Chapter 5

Question 1

A broad grouping of similar types of investments, such as shares, bonds, real estate, and commodities.

Answer 1

Asset class

Question 2

The total value of all final products and services produced in a country over a period of time.

Answer 2

Gross domestic product (GDP)

Question 3

Gross Domestic Product formula

Answer 3

GDP = C + I + G + (X - M)

X - exports (Foreign spending on domestic products and services)
M - imports (Domestic spending on foreign products and services)

Question 4

Reflects the current market value of products and services, unadjusted for price changes, and may over or underestimate actual economic growth.

Answer 4

Nominal GDP

Question 5

Nominal GDP adjusted for changes in price levels

Answer 5

Real GDP

Question 6

Measured by the percentage change in real output (usually real GDP) for a country

Answer 6

Economic growth

Question 7

Central banks inject money into the economy, which encourages consumers and businesses to increase spending. Those who benefit from this additional spending, in turn, increase their own spending.

Answer 7

The multiplier effect

Question 8

Measures that offer insight regarding economic activity and are reported with greater frequency than GDP.

Answer 8

Economic indicators

Question 9

Is available monthly and reports the output of the industrial sector of the economy - principally the output of manufacturing, mining, and utility companies.

Answer 9

Industrial Production

Question 10

These attempt to measure the confidence that economic entities, such as manufacturers and consumers, have in the economy and their intended levels of activity.

Answer 10

Sentiment surveys

Question 11

Combines different indicators to signal what may happen to GDP in the future

Answer 11

An index of leading economic indicators

Question 12

Is used to measure the change in price of a basket of goods typically purchased by a consumer or household overtime

Answer 12

Consumer price index

Question 13

Another measure of inflation that measures the average selling price of products in the economy

Answer 13

Producer price index (PPI)

Question 14

Simply defined as nominal GDP divided by real GDP and is the broader space measure of a nations inflation rate

Answer 14

Implicit GDP deflator

Question 15

A persistent and pronounced decrease in prices across most products and services in an economy.

Answer 15

Deflation

Question 16

Inflation usually occurs in periods of high economic growth. However, high inflation can occur in times of little or no economic growth and this scenario is….

Answer 16

Stagflation

Question 17

Involves price increases so large and rapid that consumers find it hard to afford many products and services.

Answer 17

Hyperinflation

Question 18

Refers to central-bank activities that are directed toward influencing the money supply (the amount of money in circulation) and credit (the amount of money available for borrowing and at what cost or interest rate) in an economy.

Answer 18

Monetary policy

Question 19

Involves the purchase and sale of Government notes and bonds. If a central bank wants to increase the supply of money and credit in order to stimulate the economy, it can do so by purchasing financial assets, generally short term government instruments, held by commercial banks.

Answer 19

Open market operations

Question 20

Can occur when financial shock spread from their place of origin to other locales —- In essence, a declining sector or economy affects other healthier sectors and economies.

Answer 20

Financial contagion

Question 21

The proportion of deposits that must be held by a bank rather than be lent to borrowers

Answer 21

Reserve requirement

Question 22

Governments use this to affect economic activity. It involves the use of government spending and tax policies. This may be aimed at stimulating a weak economy through increased spending or decreased taxes and slowing an overheating economy through decreased spending or increased taxes.

Answer 22

Fiscal policy