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Fidelity > Economic Analysis > Flashcards

Economic Analysis Flashcards

1
Q

If country is exporting more the country’s….

A

GDP is increasing

Producing exports more, producing more within that country

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2
Q

If the country is importing more, the country’s

A

GDP is decreasing

Producing less within that country

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3
Q

Economic cycle in order

A

Expansion
Prosperity
Recession
Recovery

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4
Q

During period of economic expansion, interest rates are expected to:

A

Increase

Fed tightens credit to keep the economy from growing too fast

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5
Q

During periods of economic recession, interest rates are expected to:

A

Decrease

Fed loosens credit to get the economy moving again

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6
Q

Slow economic growth using focal policy:

A

Tax rates could be increased
Government spending reduced

*set through government actions

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7
Q

Stimulate economic growth using fiscal policy

A

Increase government spending

Decrease tax rates

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8
Q

Keynesian theory states the economy is stimulated by:

A

Increased government spending

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9
Q

Monetarist theory states that the economy is stimulated by:

A

The actions of the federal reserve

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10
Q

Supply side theory states that:

A

Tax rate reductions and lower government spending will stimulate the economy

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11
Q

Inflation

A

Economic period where both price and interest rates increase

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12
Q

Disinflation:

A

Is a decline in the inflation rate— rate of inflation is decreasing

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13
Q

Deflation

A

Economic period where both prices and interest rates decrease

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14
Q

Real interest rate=

A

Nominal rate - inflation rate

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15
Q

Deflationary period:

A

Interest rates fall
Stock prices rise
Investor would purchase fixed income securities

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16
Q

Inflation period

A

Interest rates rise

Stock prices fall

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17
Q

Individual income increases at a faster percentage than inflation

A

Purchasing power increases

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18
Q

Individuals income decreases at a faster percentage than inflation

A

Purchasing power is decreasing

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19
Q

Functions of the federal reserve board

A
  • Regulates and audits member banks
  • Lends fund to member banks through the discount window
  • sets reserve requirements
  • sets initial margins on non exempt securities
  • conducts treasury auctions for the us treasury
20
Q

Tools are used by the federal reserve to control money supply:

A

DORM

D=discount rate
O= open market operations
R= reserve requirements
M= margin on securities

21
Q

Biggest impact on money supply

A

Reserve requirements

22
Q

Most frequently used tool

A

Open market operation

23
Q

Least frequently used tool

A

Reserve requirements

24
Q

Smallest impact tool on money supply

A

Margin on securities

25
Q

Open market operations of the fed

A
  • Cause direct changes in M1 levels
  • Demand deposits
  • influences short term interest rates only
26
Q

Actions that will increase interest rates

A

Tightening credit

Reverse repurchased agreement

27
Q

Reverse repurchased agreements

A

Increase yields

Lower debt prices

28
Q

Repurchase agreements

A

Decrease yields

Raise debt prices

29
Q

Dovish

A

Rising unemployment

30
Q

Hawkish

A
  • Increasing rates
  • Reducing money supply
  • To reduce inflation and slow down economic growth
31
Q

Prime rate

A

Rate charged by banks to their best commercial customers

*highest interest rate

32
Q

Broker loan rate/ call loan rate

A

Rate charged FROM banks to brokers

* second highest interest rate

33
Q

Discount rate

A

Rate charged BY fed to member banks

*3 highest interest rate

34
Q

Fed funds rate

A

The rate charged for overnight loans of reserves FROM member bank to member banks
*lowest rate

35
Q

If fed funds rate has risen to an all time high this means?

A
  • Tight money policy
  • Yield curve is flattening
  • Banks may have difficulty obtaining required reserves
  • interest rates decrease
36
Q

Fed aggressively expanding the money supply=

A

Decreased interest rates

Increased inflation

37
Q

10 leading economic indicators:

A

New consumer good orders

38
Q

The consumer confidence index published by the conference board

A

Measures investor outlook on the economy and the markets

*measure of consumer sentiment

39
Q

What terms describe economic indicators?

A

Leading
Lagging
Coincident

40
Q

Ascending yield curve means?

A

Loosening credit

41
Q

Descending yield curve means?

A

Tightening credit

Slow economy

42
Q

Fiscal policy

A

Government actions that influence economic activity.
Set by Congress
Can be used to increase or decrease the take home pay of the American public by changing tax rates, changing transfer payments, or changing government spending on goods and services

To stimulate economy:
Tax rates can be cut
Transfer payments increased
Government spending increase

To slow down economy:
Rise tax rates
Transfer payments decreased
Government spending decreased

43
Q

Monetary policy:

A

Action taken by the federal reserve to influence the growth of the money supply.

By expanding money supply=credit is loosened=interest rates lowered=stimulate economy

By tightening the money supply= credit is tightened=interest rates higher=slow down economy

44
Q

Monetary environment:

A

Term used to describe the effect of both fiscal and monetary policy

Favorable:
Governments economic policies are stimulative when interest rates are low due to the federal reserve actions, and when money supply levels are sufficient to support continued growth

Unfavorable:
Reserve occurs, that is, when the governments economic policies are restrictive, when interest rates due to federal reserve actions and when money supply levels are not sufficient to support continued growth

45
Q

Economic theories to explain the business cycle and to devise ways to influence the cycle are

A

Fiscal based or monetary based

3 theories:
Keynesian
Supply-side
Monetarist

46
Q

GDO drops 2 consecutive quarters=

A

Recession

47
Q

If GDP continues to drop past the 2 Quarters for at least 18 months=

A

Depression

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