3. Macro Flashcards
1
Q
Why do we care about macro analysis?
A
80% of variation in stock prices are influenced by macro factors
2
Q
What are some macroeconomic indicators?
A
GDP, unemployment rate, inflation rate, interest rate, budget deficit, etc.
3
Q
What is inflation rate?
A
The rate of increase in prices over a given period of time
4
Q
Why is high inflation bad?
A
- Your currency has low power
- Uncertainty about the future
5
Q
Why is low inflation (deflation) bad?
A
- Delayed consumption of durable goods
- Real debt goes up (1M today is 0.8M tomorrow -> you have to pay more for your debt)
6
Q
Describe fiscal policy. Pros & cons?
A
- Taxes, government spending, subsidies, etc.
- Difficult to implement (government has to decide)
- Once approved - effective immediately
7
Q
Describe monetary policy. Pros & cons?
A
- Controlled by the Central Bank. Has to do with raising and dropping interest rate.
- Pros: easy to implement (Central Bank/Fed has a small committee. Jay Powell)
- Cons: lagging effect
- Interest rate is influenced through: (1) open market operations or (2) quantitative easing
8
Q
What is open market operations?
A
- Monetary policy tool
- The FED or Central Bank buys and sells government bonds
- Influence Federal funds rate
9
Q
What is quantitative easing?
A
- Monetary policy tool
- Similar to open market operations but 3 main differences: (1) massive amount: $120B/month (2) pre-announced (scheduled) (3) long term + corporate bonds (not just short term gov. bonds)
