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Fundamental Analysis > Economic Analysis > Flashcards

Economic Analysis Flashcards

1
Q

What is the GDP?

A

Gross domestic product. The sum of all goods AND services produced INSIDE the country

  • Government spending
  • Consumer spending
  • Business investment spending
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2
Q

What is Real GDP?

A

Any effect of inflation on prices are eliminated to achieve more valid measure

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3
Q

What is GNP?

A

GNP is all the goods and services summed together from both inside AND OUTside the country

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4
Q

What is economic growth affected by?

A

Fiscal Policy and Monetary Policy

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5
Q

What is fiscal policy?

A

Gov’t actions that influence economic activity

  • Changing tax rates
  • transfer payments
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6
Q

What would be done through fiscal policy to stimulate the economy?

A

Tax rates cut, transfer payments cut, government spending increased

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7
Q

What is monetary policy?

A

Actions take by the Fed Reserve to influence growth of money supply

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8
Q

How would the Fed stimulate the economy via monetary policy?

A
  • Expand money supply
  • Loosen credit
  • Lower interest rate
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9
Q

What are the 3 economic theories that explain the business cycle?

A
  1. Keynesian theory
  2. Supply side theory
  3. Monetarist theory
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10
Q

What is the Keynesian theory?

A
  • Fiscal policy is a means of achieving full employment
  • Economy operates at equilibrium level
  • Consumption is the driving force behind growth
  • Increased gov’t. spending and transfer payments to individuals
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11
Q

What is the Supply side theory?

A

States that REDUCED govt’ spending and tax cuts are incentives to economic growth

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12
Q

What is the monetarist theory?

A

States that actions by the FEDERAL RESERVE (monetary policy) are the driving forces behind economic activity

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13
Q

What are the 3 theories for root causes of inflation?

A
  1. Cost push
  2. Demand pull
  3. Monetarist theory
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14
Q

What is the cost push theory for inflation?

A

Rising material costs and increasing wage demands from workers for producers to raise their prices

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15
Q

What is the demand pull theory regarding inflation?

A

Inflation is cause by national demand for goods and services outstripping productive potential (national supply) of the economy

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16
Q

What is the monetarist theory regarding inflation?

A

Cause of inflation is the Feds expansion of money supply at faster rate than economic growth

  • Since more “money” is chasing output of economy, prices go up
  • Inflation rates increase during economic expansion
17
Q

What is the “real” interest rate?

A

If inflation rises, interest rates rise. Therefore, if a T-bill’s rate is 7%, and inflation is running at 2 percent per year, then real interest rate is 5 percent

18
Q

What are the tools that can be used by the Federal reserve?

A 
DORM
D - setting the discount rate
O - Open market operations
R - Reserve requirement change
M - Margins on non-exempt securities
19
Q

What is the discount rate?

A

The rate that the federal reserve charges member banks

20
Q

What does the Fed do with the discount rate to tighten and loosen credit?

A

To tighten, Fed increases interest rates

To loosen, Fed decreases interest rates

21
Q

What are open market operations? (These influence the fed funds rate)

A

Using repurchase agreements (repos). Under a normal repo, the Fed GIVES dealer funds in return for temporary pledge of securities

Under a REVERSE repo, the Fed SELLS securities to dealers temporarily, and reduces the dealers’ cash supply

22
Q

What is the option of the federal reserve in DORM that would have the greatest effect of credit in the economy (the nuke)

A

R - reserve requirements, because of the multiplier effect, causing a ripple reducing credit to go all through the economy

23
Q

What is disintermediation?

A

Flow of funds out of financial intermediaries to other direct investments. Disintermediation is when the above methods TIGHTEN credit

24
Q

What is intermediation?

A

Flow of unds BACK into financial institutions from other investments. Intermediation occurs when the fed LOOSENS credit

25
Q

In what order do the Fed’s actions affect the money rates (from lowest to highest order)

A
  1. Fed funds Rate
    2, Discount rate
  2. Broker loan rate
  3. Prime rate
26
Q

What is the Fed Funds rate?

A

The rate that member banks charge each other for overnight loans of reserves

27
Q

What is the discount rate?

A

The rate that member funds can borrow from the Fed

28
Q

What is the broker loan rate?

A

Rate that banks can charge brokers on loans where securities are used as collateral

29
Q

What is the prime rate?

A

Rate at which banks will make unsecured loans to their BEST commercial customers

30
Q

What is the velocity of money?

A

Measure of how fast funds that are injected into the economy are deposited, used by that person, redeposited, etc

31
Q

How does the velocity of money affect credit?

A

The faster the velocity of money, the more credit there is available

32
Q

What is M-1?

A

Fast money funds that can be accessed and used quickly. Fed usually aims at M-1 when adjusting credit

33
Q

What is M-2?

A

M-1 plus time deposits of less than $100,000

34
Q

What is M-3?

A

M-2 plus time deposits of over $100,000

35
Q

What is L?

A

The broadest money definition, this is M-3 plus other liquid investments, such as money market instruments

36
Q

What are Leading, Coincident, and Lagging indicators?

A

Leading - predict whats ahead
Coincident - show current phase of business cycle
Lagging - show where economy was in past few months

37
Q

What is the Consumer confidence index?

A

Increasing index means customers are confident, likely to spend money and increase output

A decreasing index means the opposite

38
Q

What is the Help Wanted Advertising Index?

A

Measures level of help wanted ads in 51 cities across USA.

Fundamental Analysis (2 decks)

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