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Investment, Risk and Taxation > 2 - The Macroeconomic Environment (6/80) > Flashcards

2 - The Macroeconomic Environment (6/80) Flashcards

1
Q

Productivity Factors

A

Land
Labour
Capital
Enterprise

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2
Q

Living Standards

A

GDP or GNP per capita

Uk 5th highest in Europe

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3
Q

Economic Sectors

A 
Primary
Secondary
Tertiary
Quaternary (science, R&D)
Quinary (government)
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4
Q

Lorenz Curve and Gini Coefficient

A

Gini Coefficient = level of inequality = Area of A / (Area of A + B)

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5
Q

Emerging Markets growth

A

Internal - domestic trade/production

External - trade with G7

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6
Q

Market Failure

A

Markets fail to deliver optimum allocation
Demand =/= supply therefore welfare not maximised
Government can intervene to prevent failure

Caused by externalities -> indirect benefit/cost caused by a third party

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7
Q

Merit goods

A

Better for people than they realise (subsidised)

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8
Q

Public goods

A

Serve everyone equally
Non-excludability (‘Free rider’ risk)
Non-rivalry (one consuming doesn’t restrict another)

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9
Q

Trade Agreements

A

Unilateral = change trade rules without others changing

Bilateral = two countries agree

Multilateral = multiple agree (e.g. regional)

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10
Q

GDP, GNP, National Income

A

GDP = Consumer Spending + Investment + Gov. Spending + Trade Balance

GNP = GDP + Income from Abroad

NI = Gross National Product - Capital Consumption

Injections = investment, exports, gov. spending

Withdrawals = savings, imports, taxation

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11
Q

What do growth rates depend on?

A
  1. Growth and productivity of labour force
  2. Rate capital is channelled into innovation
  3. Infrastructure being developed/maintained
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12
Q

Business Cycles

A

Boom and bust, growth and recession etc.

Typically 7-10 years

If growth rate > trend growth rate, inflation creeps in

If growth rate is negative for 2 quarters, economy is in recession

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13
Q

What are the Key Economic Indicators?

A 
Interest rates
Inflation (RPI or CPI)
Retail sales
Unemployment
Industrial production
Stock markets
Money supply
FX rates
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14
Q

Indicator Characteristics

A

Procyclic (move with cycles, e.g. GDP)
Countercyclic (e.g. unemployment)
Acyclic

Leading (change before the economy, e.g. stock markets)
Lagging (after the economy, e.g. unemployment)
Coincident (same time, e.g. GDP)

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15
Q

Fiscal Policy

A

Taxation and Spending

Expansionary = higher spending and borrowing
Contractionary = higher taxes without higher spending
Neutral = higher taxes and spending

Taxing and spending uses money otherwise saved, so increases the money supply and causes a ‘balanced budget multiplier’

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16
Q

Monetary Policy

A

Supply and price of money

Manipulated through base rate and money market operations

17
Q

Money Market Operations

A
  1. Operational standing facilities - lending facility for banks, close to base rate
  2. Discount window facility - provides liquidity through 30-day gilt lending
  3. Open market operations - short term and long term repos, asset purchases
18
Q

Narrow vs Broad Money

A

Narrow money (M0) - All coins and notes in supply (plus) central bank deposits

Broad money (M4) - All coins and notes in supply (plus) all deposits

19
Q

Causes of inflation

A

Fisher Equation -> MV = PT, so money supply influences inflation

More imports = more £ on FX markets = ‘imported inflation’

More production = more labour = ‘cost-push inflation’

20
Q

Balance of Payments

A
  1. Current account = goods and services, investment income, transfers
  2. Capital and financial account = inward & foreign investments, bank deposits

‘Balancing item’ accounts for errors

21
Q

Cycle effect on Asset Classes

A

Cash - hurt by inflation
FI - Value goes down when rates increase
Equities - Grow with consumer spending and GDP; Higher rates hurt cash flows
Property - Grow with inflation; Higher rates hurt purchases
Commodities - Hurt by higher rates; Energy strongly linked to cycles

22
Q

Cycle Effect on Assets - Start of bull market

A

Bonds and interest-rate sensitive equities

23
Q

Cycle Effect on Assets - Growth acceleration

A

FX-sensitive securities

24
Q

Cycle Effect on Assets - Growth phase

A

Staple equities
Cyclical equities
Industrial equities

25
Q

Cycle Effect on Assets - Growth deceleration

A

Interest rates rise

Commodities and basic resources

26
Q

Cycle Effect on Assets - Bear/high rates

A

Cash

Defensive equities

27
Q

State Pension Age

A

Currently 65

Changing to 67 in 2028

28
Q

Globalisation vs. International Arbitrage

A

Globalisation = stocks listed on 2 exchanges

Arbitrage = exploiting price differences of the 2

29
Q

Measuring Inflation

A

Government uses RPI

Moving RPI more in line with CPIH by 2030

Investment, Risk and Taxation (8 decks)

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