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22 Cards in this Set
- Front
- Back
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What is the difference between Gross National Product and Gross Domestic Product?
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GNP measures total value of all good and services produced by nat'l economy (including those produced overseas). GDP includes output of all goods and services produced by labor and property located in US
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What is the Consumer Price Index (CDI)?
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Measures the price of a fixed basket of goods bought by typical consumers to measure inflation
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Real Interest Rate
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Rate of interest a bond investor expects to receive after allowing for decline in purchasing power due to inflation. Yield - Inflation Rate = Real Interest Rate |
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What is the difference between inflation and deflation?
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Inflation is when there is too much money chasing too few goods (typically associated by high interest rates). Deflation is a decline in prices, caused by reduction in supply of money or credit. Interest rates trend downward
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What are the four steps in a business cycle?
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Expansion: Economy is growing and consumers borrow money to expand raising interest rates Peak: Demand for goods overtakes supply creating inflation Contraction: Demand diminishes and economic actvity begins to decrease Trough: Bottom of economy's decline and lower prices stimulate demand |
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What is the definition of a recession?
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Occurs when real GDP declines for two successive quarters
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What are the three business cycle indicators?
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Leading, Coincident, Lagging
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What are examples of leading economic indicators?
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Average workweek for production workers in manufacturing New orders for consumer goods and materials Contracts and orders for plant and equipment New building permits for private housing units The prices for S&P index common stocks Index of consumer expectations |
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What are examples of coincident economic indicators?
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Employees on non-agricultural payrolls Index of Industrial Protection Manufacturing and Trade Sales Personal Income less transfer payments (transfer payments represent aid for individuals in form of Medicare, SSN, etc.) |
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What are examples of lagging economic indicators?
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Average duration of unemployment Labor cost per unit of output for manufactured goods Consumer price index for services Average prime rate charged by banks Commerical and industrial loans outstanding |
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Define the following rates: Prime, Discount, Federal Funds, Call Rate
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Prime Rate: charged by commerical banks to their best corporate clients Discount Rate: charged by FRB when a member bank borrows from it Fed Funds Rate: rate charged on an overnight loan of reserves between member banks Call Rate: Rate charged by commercial banks on collateralized loans to B-D's |
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Cyclical Stocks
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Stocks that are parallel to the changes in the economy, such as machine tool companies |
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Defensive Stocks |
Have smaller reaction to the economy because the demand will never cease (alcohol, tobacco companies)
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What are the differences between Keynesian, Supply-Side and Monetary theory?
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Keynesian: belives gov't intervention is necessary to stimulate the economy Supply-Side: reducing taxes and size of gov't will stimulate the economy and get people spending Monetary: Attempts to control the supply of money and credit in the economy to affect interest rates |
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Differences between M1 and M2
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M1: Currency in circulation and demand deposits M2: money market deposit accounts, balances at money funds, overnight repurchase agreements from banks |
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What is a reserve requirement?
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Member banks need to keep portion of deposits on reserve with FRB. If FRB adjusts the reserve requirement amount it can change amount of money in circulation Can have drastic effect so this is not used often by FRB |
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What is the multiplier effect?
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Rate at which banks can create new money by relending deposits and creating new deposits
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Discount Window/ Federal Funds Rate
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Another way FRB can regulate money in circulation is by changing the discount rate it charges banks to borrow money from it FRB can also change the range for the federal funds rate to manipulate interest rates |
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Open Market Operations
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FRB can sell/buy securities to change amount of money in circulation or use repurchase agreements to change amount of money for a short time |
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Intermediation versus Disintermediation
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Intermediation is the ability for a bank to attract deposits and extend credit, while disintermediation is when investors take money out from one place and move it elsewhere to get better return
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If the US Dollar is strong interest rates go up and what happens to imports?
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Imports go up as Americans spend more, but exports go way down as no other countries spend money in America because of the now expensive goods
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What are examples of US dollar investment that tracks different currencies?
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ADRs, International Funds, Global funds are denominated in USD but they track underlying securities denominated in a different country's currency
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