Economics

Question 1

What are some characteristics of contraction=s

Answer 1

rising number of bankruptcies and bond defaults
higher consumer debt
falling sto prices
rising inventories - bec of weaker demand in hard times)
decreasing GDP

Question 2

What are signs of the trough

Answer 2

high unemployment
flat GDP
low inflation
low but stable consumer demand

Question 3

What are signs of expansion

Answer 3

rising sto, RE, and GDP
increasing industrial production
increasing consumer demand

Question 4

whats a recession and depression

Answer 4

6mo contraction vs 18mo contraction

Question 5

What are signs of the peak

Answer 5

very low unemployment
slowdown in inflation
slowing GDP growth
steady consumer demand

Question 6

What is used to compare GDP from different periods

Answer 6

real GDP which uses CPI to adjust for inflation or deflation

Question 7

What is another term for CPI

Answer 7

constant dollar measurement

Question 8

What is Gross National Product

Answer 8

measures the activities of citizens and US based entities not just everything that happens here

Question 9

What is an example of GNP

Answer 9

comp based in Japan, builds factory here - Adds to GDP not GNP
comp based in US, builds factory in Japan - Adds to GNP not GDP

Question 10

What are some leading indicators of economic conditions

Answer 10

money supply (M2)
building permits (housing starts)
average weekly initial claims for state unemployment compensation
average work week in manufacturing
new orders for consumer goods
machine tool orders
changes in inventory of durable goods
changes in sensitive materials prices
sto prices
changes in business and consumer borrowing

Question 11

What are some coincident indicators of economic conditions

Answer 11

number of hours worked
unemployment rate
nonagricultural employment
personal income
industrial production
manufacturing and trade sales
GDP

Question 12

What are some lagging indicators of economic conditions

Answer 12

corporate profits
average duration of unemployment
labor cost per unit of output
ratio of inventories to sales
commercial and industrial loans outstanding
ratio of consumer installment credit to personal income

Question 13

What is stagflation

Answer 13

inflation and high unemployment

Question 14

Consid for stagflation and inflation

Answer 14

inflation doesnt need to be high just present

Question 15

4 broad categories of industries

Answer 15

cyclical
noncyclical
countercyclical
growth

Question 16

What is a cyclical industry

Answer 16

highly sensitive to the business cycle and inflation trends
usu produce durable goods like heavy equipment or automobiles, and raw materials like steel and concrete

Question 17

What are non cycylical industries

Answer 17

also known as defensives
decline less in contractions, rise less in expansions
food
clothes
tobacco
pharma
utilities
liquor

Question 18

What are the two primary financial reports comps provide and when are they released

Answer 18

balance sheet
income statement
quarterly or annually

Question 19

What does a balance sheet show

Answer 19

current assets like
cash/highly liquid assets like accounts receiveable
fixed assets like RE and equipment
other assets like trademarks or intellectual property

Liabilities like:
current liabilities like taxes, acrued wages, accs payable, and interest payments
longterm lias like debts

Networth:
pref sto
com sto par value
money in excess of par value of com sto
retained earnings (earnings set as

Question 20

What are 4 ratios/numbers that can be used for analysis from a balance sheet

Answer 20

working capital
current ratio
acid test/quick ratio
debt ratio

Question 21

What is the working cap number

Answer 21

amount comp can spend/lose and remain operational
current assets - current liabilities

Question 22

What is the current ratio

Answer 22

used to find the liquidity of the company
cur ass / cur lias
expressed as a ratio
ex: 50/20 = 2.5:1

Question 23

What is acid test / quick ratio

Answer 23

test companies liquidity in really bad times
cur ass - inventrory / curr lias

Question 24

What is the debt ratio

Answer 24

test long term solvency, how much of the net worth is coming from debt
said to be highly leverage if debt ratio is higher than industry average
long term debt - (long term debt + net worth)
expressed as a percentage

Question 25

What is the income statement

Answer 25

also known as profit and loss statement shows revenue and expenses for fiscal period

Question 26

What calculations are derived from the income statement

Answer 26

Earnings per share P/E ratio

Question 27

What is Earnings per share

Answer 27

earnings available to common sto / outstanding shares

Question 28

What is P/E ratio

Answer 28

measure amount of earnings compared to the current market value CMV / EPS

Question 29

Operating income is sometimes referred to as

Answer 29

earnings before interest and taxes EBIT or as EBITDA (earnings before interest taxes depreciation and amortization)

Question 30

What happens when our currency exchange rate decreases

Answer 30

dollar denominated products decrease in value compared to the other currency (1 unit of the other currency purchases more than it used to) because of that, the other currency my want to purchase more of our products bec they are now relatively cheaper causing us to export more and import less

Question 31

What happens when our currency exchange rate increases

Answer 31

dollar denominated products increase in value compared to the other currency (1 dollar purchases more in the other currency) bec of that, the other currency may want to purchase less of our products bec they are now relatively more expensive, causing us to export less and import more

Question 32

What is the flow between countries called

Answer 32

balance of payments

Question 33

What is the largest part of the balance of payments

Answer 33

balance of trades

Question 34

For balance of trades, exports are called/give the US

Answer 34

credit

Question 35

For balance of trades, imports are called/give the US

Answer 35

debit

Question 36

What is monetary and fiscal policy

Answer 36

monetary is done by the fed reserve board fiscal is the gov

Question 37

What does the FED control

Answer 37

money available for businesses and consumers to spend

Question 38

What is the Feds dual mandate

Answer 38

promote max employment keep prices stable

Question 39

Who is Milton Friedman

Answer 39

founder of monetarism theory

Question 40

What are the diagnostic tools used by the FED

Answer 40

the money supply

Question 41

How does the money supply work

Answer 41

M1 = Cash and money in demand deposit accs such as checking accs (the money most readily available to be spent) M2 = M1 + consumer savings deposits (assets that can be easily moved into cash or DDAs savings accs money markets retail CDs overnight repos M3 = M2 + large time deposits (assets that are harder to move to DDAs) Jumbo CDs multiday repos

Question 42

What are some direct tools used by the Fed

Answer 42

Fed open market operations: buying and selling secs to banks Changing the discount rate They COULD change Reg Ts minimum deposit amount for margin or change the reserve requirements for banks but unlikely

Question 43

What happens during Fed open market operations

Answer 43

buying secs from banks (expanding the money supply) gives the banks more money to lend out and lowers interest rates Selling secs to banks (contracting the money supply) end with banks having less money to lend out (bec they spent it on buying secs from the Fed) so they cant make as many new loans and interest rates rise

Question 44

What is the rate that news is referring to when they say the Fed is raising rates

Answer 44

discount rate

Question 45

What is the federal funds rate

Answer 45

rate that commercial money center banks charge each other for overnight loans of 1mil or more

Question 46

What is the prime rate

Answer 46

rate that commercial money center banks charge their most creditworthy corporate borrowers for unsecured loans

Question 47

When the Fed eases or tightens the money supply what rate do the banks adjust

Answer 47

prime rate

Question 48

What is the broker call loan rate

Answer 48

rate that banks charge BDs for loans on margin accs

Question 49

What BD call loans are callable when

Answer 49

24hr notice