Macro Economics 3

Front 1

what are the three parts of a bond??

Back 1

face value, maturity, and coupon rate

Front 2

bond prices and interest rates are _________ related

Back 2

inversely

Front 3

use the present value concept to calculate ______ prices.

Back 3

bond

Front 4

Assume face value=$1000, coupon rate=8%, and maturity is on October 16, 2010. Assume annual compounding.

If the market interest rate=.10(10%), The price of bond is??

Back 4

price of bond= C/(1+i)+C(1+i)2+C(1+i)3+face value/(1+i)3=$80/(1.21)+$80/(1.21)+$80/(1.331)+$1000/(1.331)=$72.72+$66.12+$60.11+$751.31=$950.27

Front 5

If the market interest rate is .08(8%) then the price of the bond equals $____

Back 5

1000 dollars

Front 6

What are the sources of return in the bond market?

Back 6

interest and capital gains.

Front 7

The latter comes from _______ low(when interest rates are high and bond prices are low and _______ high(when interest rates have dropped.

Back 7

buying low and selling high

Front 8

Bonds with ratings of Baa and above are _______________. Bonds with ratings below this Baa level are ______________

Back 8

investment grade securities, junk bonds

Front 9

Bonds with Aaa and Aa ratings are ___________ bonds, have the lowest default risk, but may have more long term risk than Aaa bonds

Back 9

high grade

Front 10

Baa medium grade. Security is adequate for the present but some uncertainty in the long run. These bonds have __________________

Back 10

speculative characteristics

Front 11

All of these are what kind of bonds?? Ba these bonds have speculative elements. B speculative. Caa Poor standing. these issues may be in default. Ca Speculative "in a high degree", these issues are often in default. C lowest grade with low probability of attaining investment grade.

Back 11

junk bonds

Front 12

stocks represent _______ _______

Back 12

ownership equity

Front 13

the sources of return in the stock market are

Back 13

dividends and capital gains

Front 14

what applies to both stock and bond pricing?

Back 14

present value

Front 15

means future interest payments or expected dividends have a lower present value. This increase in discount rates makes the assets prices decrease. Risk can be a factor in increasing the discount rate.

Back 15

higher discount rate

Front 16

the stock market has impact on consumer spending today by the wealth effect. If stock portfolios increase, then consumers, with increased wealth, will _________ spending

Back 16

increase

Front 17

A well known measure of stock market activity is the

Back 17

Dow Jones Industrial Average

Front 18

a positive function of resources and technology

Back 18

economic growth

Front 19

resources include land, labor and capital. Increases in the availability of these resources will mean______________

Back 19

greater output

Front 20

includes the skills, education, and training that workers have. This is a complement to labor, just as the other two resources(land, capital) are complements

Back 20

human capital

Front 21

will increase output per unit of input. This means that a given amount of resources can generate greater output.

Back 21

a change in technology

Front 22

increases in one resource, holding others constant means that...

Back 22

diminishing returns set in

Front 23

Another source of growth is the existence of ________________. You may recall this from your microeconomics course, also. ______________ means that per unit(r average costs, ATC in the short run) decrease over a range. This means that for some types of operations to be able to price in a range consistent with consumers valuation many units must be produced.

Back 23

economies of scale

Front 24

is a source of productivity and growth. Not only from fewer missed days of work and greater resources devoted to health care, but also from longer life spans. People learn and acquire human capital with time. If they exit the labor force, for whatever reason, at age 60 or so, then the benefits of a career of learning are lost.

Back 24

health

Front 25

this system records payments that affect movement of funds between countries. The BoP accounts are the current account, the capital account and the reserve account

Back 25

Balance of Payments

Front 26

the current account measures payments relating to currently produced goods and services. The components of the current account are...

Back 26

merchandise exports, merchandise imports, net investment, net services, net unilateral transfers,

Front 27

the difference between merchandise exports and merchandise imports is the________ which may be positive or negative.

Back 27

trade balance

Front 28

are positive entries in the current account and payments for imports are negative entries. The largest component of the current account is the trade balance

Back 28

receipts from exports

Front 29

measures flows of financial capital between countrys

Back 29

capital account

Front 30

a foreigners purchase of a countrys assets(this can be securities, real estate, or direct investment) is a

Back 30

capital inflow and is a positive entry in the capital account.

Front 31

a negative current account is matched with a __________________, which means that foreigners finance a countrys trade deficit with purchases of that countrys assets.

Back 31

positive capital account

Front 32

the BoP identity says that a trade surplus(X>M, note that this is the trade balance, which is the largest component of the current account) is balanced by

Back 32

capital outflows and/or increases in international reserves

Front 33

sold goods for local currency and then brought local goods for import into their cities, thereby balancing X and M

Back 33

hanseatic merchants

Front 34

what does y, c, i, g, nx, s, t stand for?

Back 34

income, consumption, investment, government expenditures, net exports, savings, and taxes

Front 35

if the government runs a budget deficit and there is no excess of domestic saving over investment..

Back 35

then the trade balance is negative

Front 36

is usually a sign of negative current account, which is financed by a positive capital account(in most cases)

Back 36

a negative trade balance

Front 37

make up the difference between national saving and (I+G)

Back 37

inflows

Front 38

the imbalance between foreign assets bought by a resident of a country and the assets in that country bought by foreign residents is...

Back 38

Net Foreign Investment(NFI). This equals Net Exports(nx)

Front 39

If we save, then the saving finances domestic capital purchases (I) or the purchase of assets in a foreign country (NFI). If S is low, and I>S, the part of domestic I is financed by foreigners purchases of _______________

Back 39

domestic assets(NFI<O)

Front 40

specializing in the activity in which it can produce at a lower opportunity cost(called the activity in which it has a comparative advantage) and trading for other goods

Back 40

a country gains from trade

Front 41

imports increase consumers surplus and decrease producers surplus by decreasing price.

Back 41

effects on welfare