economics and analysis

Question 1

GDP

Answer 1

• total value of all good and services

- published quarterly

Question 2

CPI

Answer 2

• consumer price index
• is a measure of inflation
• published daily

Question 3

describe an ideal economy

Answer 3

• GDP is up
• CPI is down
• moderate inflation

Question 4

describe a general business cycle

Answer 4

• expansion-goes up
• peak-prosperity
• decline-goes down
• trough
• recovery-moves back up

Question 5

what are the 5 leading economic indicators

Answer 5

• building permits
• manufacturers’ new orders
• S&P 500 index
• M2 (money supply)
• new unemployment claims

Question 6

what are the 4 coincident economic indicators

Answer 6

• GDP
• industrial production
• personal income
• manufacturing and trade sales

Question 7

what are the 2 lagging economic indicators

Answer 7

• corporate profits

- duration of unemployment

Question 8

what 3 things can influence the economy

Answer 8

• fiscal policy (congress/president)
• monetary policy (federal reserve)
• federal reserve

Question 9

how does fiscal policy affect economy

Answer 9

• taxation (high = deflation, low = inflation)

- government spending

Question 10

what is keynesian theory?

Answer 10

active government manipulation of the economy

Question 11

describe M1 money supply

Answer 11

cash + demand deposits (checking accounts)

Question 12

describe M2 money supply

Answer 12

M1 + CDs + money market mutual funds

Question 13

describe M3 money supply

Answer 13

M2 + negotiable CDs

Question 14

what are the tools that the federal reserve board can use to influence economy?

Answer 14

• multipliers
• federal funds
• discount rate
• open market operations

Question 15

federal reserve board has control over?

Answer 15

bank reserve requirements

Question 16

describe the multiplier FRB tool

Answer 16

• is the most drastic tool

- changes reserve requirements banks must have in their position

Question 17

describe the fed funds FRB tool

Answer 17

-bank’s excess reserves to lend

Question 18

describe the discount rate FRB tool

Answer 18

• rate charged from feds to banks for loaning

- all rates are affected by the discount rate

Question 19

describe the open market operations FRB tool

Answer 19

• fed buys t-bills from institutions to make interest rate go down
• fed sells t-bills to institutions to make interest rate go up

Question 20

what happens if the value of a dollar goes up

Answer 20

• exports less competitive

- imports more competitive

Question 21

what happens if the value of a dollar goes down

Answer 21

• exports more competitive

- imports less competitve

Question 22

what are defensive (noncyclical) securities

Answer 22

basic human needs

• food
• utilities
• clothing
• drugs
• tobacco
• liquor
• cosmetics

Question 23

what are cyclical securities

Answer 23

can go way up or way down

• steel
• heavy equipment
• capital goods
• automobiles
• toy companies

Question 24

what are countercyclical securities

Answer 24

-precious metals (gold)

Question 25

assets=

Answer 25

liabilities + net worth

Question 26

net worth=

Answer 26

assets - liabilities

Question 27

working capital=

Answer 27

current assets - current liabilities

Question 28

current ratio=

Answer 28

current assets / current liabilities

Question 29

debt ratio=

Answer 29

long term debt / total capitalization

Question 30

earnings per share=

Answer 30

net income / # of common shares

Question 31

price to earnings ratio=

Answer 31

current market value / earnings per share

Question 32

dividend payout ratio=

Answer 32

common dividends / earnings per share

Question 33

when analyzing the market technically, what would a person use?

Answer 33

- price forecasting | - timing

Question 34

what is the odd lot trading theory?

Answer 34

says to do the opposite of what the little guys are doing

Question 35

what are the 4 market indiices

Answer 35

- dow jones composite - nyse composite - wilshire - S&P

Question 36

describe the components of the dow jones composite

Answer 36

-looks at 65 companies 30-industrials 20-transportation 15-utilities

Question 37

how many companies make up the NYSE composite?

Answer 37

3,000+

Question 38

how many companies make up the Wilshire composite?

Answer 38

5,000

Question 39

how many companies make up the S&P?

Answer 39

500

Question 40

what kind of recommendation for growth objectives?

Answer 40

-growth mutual fund and reinvest earnings

Question 41

what kind of recommendation for income objectives?

Answer 41

-income funds and dont reinvest earnings

Question 42

what kind of recommendation for preserving capital objectives?

Answer 42

- govt - govt backed - blue chip stocks

Question 43

what kind of recommendation for liquidity objectives?

Answer 43

- money markets - IRAs, keoughs - Roth IRAs

Question 44

what is credit risk?

Answer 44

risk of company going bankrupt

Question 45

what is business risk?

Answer 45

risk of industry doing poorly

Question 46

what is market risk?

Answer 46

risk of market decline

Question 47

what is purchasing power risk?

Answer 47

has to do with inflation risk

Question 48

what is marketability risk?

Answer 48

ability to resale security

Question 49

what is taxed as ordinary income?

Answer 49

earned money - salaries - wages - commissions - bonuses

Question 50

describe passive income

Answer 50

says that passive losses can only be used to offset passive income

Question 51

what is the 30 day wash rule

Answer 51

- investor exits position with a loss, then reestablishes position in an identical security with 30 days before or after trade - NOT ALLOWED

Question 52

what are examples of progressive taxes?

Answer 52

- income - estate - gift

Question 53

what are examples of regressive taxes?

Answer 53

- sales | - fuel