Economic Factors Flashcards
Fiscal policy
Set my Congress and the president. Includes policy on taxing and spending. The goal is to stabilize economic growth and employment levels.
The Keynesian theory
Advocates for the use of fiscal policy to jumpstart the economy to “full employment”.
Remember that this thinks that the government is a good thing.
Supply side economics
This theory of monetary policy says business should take care of itself without intervention from the government
The federal reserve board has three main tools…
The reserve requirement, discount requirement, and open market operations.
The fed funds rate
Is the interest-rate an overnight loans between member banks to meet reserve requirements. It is the average of all interest rates charged by member banks for overnight loans.
Discount rate
What the FRD Charges member banks for overnight loss to meet there reserve requirements
Money market rates
Our rates on short term investments such as commercial paper, bankers acceptance, certificates of deposit, and re-purchase agreements.
Prime rate
What banks charge a credit worthy commercial borrowers unsecured loans
Broker car loan rate
What banks charge brokers for money they lend to margin account investors
Trough
Lowest point in the business cycle
Business cycle
Expansion
Peak
Contraction
Trough
Recession
2 consecutive quarters (6 months)
Depression
8 consecutive quarters (24 months
3 types of economic indicators
Leading
Coincident
Lagging
Cyclical industries
Economic gain tied to economy expansion
Countercyclical industries
Prosper during downturns and vice versa
Defensive industries
Steady demand and predictable performance during all performance
Balance of payments (BOP)
Sum of all transactions Between individuals, businesses and government agencies in the US rest of the world. It represents a country’s economic position during a specific period
Spot exchange rate
The current rate of exchange for the rate at which one currency can be exchanged for another right now
Forward rate
Exchange rate that is quoted today, but payment on a specified future date
Definition of a pegged system
This means a fixed system. The exchange rate is that it maintained by the government and usually pegged to the US dollar
When a company liquidates or files for bankruptcy, money is paid in this order
Employees back wages
IRS dues
Secured bond holders
Mortgage holders that have specific claim to assets
Unsecured bond holders in general creditors
Subordinate debentures
