Economics Flashcards
What are the four phases of the economic cycle?
Recovery, Boom, Contraction, and Recession.
How does inflation affect different asset classes?
Cash: Rates generally rise and fall with inflation. Fixed Interest Securities: Purchasing power declines; index-linked securities can provide protection. Equities: Seen as a hedge as companies’ profits and dividends tend to grow with inflation.
What is the goal of fiscal policy?
To influence economic activity by adjusting taxation and government spending.
How does monetary policy stabilize the economy?
By controlling interest rates and the money supply to manage inflation and influence consumer demand.
Name two ways globalisation impacts investments.
- Allows investors to access foreign markets and multinational companies. 2. Enhances efficiency and global quality standards through international trade.
What typically causes financial bubbles?
Speculative behavior where prices deviate from fundamental values, often fueled by loose monetary policies.
What are the main components of the balance of payments?
- Current account: Tracks trade of goods, services, and income flows. 2. Capital account: Tracks foreign investments in and out of a country.
How does technological change impact markets?
By driving efficiency, creating high-growth industries, and transforming existing ones (e.g., e-commerce and telecoms).
What is quantitative easing, and why is it used?
It involves creating money to purchase assets like gilts and bonds to increase money supply and stimulate the economy.
Why is inflation a key consideration for investors?
Because it reduces the real value of interest, dividends, and capital investments over time.
What is the purpose of exchange rates in trade?
To facilitate the purchase of one country’s currency with another, affecting imports, exports, and investment returns.
How do governments influence the economic cycle during elections?
By creating favorable economic conditions before elections and stabilizing the economy afterward.
