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SIE > Chapter 6 Economic Measurements and Conditions > Flashcards

Chapter 6 Economic Measurements and Conditions Flashcards

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SIE Exam flashcards
1
Q

What are Monopolistic Market?

A

Where most of the market is controlled by just one company

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2
Q

What is Oligopolistic Markets?

A

Where a few companies control the market share in a market segment

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3
Q

What is GDP?

A

National output of goods and services in one year
- Only within the U.S.
- by subtracting the rate of inflation

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4
Q

What is Gross National Product (GNP)?

A

The value of what is produced by a country’s citizen regardless of where they reside
- includes goods and services outside the nations boundaries

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5
Q

What is depression?

A

a decline in real GDP for 6 consecutive quarters, or 18 months

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6
Q

What is Recession?

A

Begins when there are 2 consecutive quarters or 6 months of declining real GDP

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7
Q

What is Inflation?

A

General rise in the level of prices
- More money than products

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8
Q

What are the two measures of Inflation?

A

Consumer price Index & Producer Price Index

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9
Q

What effects does Inflation have on Interest Rates on Bond Markets?

A

The slightest change in interest rate affects long term bondholder the most because of the long period of time
- Inflation Risk / Purchasing power risk

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10
Q

What happens when interest rates increase?

A

Bond prices fall and yields increase

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11
Q

What happens when interest rates fall?

A

Bond prices will rise and yield will decrease

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12
Q

What is a Yield Curve?

A

a plot of interest rates of bonds of the same quality from lowest to highest available maturity

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13
Q

What is a positive Yield Curve ?

A

Upward and outward sloping curve
- Bondholders are willing to pay a higher coupon to get money from the bond for a longer period

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14
Q

What is a Negative Yield Curve?

A

Represents shorter maturities having higher yields than longer maturities

[Short bonds give better returns than bonds with longer maturities]

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15
Q

What does the Consumer Price Index do?

A

Measures the change in consumer prices of a fixed basket of goods and services

[Measures how the prices changes for a product or service ]

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16
Q

What does the Producer Price Index measure?

A

Measures the change in producer or whole pries in manufacturing

[Measure the price difference in producing a product]

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17
Q

What is Deflation?

A

Decrease in general level of prices
More supply of goods and services than prices.

[The opposite of inflation. When prices in general go down. More products than money]

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18
Q

What is Elasticity?

A

Is the way demand for a product changes as a result of price.

[How demand of a product is affected by price ]

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19
Q

What is the Business Cycle?

A

1) Expansion
2) Peak
3) Contraction
4) Trough

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20
Q

What is a Leading Indicator?

A

It shows where the economy is headed
Ex: Stock market, housing, and money supply

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21
Q

What are Coincident Indicators.

A

They are indicators that show what’s currently affecting the economic situation
EX: Personal Income, GDP, Industrial Production

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22
Q

What are Lagging Indicators?

A

Indicators that take effect after the economy has changed
EX: Avg employment duration, reported corporate profits, average prime rates

[These indicators confirm the state the economy was in]

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23
Q

What is Cyclical in the Business Cycle?

A

It follows the business cycle

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24
Q

Whats Countercyclical?

A

It moves in the opposite direction of the business cycle

25
Q

What are Cyclical stocks?

A

When the economy is doing well the stocks will also perform well
Ex: Furniture and clothing, Automobile manufacturing, and construction

26
Q

What are Countercyclical Stocks?

A

When the stock market declines investors will choose to invest in bonds for safer options like gold or precious metal.

27
Q

What are Defensive Stocks?

A

These stocks remain stable regardless of the economic condition.
Ex: food, utilities, healthcare

28
Q

What are Growth Stocks?

A

Stocks earnings that are expected to grow at an above avg rate

29
Q

What is the Monetarist Theory?

A

Federal reserve controls the economic growth by either putting money into the economy or taking it out

30
Q

What is the Keynesian Theory?

A

The output of the economy is influenced by total spending in the economy

31
Q

What is the Supply Side theory?

A

Reduced taxes and no government spending allows the economy to progress on its own pace

32
Q

What is the Efficient Market Hypothesis?

A

It is impossible to beat the market, that it reflects all relevant information.

33
Q

What are index funds?

A

Open / closed end funds that invest in the same securities that are held by a major index
- Have low transaction cost and management fees

34
Q

What is Monetary Policy?

A

Where the Federal Reserve maintains the stability of the financial system

35
Q

What is Easy Money?

A

When the FED increases money supply
- Easier to get loans and rates are lower

36
Q

What is Tight money Supply?

A

When the FED decreases the money supply
- Harder to get loans and borrowing rates are higher

37
Q

What is Open Market Operations?

A

Influences the money supply by buying and selling government securities in the open market to select group of banks and primary dealers

38
Q

What is a repurchase Agreement?

A

Its short term borrowing that uses government securities as collateral
Buy securities from bank = easing effect on money supply

39
Q

What is Reserve Requirement?

A

The percentage of cash that must be retained in a banks vault
Reserve requirement falls = interest falls = Increase money supply

40
Q

What is discount Rate?

A

The rate when FED gives loans to banks for borrowing.

Lower discount rate = more lending money to customers

41
Q

What is Margin Requirement?

A

FED has the power to increase and decrease the margin requirements

Low margining req = low interest rate

42
Q

What is moral Suasion?

A

When market is influenced through speeches, announcements, or statements by FED officials

43
Q

What are the Federal Reserve tools?

A

D.O.R.M.M
D. iscount Rate
O. pen Market Operation
R. eserve Requirement
M. argin Requirement
M. oral Suasion

44
Q

What is Federal Income Taxation?

A

Income that is taxed annually. More tax revenue for federal government

45
Q

How does Federal Spending have an impact on the economy?

A

Raise taxes and reduce spending to slow the economy

Lower taxes and increase spending to stimulate the economy

46
Q

What is the Interbank Market?

A

Trading between large banks in major international financial centers
- Not regulated by SEC

47
Q

What is Currency Exchange Rate?

A

It how other countries value another countries currency. Where one currency can be exchanged for another (Spot Rate)

48
Q

What does a strong U.S dollar do?

A

Imports less costly
Exports are expensive
More profits for importers

49
Q

What does a weak U.S. Dollar do?

A

Imports are expensive
Exports are cheaper
More profits for exporters

50
Q

What is the Balance of Payments?

A

It is the flow of money between other countries

51
Q

What is the balance of Trade?

A

The difference between the value of a countries imports and exports of merchandises

52
Q

What is form 10k?

A

Audited ANNUAL financial Statements filed with the SEC within 60 days

53
Q

What is form 10Q?

A

Audited QUARTERLY financial statements filed with the SEC within 40 days

54
Q

What is form 8k?

A

Significant event reported within 4 days

55
Q

What is Strong Form?

A

All information (Private or Public) is reflected in stock prices

56
Q

What is Semi-Strong Form?

A

Public information is reflected in stock prices, individuals with inside information can be the market

57
Q

What is Weak form?

A

In-depth analysis can beat the market

58
Q

What happens when inflation rates fall?

A

Interest falls when inflation rate falls = bond prices to rise

SIE (12 decks)

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