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Canadian Securities Course > Chapter Four > Flashcards

Chapter Four Flashcards

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SIE Exam flashcards
1
Q

What is micro economics?

A

It analyzes the market behavior of individual consumers and firms, how prices are determined, and how price is determine the production, distribution, and use of goods and services.

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2
Q

What are the three things that microeconomics looks to answer?

A

How do minimum-wage laws affect the supply of labour and company profit margins?
How would a tax on softwood lumber imports affect the growth prospects in the forestry industry?
If a government place a tax on the purchase of mutual funds will consumes stop buying them?

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3
Q

What all macroeconomics?

A

Focuses on the performance of the economy as a whole. It looks at the broader picture and to the challenges facing society as a result of the limited amounts of natural resources, human effort and skills, and technology.

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4
Q

What questions does macroeconomics look to answer?

A

Why did total output shrink from last quarter? Why have the number of jobs for fallen in the last year? Will an increase in interest rates stimulate economic growth? How kind a nation improve it standard of living?

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5
Q

What is economics?

A

Understanding the choices individuals make and how the sum of these choices determines what happens in our market economy.

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6
Q

What are the three main groups that interact in the economy?

A

Consumers, firms, governments

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7
Q

What is market equilibrium?

A

This is the price that someone is willing to pay for the product with the price at which someone is willing to supply it.

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8
Q

What is gross domestic product?

A

The market value of all final goods and services produced within a country in a given time.

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9
Q

What are the two ways of measuring GDP?

A

The expenditure approach all of the income approach.

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10
Q

What is expenditure approach?

A

Looks at total spending on final goods and services produced in the economy.

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11
Q

Call what are the four components that the expenditure approach measures GDP?

A

Personal consumption, investment, government spending on goods and services, net exports (exports less imports) of goods and services.

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12
Q

What is the income approach?

A

Looks at the total income and by producing those goods and services.

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13
Q

The income approach measures GDP by totalling the income that firms pay for what?

A

Wages for labour, rent for the land, interest for capital goods, profits for entrepreneurs.

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14
Q

What is nominal GDP?

A

They dollar value of all goods and services produced in a given year at prices that prevailed in the same year.

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15
Q

What is real GDP?

A

Or constant dollar GDP is the dollar of value of all goods and services produced in a given year valued at prices that prevailed in some base year.

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16
Q

Growth in GDP results from a variety of factors what are they?

A

Increases in population over time, increases in the capital stock, improvements in technology.

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17
Q

Fluctuations in output and employment are called what?

A

Business cycle.

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18
Q

What are the five phases of the business cycle?

A

Expansion, peak, contraction, trough, recovery.

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19
Q

What is expansion categorized as?

A

Inflation is stable. Businesses have adjusted inventories to meet higher demand and investing in new capacity to meet increased demand to avoid shortages. Corporate profits are rising. New business start ups out number the bankruptcies and stock market activity is strong. Job creation is steady and unemployment rate is steady or falling.

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20
Q

What is peak characterized by?

A

Demand begins to outstrip the capacity of supply. Labour and product shortages cause wage increases and inflation to rise. Interest rates rise and bond prices fall dampening business investments and sales of houses and big-ticket items.

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21
Q

What is contraction categorized by?

A

Economic activity begins to decline for example real GDP decreases. Unwanted inventories, decline in profits reduced production, postpone investment, no hire and may lay off. Business Fabius outnumber startups. Falling employment erodes income. Less spending more saving.

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22
Q

What is trough characterized by?

A

Interest rates fall, triggering a bond rally. Inflation falls. Consumers spend and stock prices rally.

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23
Q

What is recovery characterized by?

A

Increased production, layoffs are over, unemployment remains high as cautious to hire and inflation may decline further.

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24
Q

What are economic indicators?

A

Statistics or data series thats used to analyze business conditions and current economic activity.

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25
Q

What are the three economic indicators?

A

Leading, coincident, and lagging.

26
Q

What you leading indicators include?

A

Housing starts. New orders. Commodity prices. Average hours worked per week. Stock prices. Money supply.

27
Q

What nine components does the MLI indexed track?

A

The money supply. The stock market. Interest rate differential. Commodity prices. EI claims. Housing index. New orders for manufactured goods. Average workweek. US leading indicator.

28
Q

What do you coincident indicators include?

A

Personal income. GDP. Industrial production. Retail sales.

29
Q

What do lagging indicators include?

A

Unemployment. Private sector plants and equipment spending. Business loans and interest on borrowing. Labor costs. Inflation rate.

30
Q

What is a popular definition of a recession?

A

At least two consecutive quarters of declining growth in real GDP.

31
Q

What does statistics Canada judge a recession by?

A

Depth, duration and diffusion of the decline in business activity.

32
Q

What is a soft landing?

A

Used to describe a business cycle phase when economic growth slows sharply but does not turn negative, while infationl falls or remains low.

33
Q

What are the two labour market indicators?

A

Participation rate, unemployment rate.

34
Q

What is participation rate?

A

Represents the share of the working age population that is in the labor force. It shows the willingness of people to enter the workforce and take jobs.

35
Q

What is the unemployment rate?

A

Represents the share of the labor force that is unemployed and actively looking for work.

36
Q

Name the three types of unemployment?

A

Cyclical, frictional, structural.

37
Q

What is cyclical unemployment?

A

It rises when the economy weakens and firms lay off workers due to lower sales. It drops when the economy strengthens again.

38
Q

What is frictional unemployment?

A

Normal labour turnover. From people leaving and entering workforce. For example finish school, quit, laid off, fired.

39
Q

What is structural unemployment?

A

When workers are unable to find work due to lack of skills. Do not live where jobs are or decide not to work at wage rate offered.

40
Q

What is the minimal level of unemployment called?

A

Natural unemployment rate.

41
Q

Name five factors that influence interest rates?

A

Demand and supply of capital. Default risk. Foreign interest and the exchange rate. Central-bank credibility. Inflation.

42
Q

Name the widely used indicator of inflation?

A

The consumer price index.

43
Q

What is the inflation rate calculation?

A

Current CPI minus previous CPI divided by previous CPI times 100.

44
Q

What costs does inflation impose on the economy?

A

Erodes standard of living. Reduces the real value off investments for example fixed rate loans since the loans are paid back in dollars that buy less.Distorts signals prices send to participants. Accelerates inflation usually brings about rising interest rates and recession.

45
Q

What is an important determination of inflation?

A

The balance between supply and demand conditions in the economy.

46
Q

What is the output gap?

A

Measures inflation pressures by looking at the difference between real GDP, what the economy actually produces and potential GDP.

47
Q

What is a negative output gap?

A

Occurs when actual output is below potential output.

48
Q

What is a positive output gap.

A

When actual output is above potential output.

49
Q

What part of the business cycle does a positive output gap occur?

A

The move through an expansion towards the peak.

50
Q

What is the Phillips curve?

A

When unemployment is low inflation tends to be high and when unemployment is high inflation tends to be low.

51
Q

What is disinflation?

A

A decline in the rate at which prices rise.

52
Q

What ratio is used to gauge the cost of disinflation?

A

Sacrifice ratio.

53
Q

What does the sacrifice ratio describe?

A

The extent to which GDP must be reduced with increased unemployment to achieve a 1% decrease in inflation rate.

54
Q

What is the balance of payments?

A

A detailed statement of a country’s economic transactions with the rest of the world.

55
Q

What are the two components of the balance of payments?

A

Current account. Capital and financial account.

56
Q

What is the current account?

A

the exchange of goods and services between Canadians

and foreigners.

57
Q

What is the capital and financial account?

A

Records financial flows between Canadians and foreigners.

58
Q

What is the difference between current and capital and financial account transactions?

A

The purchase of a computer made in Canada is a current account transaction where the purchase of the company that made the computer is a capital and financial account transaction

59
Q

What are the determinants of exchange rates?

A

Commodity prices. Inflation differentials. Interest rate differentials. Current account. Economic performance. Public debts and deficits. Political stability.

60
Q

Fixed exchange rate?

A

A country’s central-bank maintains domestic currency at a fixed level against another currency.

61
Q

Floating exchange rate?

A

A system where the central bank allows market forces to determine the value of their currency.

Canadian Securities Course (6 decks)

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