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SLAMCI Phase 1 > Economic Principles > Flashcards

Economic Principles Flashcards

1
Q

What does GDP measure?

A

The value of goods and services produced within a country regardless of the nationality of the persons producing such goods and services.

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2
Q

What does GNP measure?

A

The value of goods and services produced by a country in a given year, regardless of whether such goods and services are produced within or outside the country.

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3
Q

What is the difference between GDP and GNP?

A

GDP measures the output produced within the geographic borders of a country, while GNP measures the output generated by the labor and capital owned by the citizens of a country.

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4
Q

What is the formula for GDP computation?

A

Consumption (C) + Government Expenditures (G) + Investments (I) + Exports (+) - Imports (X)

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5
Q

What is the Balance of Trade (BOT)?

A

The difference between the value of a country’s imports and exports for a given period.

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6
Q

What is a trade deficit?

A

The amount by which the cost of a country’s imports exceeds the value of its exports.

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7
Q

What is a trade surplus?

A

The amount by which the value of a country’s exports exceeds the cost of its imports.

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8
Q

What are the four phases of the business cycle?

A

Peak, trough, expansion, contraction

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9
Q

What happens during the peak phase of the business cycle?

A

Economic activity is at its highest, and there is rapid growth in GDP, employment, and inflation.

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10
Q

What happens during the trough phase of the business cycle?

A

Economic activity is at its lowest, and there is a decline in GDP, employment, and inflation.

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11
Q

What happens during the expansion phase of the business cycle?

A

Economic activity is increasing, and there is a rise in GDP, employment, and inflation.

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12
Q

What happens during the contraction phase of the business cycle?

A

Economic activity is decreasing, and there is a fall in GDP, employment, and inflation.

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13
Q

What are monetary policies?

A

Actions taken by a central bank to influence the availability and cost of money and credit in the economy.

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14
Q

What are the tools of monetary policy?

A

Open market operations, discount rate, reserve requirements

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15
Q

What are open market operations?

A

The buying and selling of government securities by the central bank in the open market.

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16
Q

What is the discount rate?

A

The interest rate charged by the central bank to commercial banks on loans.

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17
Q

What are reserve requirements?

A

The amount of funds that banks must hold in reserve against deposits.

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18
Q

What is expansionary monetary policy?

A

A policy that increases the money supply and lowers interest rates to stimulate economic growth.

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19
Q

What is contractionary monetary policy?

A

A policy that decreases the money supply and raises interest rates to slow down economic growth.

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20
Q

What is the monetarist economic theory?

A

The theory that the quantity of money or money supply is the major determinant of price levels.

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21
Q

What are the measures of money supply?

A

M1, M2, M3

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22
Q

What is M1?

A

Currency in circulation and demand deposits.

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23
Q

What is M2?

A

M1 + savings accounts and time deposits.

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24
Q

What is M3?

A

M2 plus assets and liabilities of financial institutions.

25
Q

What is the Keynesian economic theory?

A

The theory that the economy can sometimes operate below potential output and that government policies could be used to increase demand.

26
Q

What is the supply-side economic theory?

A

The theory that economic growth can be achieved by lowering barriers for people to produce goods and services.

27
Q

What is the efficient market hypothesis?

A

The theory that the market is information efficient and that no one can consistently achieve excess returns above market average.

28
Q

What is technical analysis?

A

The analysis of past market data to estimate future price.

29
Q

What are the characteristics of a bullish market?

A

Rising volumes, more advancers than decliners, shares are trending higher (above the moving averages).

30
Q

What are the characteristics of a bearish market?

A

Falling volumes, more decliners than advancers, shares are trending lower (below the moving averages).

31
Q

What is a financial index?

A

A numeric score based on inputs such as a variety of asset prices. It can be used to track the performance of a group of assets in a standardized way.

32
Q

What are the types of indexes?

A

Price-weighted averages, market-value weighted indexes, equal weighted indexes

33
Q

What is portfolio management?

A

The art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against performance.

34
Q

What are the rules for managing a portfolio?

A

Establish an investment plan, select purchases methodically and professionally, invest as funds become available, hold until a definite reason for selling appears, keep accurate and complete records, monitor holdings regularly, diversify securities holding.

35
Q

What is diversification?

A

The process of spreading investments across different asset classes, industries, tenors, and geographies to reduce risk.

36
Q

What are the types of markets?

A

Money market, capital market, primary market, secondary market, third market, fourth market

37
Q

What is the money market?

A

The market for short-term debt instruments.

38
Q

What is the capital market?

A

The market for long-term debt and equity instruments.

39
Q

What is the primary market?

A

The market where new issues of bonds, preferred stock or common stock are sold by government, municipalities and companies to acquire new capital.

40
Q

What is the secondary market?

A

The market that permits trading in outstanding issues and provides liquidity for securities issued in the primary market.

41
Q

What is the third market?

A

The market that involves dealers and brokers who trade shares that are listed on an exchange away from the exchange.

42
Q

What is the fourth market?

A

The market that involves direct trading of securities without broker intermediation.

43
Q

What are the market participants?

A

Broker, dealer, market maker, trader

44
Q

What is a broker?

A

Buys and sells securities for the account of others.

45
Q

What is a dealer?

A

Buys and sells securities for his own account.

46
Q

What is a market maker?

A

Provides liquidity to the market by posting both bid and ask prices for certain issues.

47
Q

What is a trader?

A

Acts as both broker and dealer.

48
Q

What are the types of financial statements?

A

Balance sheet, income statement, statement of cash flows, statement of stockholders’ equity

49
Q

What is a balance sheet?

A

A financial statement that reflects the financial condition of a corporation as of a specified date.

50
Q

What is an income statement?

A

A financial statement that summarizes the results of the corporation’s operations for a given period of time.

51
Q

What is a statement of cash flows?

A

A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities.

52
Q

What is a statement of stockholders’ equity?

A

A financial statement that shows changes in the equity accounts of a company during a reporting period.

53
Q

What is financial ratio analysis?

A

The use of financial ratios to assess a company’s financial performance and condition.

54
Q

What are the types of financial ratios?

A

Profitability ratios, activity ratios, liquidity ratios, coverage ratios, valuation measures

55
Q

What are profitability ratios?

A

Ratios that reflect the performance of the company represented by profit.

56
Q

What are activity ratios?

A

Ratios that are used to measure a business’ ability to convert its assets into cash.

57
Q

What are liquidity ratios?

A

Ratios that measure the ability to meet short-term obligations.

58
Q

What are coverage ratios?

A

Ratios that measure a company’s financial leverage and risk.

59
Q

What are valuation measures?

A

Measures used to determine the current worth of an asset or a company.

SLAMCI Phase 1 (7 decks)

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