply

Question 13

most important coincident indicators:

Answer 13

personal income, GDP, industrial production and retail sales

Question 14

most important lagging indicators:

Answer 14

unemployment, inflation, labor costs, private sector plant and equipment spending, and business loans and interest on such borrowing

Question 15

identification of recessions by statistics Canada

Answer 15

depth : decline must be of a substantial depth
duration : must last more than a couple of months
diffusion : must be a feature of the whole economy

Question 16

canadian labor market

Answer 16

1. Those who are unable to work - psychiatric hospitals and correctional facilities
2. Those who are not working by choice - full time students, homemakers, retirees and discouraged workers
3. the labor force - who are working and people who are not working but are actively looking for work.

Question 17

labor market indicators

Answer 17

participation rate
unemployment rate

Question 18

particiapation rate

Answer 18

labor force / working age population x 100

Question 19

unemployment rate

Answer 19

not working but actively looking for work / labor x 100

Question 20

people could be working part-time (instead
of full-time) or are in jobs that do not make good use of their
skills

Answer 20

underemployed

Question 21

Types of unemployment

Answer 21

1. Cyclical
2. seasonal
3. frictional
4. structural

Question 22

which type of unemployment tied directly to the business cycle- high during recessionary conditions, lower during periods of expansion

Answer 22

cyclical unemployment

Question 23

which type of unemployment is when Some industries operate only during part of the year – for example, the agriculture industry

Answer 23

seasonal unemployment

Question 24

what is known as a result of normal labor turnover. Part of a
normal, healthy economy

Answer 24

Frictional unemployment

Question 25

when workers are unable to find jobs because they lack the necessary skills, do not live where the jobs are available, or choose not to work at that wage rate.

Answer 25

structural unemployment

Question 26

what is known as One of the most important financial variables affecting securities markets

Answer 26

Interest rates

Question 27

Determinants of interest rates

Answer 27

demand and supply default risk foreign interest rates and the exchange rate central bank credibility inflation

Question 28

when the interest rate charged on borrowed funds is less than zero

Answer 28

Negative interest rate

Question 29

Defined as the use of government’s power to tax and spend to pursue social goals such as full employment and long-term sustained economic growth

Answer 29

Fiscal Policy

Question 30

designed to preserve the value of the Canadian dollar by keeping inflation low, stable, and predictable

Answer 30

Monetary policy

Question 31

Bank of Canada is the ultimate source of liquidity and is referred to as the lender of last resort

Answer 31

The Canadian financial system

Question 32

designs, prints, and distributes Canadian bank notes

Answer 32

physical currency

Question 33

managing he government’s accounts and government’s foreign currency reserves

Answer 33

fund management

Question 34

managing he government’s accounts and government’s foreign currency reserves

Answer 34

funds management

Question 35

Advantages of monetary policy

Answer 35

The effect on the economy may be more immediate * The initiative (e.g., lower or higher interest rates) can be reversed once the objective is achieved * It is independent of political considerations

Question 36

Advantages of fiscal policy

Answer 36

Government spending can be targeted to specific regions * Tax cuts and increased benefits are popular * Consumers can more easily understand and experience the impact

Question 37

Disadvantages of monetary policy

Answer 37

It can be difficult to target a specific region * Lowering interest rates may not have any impact if the consumer doesn’t feel confident enough to spend * If interest rates are already too low, lowering them even more may have no impact

Question 38

disadvantages of fiscal policy

Answer 38

Tax increases and government spending cuts are unpopular * There are challenges in stopping a project one it has been implemented, even if the initiative is no longer necessary * Higher government spending can raise debt levels and lead to a great proportion of revenue going towards interest payments