Economics Flashcards
Which school of economists encourages a government to spend money to move the economy into an expansionary phase?
Keynesian
According to the _________ Economic Theory, production & economic growth are stimulated by…
- Increased government borrowing
- Increased government spending
The belief that the economy & inflation are best controlled through the management of the money supply rather than thru fiscal policy stimulation.
Monetarist Theory
Technical Analysis…
- Tries to identify & predict changes in the market
Inflation Risk…
the uncertainty that an investors purchasing power will decrease due to the shrinking value of the currency
Anchoring bias…
when people tend to base their decisions on reference points that are often arbitrarily chosen
Weak Form EMT
- states that prices reflect all past publicly available information, but that this has no validity for predicting future price movements
- implies that technical analysis is useless to improve returns, but fundamental analysis still has potential value
Inflation & Interest Rates generally decline during..
recessionary periods
Semi-Strong Form EMT
- States that prices respond rapidly to publicly available information, so that no potential gains can be made by trading on that information
- Implies that anyone with insider information has an inherent advantage & can profit by trading on it
(Most investors subscribe to this)
Monetarist theory states that the economy is stimulated by…
the actions of the Federal Reserve
To stimulate the economy using Fiscal Policy, what actions could be taken?
- reduce tax rates
- increased government spending
Head & shoulders bottom formation
- bullish
- market has bottomed out & is now moving back upwards
- reverse downtrend
Fundamentalists would want to know…
earnings potential & risks associated with a particular firm
- entire economy view
- company’s industry
- financial statements
Market indicators used by contrarians?
- short interest level
- level of odd lot sales v. purchases
- put/call ratio
Bottom Up Analysis
starts by attempting to find superior performing companies, regardless of the industry
those analysts believe that these companies will provide attractive returns even if they are in an industry sector that is in a negative position in the economic cycle
Which industries are typically affected by a recession?
- durable goods
- capital goods
If the U.S. dollar is devalued relative to other world currencies,
- US exports will be…
& - Foreign imports will be…
- US exports will be more competitive overseas
2. Foreign imports will be less competitive with ours
Recession
two consecutive quarters of economic decline
Fundamental Analysis
attempts to value stock by examining general economic conditions & growth prospects
How is core CPI different from normal CPI?
Core CPI excludes food & energy prices
What kind of economic indicator is the Prime Interest Rate?
lagging
The Prime Rate is set by…
the banks
The Fed controls…
- the reserve requirements
- the activities of the Federal Open Market Committee
- the discount rate
Corporations long-term liabilities?
remaining interest payments
What type of assets hedge against inflation?
Tangible assets
Commodities, real estate
Net worth formula?
Assets - Liabilities = Net Worth
Customer Cash Flow Statement
Anything that goes in - comes out on a monthly basis
In:
- Salary
- Investment Income
- Rental Income
Out:
- CC Bills
- Debt
- Tax
- Mortgage
Strong form EMT
States that prices respond rapidly to both publicly available & private information, so that no one can profit by trading on this information
Efficient Market Theory (EMT)
The belief that all information about an issuer is available to all participants in the market at the same time & that prices of securities directly reflect investor expectations based on this information
Technical Analysts would want to know…
- market statistics indicative of future buying
- market statistics that could reflect price or market trends
- trading volume
- short interest ratio
- trend lines
- advance/decline line
Country A develops a new product that is in high demand around the world. The likely effect of this would be…
When exports exceed imports (the likely case here), it leads to a trade surplus.
Invariably, that causes a positive balance of payments, which has the tendency to increase the value of that country’s currency relative to others.
There is no way to know how this new product will impact the tax legislation of Country A.
The contraction phase is characterized by…
- business sales falling
- unemployment increasing
- gross domestic product (GDP) growth falling.
