Chapter 11 (1Q) Basic Economics Flashcards

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1
Q

Economics

A

Social science chiefly concerned with analysis of production, distribution and consumption of good and services

Micro- Household or business firm level

Macro- GDP, inflation, unemployment

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2
Q

Business cycles

A

Expansion-GDP and productive move towards a peak

Inflation increases during an expansion and so does industrial production

Peak Top level of economic activity

Contraction- Enter after reaching a peak in the cycle

Recession- Short-term contraction, 2 or more quarters of lowering GDP

Depression- 6 Quarters of declining business activity

Trough- low point of cycle

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3
Q

Cyclical industries

A

Usually produce durable goods and are highly sensitive to business cycles

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4
Q

Growth industries

A

Out growing the economy as a whole

Currently includes social media and bioengineering

Pay little to no dividends

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5
Q

Defensive industries

A

Produce nondurable consumer goods such as foo

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6
Q

Special Situation Stocks

A

Have unusual profit potential from non recurring circumstances

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7
Q

Consumer Price Index

A

Reflects the average cost of goods and services vs the same goods in a prior period

Inflation pushes interest rates higher and yields higher

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8
Q

Interest rates

A

Long term= Investor expectations

Short term= Reflect the FRB implementing monetary policy

Cost of borrowing money

Nominal rate of interest- actual amount borrows pay for loanable funds

Real rate of interest- Nominal minus expected rise in inflation

8% and rate of inflation expected is 2%
Real rate if 6%

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9
Q

Yield curve analysis

A

Normally upward sloping due to long term rates being normally higher than short term

Inverted slope- Short term lending is in higher demand or there’s a sharp increase in short term rates

If corporate and government yield curves are tightening then entering an expansion

Usually use one firms bonds to show a yield curve and US Treasuries

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10
Q

GDP

A

All final goods and services produced in the US

If imports exceed exports, the value is subtracted from GDP

Measures countries output regardless of who produced it

Based on constant dollar

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11
Q

Core Inflation

A

Excludes food and energy prices, due to high volatility

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12
Q

Balance Sheet

A

Snapshot of a company’s financial position at a specific time

Does not indicate improving or deteriorating value

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13
Q

Capital structure

A

Long term debt and equity securities

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14
Q

Working capital

A

Measure of firms liquidity

CA-CL=WC

Quick Asset Ratio- CA-inventory/CL

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15
Q

Other Ratios

A

Debt to equity= TL/Total Capitalization

Book Value Per share=
Tangible Asset - Liabilities - par of Preferred Stock
/
Share of common stock outstanding

EPS= NI / Shares outstanding
Preferred stock has no claim on earnings outside of the dividend

Current Yield= Annual dividend/Market Price

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