1
Q
What is demography? (1)
A
- Identifies trends in populations over time e.g. ageing population, fewer younger people - greater need for govt investment, supply side policies, investment in tech
2
Q
What are the GDP limits of the EU? (2)
A
- Debt to GDP ratio - 40%
- Upper deficit limit - 3%
3
Q
What are socio-economic changes? (3)
A
- Environmental change
- Demographic
- Global economy
4
Q
What are the major trends in the global economy? (5)
A
- Growth in emerging markets
- International trade
- Financial globalisation
- Technology change
- Increased demand for commodities
5
Q
What is PPI? (1)
A
- Producer’s price index (cost of inputs) indicates inflation expectations. If a producer is spending more on suppliers (inputs), they will pass the cost onto the consumer in the form of higher prices
6
Q
What are some leading economic indicators? (3)
A
- Consumer or business surveys
- Money supply and credit growth
- Stock market movements
7
Q
What are some lagging economic indicators? (1)
A
- Unemployment levels (moves 3 or 4 quarters after the output itself changes)
8
Q
What is a coincident indicator? (3)
A
- Industrial production
- GDP move with the economy
- National Bureau of Economic Research measures this in the US
9
Q
How is government borrowing monitored? (4)
A
- Public Sector Net Cash Requirement (another name for a budget deficit)
- Deficit = borrowing > revenue
- Surplus = revenue > borrowing
- Anything to do with govt spending/borrowing = fiscal
10
Q
What is inflation? (2)
A
- A general rise in average price level over a period of time
- Fall in purchasing power
11
Q
What are the measures of inflation? (2)
A
- RPI - price of a weighted basket of goods purchased by the average household. If price of goods in a basket increases, so will the index value. Index linked gilts are linked to RPI - using a level 3 months prior to any payment date
- CPI - monetary policy committee sets a CPI target of 2% - took over from RPI in 2003 as measure of inflation
12
Q
What is the base rate? (2)
A
- Monetary tool used by the MPC in the BoE to influence interest rates
- 0.5% is the target base rate
13
Q
What are the various stock market movements in an economic cycle? (5)
A
- Bull market - rising price trend
- Bear market - falling price trend
- Contrarian approach - doing the opposite of the trend e.g. buying when the trend is selling (long)
- Cyclical companies - firms the do well when the economy is doing well, but do badly when there is a downturn e.g. luxury goods and house builders
- Counter cyclical companies - firms that do well when the economy is in a downturn and not so well when the economy is booming e.g. cheaper alternatives
14
Q
What is the balance of payments? (1)
A
- Net flow of funds into or out of the uK
15
Q
What is the current account on the BoP? (5)
A
- Current account = trade position of the UK - net exports - (X-M).
- Current account includes cash flow from visibles such as physical goods e.g. coal, steel and invisibles such as tourism, services, banking
- The total of the current account = balance of trade
- Exports > imports = BoP surplus - correct this by
- Import > export = BoP deficit
16
Q
What is the current account on the BoP? (4)
A
- Capital account = includes FDI - domestically and abroad
- Measures investment relationship of the UK with the rest of the world
- Longer term aspect of BoP
- Net impact of UK investors in foreign investments and non-UK investors in the UK
17
Q
What is the relationship between BoP and exchange rates? (1)
A
- If demand for a foreign good increases, imports will increase and the price of the currency will also increase, eventually making imports more expensive
18
Q
What are the indicators of government borrowing? (5)
A
- Public sector net cash requirement
- This is the difference between what the government has spent in the public sector and what is has generated in income
- Central government net cash requirement
- Local government net cash requirement
- Public corporations net cash requirements
19
Q
What are the measurements of inflation? (3)
A
- CPI - consumer price index, harmonised index of consumer prices
- RPI - retail price index
- RPIX - adjusted to strip out mortgage payments
20
Q
What is inflation, deflation and disinflation? (3)
A
- Inflation - general rise in price level - RPI is 3%
- Deflation - general fall in price level - RPI is 0.5%
- Disinflation - inflation at a negative rate - RPI moves from 3% to 2%
21
Q
What are the 2 types of inflation? (2)
A
- Demand pull inflation - rise in price level from increase in aggregate demand in economy
- Cost push inflation - rise in price level from increase costs e.g. wages and price of raw materials
22
Q
What is monetary policy? (7)
A
- When the BoE implements policies controlling the money supply (QE) and interest rates
- IR rise, people save more and borrow less - contractionary monetary policy
- IR fall, people spend more, save less - expansionary monetary policy
- Monetary Policy Committee set the interest rates
- Government inflation target of 2%. If inflation is below 1% or above 3%, MPC need to explain why
- Monetary policy is more effective for short term intervention
- Monetary policy primarily used to control inflation
23
Q
What are retail sales? (1)
A
- Measures the volume of sales in the retail sector
- If retail sales fall, consumers spend less, save more
24
Q
What is unemployment? (1)
A
- When someone will is willing and able to supply themselves to the labour market, but cannot find paid work
25
What are the types of unemployment? (4)
- Structural - supply side - mismatch between jobs and skills
- Frictional - moving between jobs
- Seasonal - demand during certain seasons e.g. ski instructor
- Cyclical - demand side shocks/layoffs - recessionary
26
What are indicators of the health of an economy? (5)
- Inflation
- Level of unemployment
- Stock market indicies
- PSNCR
- GDP
- Net exports
27
What is the impact of unemployment? (2)
- Higher benefits, less tax revenue
- May lead to increased wages, inflation
28
How do stock market indices indicate the health of an economy? (2)
- Current share prices reflecting the future expectation for each company
- Current index values are rising
29
What are the components of aggregate demand? (4)
- Consumption
- Income
- Government spending
- Net exports (X-M)
30
What is the balance of payments? (3)
- Made up of 2 accounts
- Current account - exports-imports position (goods and services)
- Capital account - includes FDI abroad and at home
31
What is a current account deficit? (3)
- Imports > exports
- Allowing currency to depreciate corrects this
- Domestic goods cheaper, exports more expensive
32
What is a current account surplus? (3)
- Exports > imports
- Appreciation in the currency to correct this
- SPICED - imports cheaper, exports more expensive
33
What is GDP? (5)
- Measures economic growth
- Market value of goods and services produced WITHIN a country
- Includes foreign owned produced in the UK
- Does not include UK produced goods abroad
34
What is GNP? (2)
- Market value of goods and services produced BY a country
- All UK produced goods, including abroad
35
What are the injections into the circular flow of money? (3)
- Exports - current account
- Investment - financial institutions
- Government spending - fiscal policy
36
What are withdrawals from the circular flow of money?
- Imports - fx rates
- Savings - monetary policy
- Taxes - fiscal policy
37
What is the equation for an economy that is in equilibrium?
- G + X + I = I + T + S
38
What is aggregate demand? (1)
- Total amount of demand for all finished goods and services produced in an economy
39
What is the consumption function? (2)
- C = a + bYd
- Higher the gradient, the higher the marginal propensity to consume
40
What is fiscal policy? (4)
- Government policy based on taxation and government spending
- If spending is more than taxation, there is a budget deficit - expansionary
- If spending is less than taxation, there is a budget surplus - contractionary
- If government spending equals tax - balanced budget
41
How does a budget deficit impact the Public Sector Net Cash Requirement? (3)
- Government/DMO needs to issue more gilts
- More gilts issues, price falls, yield increases
- If government bonds, default risk free rate - more likely to invest. Can lead to crowding out of corporate securities
42
What is the Keynesian multiplier? (2)
- An increase in income leads to a disproportionate increase in MPC
- Multiplier effect
43
What is monetary policy? (3)
- When central banks use QE and interest rates to influence the economy
- IR rise - QE decreases = contractionary
- IR falls - QE increases = expansionary
44
How can central banks influence the money supply? (4)
- Quantitative easing - increasing money supply on bank balance sheet
- Forward guidance - central banks drop hints of future rates
- Sterilisation - adjusting money supply in order to compensate for balance of payments surpluses/deficits
- Crowding out - govt gilts more attractive, crowing out corporate debt
45
What is fractional reserve banking? (2)
- Multiplier effect extends to banks - money multiplier
- Banks receive a deposit of £1000. They will then lend £900. That then gets spent again with some in reserves
46
How is credit control regulated? (3)
- BoE
- Banks, capital ratios
- FCA/PRA - capital and liquidity requirements under Basel Accord
47
What is the quantity theory of money? (5)
- Fisher equation
- MV = PT (money velocity in circulation = price x transactions)
- Changes in price levels are mainly caused by changes in the money supply
- 5% increase in money supply = 5% increase in prices
- 5% decrease in money supply = 5% decrease in prices
48
What is the short run Phillips Curve? (3)
- Short run Phillips Curve looks at the relationship between inflation and unemployment
- Constant expected inflation and the natural rate of unemployment
- Unanticipated increase in AD lowers unemployement and increases inflation
49
What is the long run Phillips curve? (1)
- Unanticipated inflation will cause short run fluctuations around the natural rate but wages eventually adjust and the economy returns to natural state
Investment Practice
flashcards
Decks in class (16)
# Cards
-
Statistics55
-
Financial Maths23
-
Information And Indicies45
-
Equities: Types, Features and Issuing Equities75
-
Debt: Types and Features84
-
Debt Valuation66
-
Money Markets12
-
Foreign Exchange22
-
Derivatives And Other Instruments79
-
Property Investments39
-
Investment Products43
-
Portfolio Theory152
-
Company Accounts95
-
Ratio Analysis56
-
Microeconomics57
-
Macroeconomics49
