Chapter 5 Flashcards
A broad grouping of similar types of investments, such as shares, bonds, real estate, and commodities.
Asset class
The total value of all final products and services produced in a country over a period of time.
Gross domestic product (GDP)
Gross Domestic Product formula
GDP = C + I + G + (X - M)
X - exports (Foreign spending on domestic products and services)
M - imports (Domestic spending on foreign products and services)
Reflects the current market value of products and services, unadjusted for price changes, and may over or underestimate actual economic growth.
Nominal GDP
Nominal GDP adjusted for changes in price levels
Real GDP
Measured by the percentage change in real output (usually real GDP) for a country
Economic growth
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.
The multiplier effect
Measures that offer insight regarding economic activity and are reported with greater frequency than GDP.
Economic indicators
Is available monthly and reports the output of the industrial sector of the economy - principally the output of manufacturing, mining, and utility companies.
Industrial Production
These attempt to measure the confidence that economic entities, such as manufacturers and consumers, have in the economy and their intended levels of activity.
Sentiment surveys
Combines different indicators to signal what may happen to GDP in the future
An index of leading economic indicators
Is used to measure the change in price of a basket of goods typically purchased by a consumer or household overtime
Consumer price index
Another measure of inflation that measures the average selling price of products in the economy
Producer price index (PPI)
Simply defined as nominal GDP divided by real GDP and is the broader space measure of a nations inflation rate
Implicit GDP deflator
A persistent and pronounced decrease in prices across most products and services in an economy.
Deflation
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….
Stagflation
Involves price increases so large and rapid that consumers find it hard to afford many products and services.
Hyperinflation
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.
Monetary policy
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.
Open market operations
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.
Financial contagion
The proportion of deposits that must be held by a bank rather than be lent to borrowers
Reserve requirement
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.
Fiscal policy
