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Series 65 > Unit 8: Basic Economic Concepts > Flashcards

Unit 8: Basic Economic Concepts Flashcards

1
Q

What is the US Fiscal Policy?

A

The government’s (president and congress) use of spending and taxation to influence economic activity

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2
Q

What determines if there is a National budget surplus or deficit?

A

Tax Revenue vs. Expenditures

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3
Q

What is the US Monetary Policy?

A

The central bank’s (controlled by Feds) actions that affect quantity of money and credit in an economy to influence economic activity

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4
Q

What does it mean if the economy is expansionary vs. contractionary, in terms of the Monetary Policy?

A

Expansionary: Loosening of the economy by the Feds
Contractionary: Tightening of the economy by the Feds

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5
Q

Describe Keynesian Economics

A

The idea that government intervention is very important. During recession, govt should lower taxes and increase govt spending (run a deficit)

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6
Q

What is the Monetarist Theory?

A

The idea that money supply determines prices

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7
Q

Describe Classical/Supply-side Economics

A

Belief in less taxes and less govt regulation
Idea that supply creates demand by providing jobs and wages

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8
Q

What is the Federal Fund rate?

A

The rate banks charge each other for overnight loans over $1 mil. Barometer of short term interest rates. Highly influenced -but not set- by Feds.

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9
Q

What is the Prime Rate?

A

The Loan rate set by banks for corporate loans

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10
Q

How do the Feds (Federal Reserve Board) influence the economy?

A
  1. Reserve requirements: amount banks must leave with the Feds - raise amount, banks have less money to lend out = higher interest rates
  2. Discount rate: rate charges by fed to banks borrowing money.
  3. open market operations: buy/sell US treasury securities - most common Fed tool.
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11
Q

What is GDP?

A

The market value of all goods and services produce in a country (net exports ^ GDP)
(If the GDP growth rate declines for: 2 qtrs = recession,6 qtrs = depression)

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12
Q

What is GDP?

A

The market value of all goods and services produce in a country (net exports ^ GDP)

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13
Q

What are the 4 stages of the Business Cycle?

A

Expansion
Peak
Contraction
Trough

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14
Q

What are some characteristics of an economy in the expansion stage of the business cycle?

A

Business activity is increasing
UP: inflation, industrial production, stock mkt, property values, GDP growth rate
DOWN: unemployment, inventories

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15
Q

What are some characteristics of an economy in the Peak stage of the business cycle?

A

Productive capacity has been reached and cannot expand further
DOWN GDP growth rate, slowdown in hiring
UP: inflation

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16
Q

What are some characteristics of an economy in the Contraction stage of the business cycle?

A

business activity declines
UP: bankruptcies, bond defaults, unemployment,
DOWN: hours worked, consumer spending, home construction, stock market, inflation rate, GDP growth rate
(If the GDP growth rate declines for 2 qtrs = recession, If the GDP rate declines for 6 qtrs = depression)

17
Q

What are some characteristics of an economy in the Trough stage of the business cycle?

A

Contraction has leveled off
DOWN: moderate decrease inflation rate
UP: GDP growth rate, overtime/temp workers, unemployment, consumer spending on durable goods and housing

18
Q

What are some examples of cyclical industries?

A

Durable goods like cars, machinery, steel

19
Q

What are some examples of countercyclical industries?

A

Gold

20
Q

What are growth industries?

A

Industries growing faster than economy as a whole due to technology , consumer tastes, etc.
ex. social media and bioengineering

21
Q

What are defensive industries?

A

Industries not heavily influenced by cycle of the economy.
nondurable consumer goods ex. food, pharm, tobacco, energy

22
Q

What does a balance of payments mean?

A

Exports vs. Imports

23
Q

What rate of unemployment reflects full employment

A

4% Unemployment

24
Q

What is the yield curve?

A

The yield curve shows the difference between short and long term interest rates
long term interest rates usually higher - time value of money, reduced buying power b/c of inflation, increased risk of defaults, loss of liquidity in long term investments

25
Q

When do we see an inverted yield curve?

A

When there is a high demand for money relative to supply and short term interest rates have gone up (feds tightened credit in an overheating economy)

26
Q

What is deflation?

A

Lowering of prices, measured by CPI
Most often seen during a recession, when demand is low

27
Q

What is inflation?

A

increases in prices measured by index (CPI- consumer price index)

28
Q

What effect does inflation have on interest rates?

A

When inflation increases, interest rates go up
When inflation decreases, interest rates go down

29
Q

What effect does inflation have on bond yields?

A

When inflation increases, bond yields go down
When inflation decreases, bond yields go up

30
Q

What does inflation inertia mean?

A

inflation generally lags behind unexpected changes in economic conditions.

31
Q

What is intertial inflation?

A

A persistent rate of inflation that continues at same rate until economic shock leads to a change (often caused by excessive demand)

32
Q

What are some examples of leading economic indicators?

A

money supply, housing starts, unemployment claims, manufacturing hours, new order for goods, interest rate spread between 10 yr treasury bond and fed fund rate, stock prices, consumer expectations

33
Q

What are some examples of lagging economic indicators?

A

duration of unemployment, credit: income, inventories: sales, prime rate, CPI for services, outstanding loans, manufacturing labor costs

34
Q

What are some examples coincident economic indicators ?

A

non-ag employment, personal income, industrial production, manufacturing and trade sales

35
Q

What are the 3 types of economic indicators and when do they occur?

A

Leading (4-6 mo before recession/expansion), Lagging (4-6 mo after recession/expansion), and Coincident (simultaneous w/business cycle)

36
Q

What is Core CPI?

A

CPI excluding food and energy

Series 65 (18 decks)

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