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250 Cards in this Set
- Front
- Back
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MACROECONOMICS |
the study of the behavior of the economy as a whole; examines the forces that may affect many firms, consumers, and workers at the same time |
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MICROECONOMICS |
studies individual prices, quantities, and markets |
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BUSINESS CYCLE ECONOMIC GROWTH |
central themes of macroeconomics |
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JOHN MAYNARD KEYNES |
founder of Macroeconomics (1930s) |
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EMPLOYMENT ACT OF 1946 |
Congress affirmed the government's role in promoting output growth, fostering employment and maintaining price stability |
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OUTPUT (HIGH LEVEL AND RAPID GROWTH) EMPLOYMENT (HIGH LEVEL WITH LOW INVOLUNTARY UNEMPLOYMENT) PRICE-LEVEL STABILITY |
objectives of measuring economic success |
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MONETARY POLICY FISCAL POLICY |
instruments measuring economic success |
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MONETARY POLICY |
controlling money supply to determine interest rates (Bangko Sentral ng Pilipinas) |
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FISCAL POLICY |
government expenditures; taxation (Department of Finance; Bureau of Internal Revenue) |
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Trade policies (tariffs,quotas) International Financial Management (foreign exchange rate) |
International Linkages |
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GROSS DOMESTIC PRODUCT |
1st definition total expenditure on domestically-produced final goods and services |
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GROSS DOMESTIC PRODUCT |
total income earned by domestically-located factors of production |
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EXPENDITURE = INCOME |
In every transaction, the buyer's expenditure becomes the seller's income. |
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CONSUMPTION (C) |
the value of all goods and services bought by households which includes durable goods, non-durable goods, services |
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DURABLE GOODS |
goods that last a long time (cars,home, appliance) |
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NON-DURABLE GOODS |
goods that last a short-time (food,clothing) |
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SERVICES |
work done for consumers (dry cleaning, air travel) |
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INVESTMENT |
def1: spending on the factor of production capital def2: spending on goods bought for future use it includes business fixed investment, residential fixed investment, inventory investment |
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BUSINESS FIXED INVESTMENT |
spending on plant and equipment that firms will use to produce other goods and services |
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RESIDENTIAL FIXED INVESTMENT |
spending on housing units by consumers and landlords |
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INVENTORY INVESTMENT |
the change in the value of all firm's inventories |
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CAPITAL |
one of the factors of production at any given moment, the economy has a certain overall stock of capital stock |
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INVESTMENT (I) |
spending on new capital flow |
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STOCK |
a person's wealth number of people with college degrees the government debt |
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FLOW |
a person's saving number of new college graduates the government budget deficit |
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GOVERNMENT SPENDING (G) |
includes all government spending on goods and services but excludes transfer payments because they do not represent spending on goods and services |
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NET EXPORTS NX = EX-IM |
the value of total exports (EX) minus the value of total imports (IM) |
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Y |
C + I+ G+NX |
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Y (GDP) |
the value of total output |
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C+I+G+NX |
aggregate expenditure |
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OUTPUT = EXPENDITURE |
Assume that firms purchase their unsold output |
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INVENTORY INVESTMENT |
unsold output that goes into inventory |
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TOTAL INCOME, TOTAL OUTPUT, TOTAL EXPENDITURE, THE SUM OF VALUE-ADDED AT ALL STAGES IN THE PRODUCTION OF FINAL GOODS |
what GDP measures |
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GROSS NATIONAL PRODUCT (GNP) |
total income earned by the nation's factors of production regardless of location |
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GROSS DOMESTIC PRODUCT (GDP) |
total income earned by domestically-located factors of production, regardless of nationality |
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GDP |
the value of all final goods and services produced |
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NOMINAL GDP |
measures all the values of final goods and services produced using current prices |
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REAL GDP |
measures all the values of final goods and services produced using the prices of a base year |
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CHANGES IN PRICES CHANGES IN QUANTITIES OF OUTPUT PRODUCED |
causes of the changes in nominal GDP |
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CHANGES IN QUANTITIES |
cause of the changes in real GDP |
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INFLATION RATE |
the percentage increase in the overall level of prices |
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GDP DEFLATOR CONSUMER PRICE INDEX (CPI) |
measure of the price level measures of inflation |
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GDP DEFLATOR |
100*nominal GDP/real GDP |
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GDP DEFLATOR |
weighted average of prices that change over time |
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CONSUMER PRICE INDEX (CPI) |
measure of the overall level of prices published by the Bureau of Labor Statistics (BLS) used to track changes in the typical household's cost of living, adjust contracts for inflation, allow comparisons of figures from different years |
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CPI IN ANY MONTH |
100* cost of basket in that month/cost of basket in base period |
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CPI |
weighted average of prices that remains fixed over time |
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SUBSTITUTION BIAS INTRODUCTION OF NEW GOODS UNMEASURED CHANGES IN QUALITY |
reasons why CPI may overstate inflation |
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1.1% |
percent increase of the CPI in the cost of living according to Boskin Panel |
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PRICES OF CAPITAL GOODS |
included in GDP deflator if produced domestically but excluded from CPI |
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PRICES OF IMPORTED CONSUMER GOODS |
included in CPI but excluded from GDP deflator |
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BASKET OF GOODS |
fixed in the CPI but changes every year in the GDP deflator |
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EMPLOYED |
working at a paid job |
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UNEMPLOYED |
not employed but looking for a job |
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LABOR FORCE |
the amount of labor available for producing goods and services; all employed plus unemployed persons |
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NOT IN THE LABOR FORCE |
not employed, not looking for work |
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UNEMPLOYMENT RATE |
percentage of the labor force that is unemployed |
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LABOR FORCE PARTICIPATION RATE |
the fraction of the adult population that 'participates' in the labor force |
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OKUN'S LAW |
stated that a one-percent decrease in unemployment is associated with two percentage points of additional growth in real GDP |
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CONSUMPTION AND SAVINGS |
play a central role in a nation's economic performance |
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RAPID GROWTH OF OUTPUT, INCOME AND WAGES |
results of nations that save and invest large fraction of their incomes |
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LOW RATES OF GROWTH OR PRODUCTIVITY AND WAGES |
results of nations that consume most of their incomes and invest little |
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CONSUMPTION (PERSONAL CONSUMPTION EXPENDITURE) |
expenditure by households on final goods and services |
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SAVING |
part of personal disposable income that is not consumed |
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Y(INCOME) |
C(CONSUMPTION) + S (SAVINGS) |
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CONSUMPTION |
largest single component of GDP |
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HOUSING, MOTOR VEHICLES, FOOD, MEDICAL CARE |
major elements of consumption |
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POOR COUNTRIES |
spend heir income largely on necessities of life: food and shelter |
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SAVING |
the greatest luxury of all |
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PERSONAL SAVING |
part of disposable income that is not consumed |
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SAVINGS |
INCOME(Y) minus CONSUMPTION(c0 |
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INCOME |
primary determinant of consumption and saving |
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BREAK-EVEN POINT |
the household neither saves nor dissaves but consumes all its income |
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BELOW BREAK-EVEN POINT |
household consumes more than its income, it dissaves |
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ABOVE BREAK-EVEN POINT |
household is saving |
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CONSUMPTION FUNCTION |
shows the relationship between the level of consumption expenditures and the level of disposable personal income |
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ANY POINT ON THE 45 DEGREE LINE |
consumption exactly equals income and the household has zero saving |
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CONSUMPTION FUNCTION ABOVE THE 45 DEGREE LINE |
household is dissaving |
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CONSUMPTION FUNCTION BELOW 45 DEGREE LINE |
household has positive saving |
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SAVING FUNCTION |
shows the relation between the level of saving and income |
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MARGINAL PROPENSITY TO CONSUME (MPC) |
extra amount that people consume when they receive an extra dollar of disposable income |
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MARGINAL |
extra/additional |
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PROPENSITY TO CONSUME |
desired level of consumption |
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CONSUMPTION FUNCTION SLOPE |
slope of the function is the same as MPC "the rise over the run" |
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MARGINAL PROPENSITY TO SAVE |
the fraction of an extra dollar of disposable income that goes to extra saving |
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1 |
MPS and MPC is always equal to |
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CONSUMPTION BEHAVIOR |
crucial for understanding both short term business cycles and long term economic growth |
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SAVINGS |
SHORT-RUN why we study national consumption behavior |
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INVESTMENT |
LONG-RUN why we study national consumption behavior |
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1. CURRENT DISPOSABLE INCOME 2. PERMANENT INCOME AND THE LIFE-CYCLE 3. WEALTH AND OTHER INFLUENCES |
determinants of consumption |
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CURRENT DISPOSABLE INCOME |
central factor in determining a nation's consumption |
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MODEL OF CONSUMPTION |
1. Consumer generally choose their consumption levels with an eye ti both current income and long-run income prospects 2. Permanent income 3. Life-cycle hypothesis |
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PERMANENT INCOME |
the trend level of income that is income after removing temporary or transient influence due to weather or losses -primary determinant of the level of nation consumption |
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LIFE-CYCLE HYPOTHESIS |
assumes that people save in order to smooth their consumption over their life time |
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WEALTH EFFECT |
Higher wealth leads to higher consumption |
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1. NATIONAL ACCOUNTS MEASURE OF SAVING 2. THE BALANCE SHEET MEASURE OF SAVING |
alternative measure of saving |
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NATIONAL ACCOUNTS MEASURE OF SAVING |
the difference between disposable income (excluding capital gains) and consumption |
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BALANCE SHEET MEASURE OF SAVING |
calculates the change in real net worth (assets,liabilities, corrected by inflation) from one year to the next; includes capital gains |
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INVESTMENT |
second major component of private spending |
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1. leads to CHANGES IN AGGREGATE DEMAND AND AFFECTS THE BUSINESS CYCLE 2. leads to CAPITAL ACCUMULATION |
2 roles of investment in macroeconomics |
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CAPITAL ACCUMULATION |
increases the nation's potential output and promotes economic growth in the long-run |
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REVENUES COSTS EXPECTATIONS |
determinants of investment |
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REVENUES |
investment will bring additional revenue if it helps sell more products |
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COSTS |
cost of investing cost of borrowing |
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EXPECTATINS |
profit expectations and business confidence |
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INVESTMENT DEMAND CURVE |
shows the relationship between the interest rates and investment |
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ANNUAL NET PROFIT |
difference between the annual revenue and annual cost |
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ANNUAL NET PROFIT IS POSITIVE |
investment makes money |
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ANNUAL NET PROFIT IS NEGATIVE |
investment loses money |
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INTEREST RATES |
affect the level of investment |
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INCREASE IN GDP |
shift demand curve out |
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INCREASE IN BUSINESS TAXATION |
would depress investment |
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EXPECTATIONS (BUSINESS OPTIMISM) |
shift out the investment demand schedule |
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BUSINESS FLUCTUATIONS |
upward and downward movements in output, inflation, interest rates, and employment form the business cycle that characterizes all market economies |
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BUSINESS CYCLE |
economy wide fluctuations in total national output, income and employment, usually lasting for a period of 2 to 10 years |
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RECESSION EXPANSION |
2 main phases of business cycle |
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PEAKS AND TROUGHS |
mark the turning points of the cycle |
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RECESSION |
downturn of a business cycle recurring period of decline in total output, income, and employment usually lasting from 6 months to a year marked by widespread contractions in many sectors of the economy |
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DEPRESSION |
a recession that is major in both scare and function |
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IRREGULAR |
actual patterns of short-term fluctuations(cycles) |
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1. CONSUMER PURCHASES DECLINE WHILE BUSINESS INVENTORIES INCREASE 2. DEMAND FOR LABOR FALLS 3. INFLATION SLOWS 4. BUSINESS PROFITS (AND INTEREST RATES) FALL |
Characteristics of recession |
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EXOGENOUS VS. INTERNAL CYCLES DEMAND-INDUCED CYCLES |
business cycle theories |
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EXOGENOUS THEORY |
EXOGENOUS VS. INTERNAL CYCLE find the sources of the business cycle in the fluctuations of factors outside the economic system |
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INTERNAL THEORY |
EXOGENOUS VS INTERNAL CYCLE looks for mechanism within the economic system that give rise to self-generating business cycle -every expansion breeds recession and contraction and every contraction breeds revival and expansion MULTIPLIER ACCELERATOR THEORY |
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MULTIPLIER ACCELERATOR THEORY |
Rapid growth stimulates rapid investment Slower growth reduces investment spending |
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SHOCKS TO AGGREGATE DEMAND |
one important source of business fluctuations |
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1. MONETARY THEORIES 2. MULTIPLIER-ACCELERATOR MODEL 3. POLITICAL THEORIES 4. EQUILIBRIUM-BUSINESS CYCLE 5. REAL-BUSINESS CYCLE 6. SUPPLY SHOCK |
different approaches proposed by economists in observing business cycles |
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MONETARY THEORIES |
attributes business fluctuations to the expansion and contraction of money and credit |
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MULTIPLIER-ACCELERATOR MODEL |
proposes that exogenous shocks are propagated by the multiplier mechanism along with a theory of investment (accelerator principle) shows how the interaction of multiplier and accelerator can lead to regular cycles in AD |
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POLITICAL THEORIES |
attributes fluctuations to politicians who manipulate economic policies in order to be re-elected |
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EQUILIBRIUM-BUSINESS CYCLE |
misperceptions about price and wage movements leads to fluctuations of output and employment |
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REAL-BUSINESS CYCLE |
cycles are caused by shocks in AS and not by changes in AD |
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SUPPLY SHOCK |
business fluctuations are caused by shifts in aggregate supply |
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COMPUTERIZED ECONOMIC FORECASTING |
help foresee changes in the economy |
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ECONOMIC MODEL |
sets of equations representing behavior of economy that has been estimated using historical data |
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JAN TINBERGEN OF NETHERLANDS AND LAWRENCE KLEIN OF THE UNIVERSITY OF PENNSYLVANIA |
pioneers of computerized econometric forecasting |
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AGGREGATE DEMAND |
total or aggregate quantity of output that is willingly bought at a given level of prices, all things equal |
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CONSUMPTION INVESTMENT GOVERNMENT PURCHASES NET EXPORTS |
four components of AD |
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CONSUMPTION |
consumers' expenditure on goods and services |
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INVESTMENT |
Gross Domestic Fixed Capital Formation |
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GOVERNMENT PURCHASES |
government spending on publicly provided goods and services |
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TRANSFER PAYMENTS |
social security benefits (pensions,job-seekers, allowance) are not included in Government Purchases |
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EXPORTS |
sold overseas an inflow of demand into the circular flow of income in the economy and add to the locally produced output |
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IMPORTS |
a withdrawal/leakage from the circular flow of income and spending in the economy |
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MONEY SUPPLY |
route by which prices affects spending |
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MACROECONOMIC POLICY VARIABLES EXOGENOUS VARIABLES |
determinants of AD |
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MACROECONOMIC POLICY VARIABLES |
under government control MONETARY POLICY, FISCAL POLICY |
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EXOGENOUS VARIABLES |
determined outside AS-AD framework FOREIGN OUTPUT, ASSET VALUES, ADVANCEMENT IN TECHNOLOGY |
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MULTIPLIER MODEL |
a macroeconomic theory used to explain how output is determined in the short run -explains how shocks to investments, foreign trade and government tax and spending policies can affect output and employment in an economy |
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1. WAGES AND PRICES ARE FIXED. 2. PRESENCE OF UNEMPLOYED RESOURCES. 3. SUPPRESSION OF THE ROLE OF MONETARY POLICY 4. ASSUME THAT THERE ARE NO FINANCIAL MARKET REACTIONS TO CHANGES IN ECONOMY |
Key assumptions in multiplier model |
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OUTPUT DETERMINATION WITH SAVING AND INVESTMENT |
First Approach in Multiplier Model How investment and saving are equilibrated in the multiplier model |
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CONSUMPTION FUNCTION |
shows desired or planned consumption at that level of disposable income |
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SAVING FUNCTION |
shows desired or planned saving at that income |
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DISPOSABLE INCOME |
=CONSUMPTION + SAVINGS |
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DISPOSABLE INCOME |
factor which savings is dependent on |
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OUTPUT INTEREST RATES TAX POLICIES BUSINESS CONFIDENCE |
factors which investment is dependent upon |
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INVESTMENT |
exogenous variable - determined outside the model |
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HORIZONTAL LINE |
result of the assumption that the investment will be exactly the same per year regardless of the level of GDP |
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EQUILIBRIUM LEVEL |
the saving and investment schedules intersect at pt. e and corresponds to a level of gdp given at pt. M |
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AT EQUILIBRIUM |
no inventories piling up, nor will their sales be so brisk |
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DIEQUILIBRIUM |
GDP is higher than E |
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OUTPUT DETERMINED BY TOTAL EXPENDITURES |
Second Approach of Multiplier Model |
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TOTAL EXPENDITURE (TE) |
=CONSUMPTION FUNCTION=DESIRED INVESTMENT (C+I) |
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TOTAL DESIRED EXPENDITURE |
desired expenditure of consumers and businessmen at each level of output |
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TOTAL DESIRED EXPENDITURE |
=TOTAL DESIRED OUTPUT , at any point on the 45 degree line |
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TE CROSSES 45 DEGREE LINE |
when is he economy in equilibrium |
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MULTIPLIER |
impact of a 1-dollar change in exogenous expenditures on total output the ratio of the change in total output to the change in investment |
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SIZE IF THE MULTIPLIER |
depends on the size of MPC |
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(1/1-MPC) * change in investment |
multiplier formula |
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FISCAL POLICY |
instrument in deciding how the nation's output should be divided between collective and private consumption and how the burden of payment for collective goods should be divided among the population |
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NEW TOTAL EXPENDITURE |
=C+I+G describe the new equilibrium when government with its spending and taxing is in the picture |
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TAXES |
its presence changes consumption |
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MULTIPLIER ANALYSIS |
shows that government fiscal policy is high powered spending |
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GOVERNMENT EXPENDITURE MULTIPLIER |
increase in GDP resulting from an increase of 1 dollar in government purchases -initial government purchase would set in motion a chain of spending |
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1/1-MPC |
formula for multiplier I (investment) |
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TAX MULTIPLIER |
=MPC * EXPENDITURE MULTIPLIER |
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TAX MULTIPLIER |
smaller than expenditure multiplier |
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1. IGNORES THE IMPACT OF MONEY AND CREDIT UPON CONSUMPTION AND INVESTMENT 2. IGNORES THE WAY FOREIGN TRADE AFFECTS OUTPUT AT HOME AND ABROAD 3. AGGREGATE SUPPLY IS LEFT OUT |
SIMPLIFICATIONS OF THE SIMPLEST MULTIPLIER MODEL |
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FINANCE |
process by which economic agents borrow from and lend to other agents in order to consume or invest |
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FINANCIAL SYSTEM |
activities involved in finance took place here |
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MONEY MARKET MARKET FOR FIXED-INTEREST ASSETS (BONDS, STOCK MARKETS) STOCK MARKETS FOR THE OWNERSHIP OF FIRMS FOREIGN EXCHANGE MARKET |
important parts of the financial system |
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FINANCIAL MARKETS |
where borrowing and lending take place through financial intermediaries |
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FINANCIAL MARKETS |
like any other market but their products and services consists of financial instruments (stocks and bonds) |
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FOREIGN EXCHANGE MARKET, FOREX, FX, OR CURRENCY MARKET |
a global, worldwide decentralized financial market for trading currencies |
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FINANCIAL INTERMEDIARIES |
institutions that provide financial services and products |
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COMMERCIAL BANKS INSURANCE AND PENSION FUNDS POOL AND SUBDIVIDE SECURITIES |
Examples of financial intermediaries |
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COMMERCIAL BANKS |
FINANCIAL INTERMEDIARY create money |
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INSURANCE AND PENSION FUNDS |
FINANCIAL INTERMEDIARY insurance problems |
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MORTGAGE RESELLERS MUTUAL FUNDS |
Pool and Subdivide Securities |
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MORTGAGE RESELLERS |
FINANCIAL INTERMEDIARY buy mortgage and repackage them |
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MUTUAL FUNDS |
FINANCIAL INTERMEDIARY holds bonds and corporate stock in behalf of small investor |
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TRANSFER RESOURCES MANAGE RISK POOL AND SUBDIVIDES FUNDS CLEARING HOUSE FUNCTION |
Functions of the financial system |
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TRANSFER RESOURCES |
FUNCTION OF FINANCIAL SYSTEM transfers across time, sectors, and regions allows investment to be devoted in productive uses rather than being bottled up where they are least needed |
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MANAGE RISK |
FUNCTION OF FINANCIAL SYSTEM move risks from those people that most need to reduce their risks to others who are able to weather them |
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POOLS AND SUBDIVIDES FUNDS |
FUNCTION OF FINANCIAL SYSTEM e.g. STOCK MUTUAL FUND |
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CLEARING HOUSE FUNCTION |
FUNCTION OF FINANCIAL SYSTEM facilitates transaction between payers and payees allows rapid transfer of funds around the world |
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FINANCIAL ASSETS |
monetary claims by one party against another |
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MONEY SAVINGS ACCOUNTS GOVERNMENT SECURITIES EQUITIES FINANCIAL DERIVATIVES PENSION FUNDS |
major financial instruments or assets |
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MONEY |
very special asset |
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SAVINGS ACCOUNT |
MAJOR FINANCIAL INSTRUMENT deposits with banks, usually with interest |
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GOVERNMENT SECURITIES |
MAJOR FINANCIAL INSTRUMENT bills and bonds of the government |
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EQUITIES |
MAJOR FINANCIAL INSTRUMENT ownership rights to companies (yields, dividends) |
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FINANCIAL DERIVATIVES |
MAJOR FINANCIAL INSTRUMENT values are based on values of other assets |
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PENSION FUNDS |
MAJOR FINANCIAL INSTRUMENT ownership of the assets that are held by companies or pension plans |
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RETURN ON INVESTMENT |
rate of profit the ratio of money gained or lost on an investment relative to the amount of money invested |
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RETURN ON FIXED-INTEREST SECURITIES |
called interest rates: price paid for borrowing money |
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NOMINAL INTEREST RATE |
interest rate on money in terms of money per year (without considering inflation) |
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REAL INTEREST RATE |
corrected for inflation = Nominal Interest Rate- Inflation |
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MONEY |
anything that serves as a commonly accepted medium of exchange |
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BARTER |
exchange of goods for other goods problem: want of coincidence |
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COMMODITY MONEY |
commodities as money problem:division, life, extraction, deposit |
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MODERN MONEY |
paper money protected from counterfeiting includes bank money(checks), internet,e-money |
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M1: NARROW (TRANSACTION) MONEY M2: BROAD MONEY |
major money aggregates |
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NARROW MONEY (M1) |
consists of items that are actually used for transactions |
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COINS PAPER CURRENCY CHECKING ACCOUNTS |
COMPONENTS OF NARROW MONEY (M1) |
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LEGAL TENDER |
COINS AND PAPER CURRENCY must be accepted by all |
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CHECKING ACCOUNTS |
checking deposits or bank money |
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BROAD MONEY (M2) |
includes M1 safe and can be converted to M! cannot be used as means of exchange for all purchases |
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M1 SAVINGS ACCOUNT AND SMALL TIME DEPOSITS RETAIL MONEY MARKET MUTUAL FUNDS |
components of M@ |
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MONEY |
serves as indirectly as a lubricant to trade and exchange |
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MEDIUM OF EXCHANGE UNIT OF ACCOUNT STORE OF VALUE |
MONEY'S FUNCTION |
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UNIT OF ACCOUNT |
money is the unit by which we measure the value of things |
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SACRIFICE OF INTEREST |
COST OF HOLDING MONEY |
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TRANSACTIONS DEMAND FOR MONEY ASSET DEMAND |
SOURCES OF MONEY DEMAND |
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TRANSACTIONS DEMAND FOR MONEY |
because incomes and expenditures do not come at the same time |
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ASSET DEMAND |
money as store of value |
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FINANCIAL ECONOMICS |
analyzes how investors should invest their funds to attain their objectives in the best possible manner |
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COMMERCIAL BANK |
most important financial intermediary fundamentally businesses that are organized to earn profits for their owners provides certain services for customers in return receives payments |
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BALANCE SHEET |
statement of a firm's financial position at a point in time lists assets and liabilities |
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AASSETS |
things the firm owns |
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LIABILITIES |
items the firm owes |
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NET WORTH |
difference of assets and liabilities |
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RESERVES |
cash on hand or cash deposited by the bank to the central bank |
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ENGLAND |
where commercial banking began |
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GOLDSMITHS |
first commercial bankers |
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MONEY-SUPPY MULTIPLIER |
ration of new checking deposits to the increase in reserves ratio of the new money created to the change in reserves |
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MONEY-SUPPY MULTIPLIER |
=1/required reserve ratio =1/required reserve ratio * deposit |
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LEAKAGE INTO HAND-TO-HAND POSSIBLE EXCESS RESERVE |
QUALIFICATIONS TO DEPOSIT CREATION |
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STOCK MARKET |
place where the shares in publicly owned companies, the titles to business firms, are bought and sold |
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STOCK EXCHANGE |
entities of a corporation specialized in the business of bringing buyers and sellers of the organizations to a listing of stock and securities ti=ogether |
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RATE OF RETURN RISKS |
important characteristics of assets |
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RATE OF RETURN |
total dollar gain from a security |
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INTEREST RATE |
return for saving accounts and short-term bonds |
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RISK |
the variability of the returns on an invetment |
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RISK AVERSE |
prefer lower risk |
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FIRM-FOUNDATION APPROACH |
holds that assets should be valued on the basis of their intrinsic value |
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MARKET PSYCHOLOGY |
speculate on the future value of assets rather than wait patiently for stock to prove their intrinsic value |
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SPECULATIVE BUBBLE |
occurs when pries rise because people think they are going to rise in the future |
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EFFICIENT FINANCIAL MARKET |
where all new information is quickly understood by market participants and becomes immediately incorporated into market prives |
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1. KNOW THY INVESTMENT 2. DIVERSIFY 3. CONSIDER COMMON STOCK FUNDS. 4. MINIMIZE UNNECESSARY EXPENSE AND TAXES 5. MATCH YOUR INVESTMENT WITH YOUR RISK PREFERENCE |
FINANCIAL STRATEGIES |
