Unit 9 Flashcards
(126 cards)
When the Federal Open Market Committee (FOMC) directs that Treasury securities be purchased in the open market, this will do which of the following?
Lower interest rates on loans to consumers
When the FOMC directs that Treasury securities be purchased in the open market, this will loosen the money supply; securities come out of the economy and money goes in to the economy. More money available lowers interest rates to consumers.
Seacoast Securities, a FINRA member firm and a large corporation, needs to secure funds to cover customers’ margin purchases. Seacoast reaches an agreement to borrow from a large money-center bank for a loan that the bank can terminate with 24 hours’ notice. The rate that the bank charges Seacoast for this loans is called
the broker call loan rate.
A broker-dealer borrows funds to use in margin purchases at the broker call loan rate, and these loans may be called with a one-day notice. The use of the funds classifies this as a broker call loan. Seacoast may borrow for other purposes at the prime rate, but not for this activity.
What is the formula for calculating working capital?
Working capital = current assets – current liabilities.
Which benchmark interest rate indicates the direction of the Federal Reserve Board’s monetary policy?
the discount rate
The discount rate, being the rate the Federal Reserve Bank (FRB) charges for short-term loans to its member banks, is generally considered a good indication of the FRBs policy to either tighten or loosen its hold on the amount of money available to banks for lending to consumers.
Industries that tend to be highly sensitive to inflation, deflation and the ups and downs of business trends would best be described as
Cyclical industries.
Cyclical industries are highly sensitive to business cycles (the ups and downs of business trends) and inflationary or deflationary trends. Most cyclical industries produce durable goods, such as heavy machinery, or material such as steel to be utilized by other industries like the automobile industry. Demand for such goods increases when we are in periods of prosperity but during recessions, the demand for such products declines as manufacturers postpone investments in new capital goods and consumers postpone purchases of these goods.
What is a defensive industry? Example?
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What is Keynesian?
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What is a growth industry? Example?
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What is the Federal Funds Rate?
The interest rate negotiated for an uncollateralized overnight loan between two money center banks.
The federal funds rate is the rate commercial money center banks charge each other for an overnight, unsecured (no collateral) loan.
When the US dollar is strong what happens to the balance of trade?
Strong US dollar = FEWER exports, MORE imports
When the dollar is strong, foreign currency buys FEWER U.S. goods. On the other hand, the strong dollar would buy MORE foreign goods.
Weak US dollar = more exports, less imports
When the dollar is weak, foreign currency buys MORE U.S. goods. On the other hand, the weak dollar would buy FEWER foreign goods.
Demand side theory is also known as
Keynesian theory.
John Maynard Keynes (later the first Baron Keynes) wrote the Magnum Opus of demand side theory.
What is Milton Friedman known for?
Milton Friedman is known for his work on Monetarist theory.
Adam Smith is known for
Adam Smith (the invisible hand) is known for a free-market approach.
Art Laffer is what economic side?
Art Laffer leans toward a supply-side approach.
Match the following statement to the best expression: Government should allow market forces to determine prices of all goods and that the federal government should reduce government spending as well as taxes.
Supply-side Economic Theory
What is supply side economic theory?
Supply-side economics holds that governments should allow market forces to determine prices of all goods. Supply-side adherents judge that the federal government should decrease government spending and taxes. In this way, sellers of goods will price them at a rate that allows them to meet market demand and still sell them profitably.
A weak U.S. dollar leads to more
U.S. exports and a balance of payments surplus.
When the dollar is weak relative to other currencies, it makes U.S. goods more affordable for foreign consumers to buy, so U.S. exports increase. As more goods flow out of the U.S., more money flows in—surplus.
Tiny Cars, Inc., manufactures very small cars and trucks that get really good gas mileage. Their best seller is a small truck that is popular with businesses that use them as delivery vehicles. Tiny Cars is likely which kind of company?
Cyclical company
Tiny Cars is a cyclical company whose sales will likely decline as business slows, and recover as the economy grows.
In what order do the following economic phases typically occur? (Recovery,Trough,Decline,Prosperity)
Recovery, Prosperity, Decline, Trough
Expansion (recovery) is considered to be the beginning of the business cycle, followed by the peak (prosperity), contraction (decline), and trough.
What is supply side approach to fiscal policy sometimes known as?
Trickle-down economics
A supply-side approach to fiscal policy will use all of these tools except (Providing tax credits to small businesses, decreasing government regulatory costs, decreasing tax rates on business entities, personal income tax rebates)
Personal Income Tax Rebates
Supply-side fiscal policy seeks to create a better environment for business to thrive. The end goal is a growing economy that creates jobs. Sometimes called trickle-down economics, the emphasis is on the business side much more than the consumer side.
What is a growth company stock?
Common shares in companies that retain earnings and pays little or no dividends
Most every industry passes through phases; introduction, growth, maturity, and decline. An industry is in its growth phase if it is growing faster than the economy as a whole due to e.g. technological changes, new products, or changing consumer tastes. Because growth companies retain nearly all of their earnings to finance business expansion, growth stocks pay little or no dividends.
Deflation is
book: “deflation is a general decline in prices. Deflation usually occurs during severe recessions when unemployment is on the rise”
Deflation is when consumer and asset prices decrease over time, and purchasing power increases. Essentially, you can buy more goods or services tomorrow with the same amount of money you have today. This is the mirror image of inflation, which is the gradual increase in prices across the economy.
While deflation may seem like a good thing, it can signal an impending recession and hard economic times. When people feel prices are headed down, they delay purchases in the hopes that they can buy things for less at a later date. But lower spending leads to less income for producers, which can lead to unemployment and higher interest rates.
This negative feedback loop generates higher unemployment, even lower prices and even less spending. In short, deflation leads to more deflation. Throughout most of U.S. history, periods of deflation usually go hand in hand with severe economic downturns.
Deflation occurs during
a depression, coinciding with an economic trough in the business cycle.
Deflationary periods in the economy are most associated with severe recessions. Recessions occur during periods of economic contraction in the business cycle.
