Economics and Suitability Summary Flashcards
What economic theory emphasizes government intervention and the use of fiscal policy to manage the economy?
Keynesian Economic Theory
Does the FRB control monetary or fiscal policy?
Monetary
An owner of utility stocks, preferred stocks, and bonds would be most concerned about changes in ______________.
An owner of utility stocks, preferred stocks, and bonds would be most concerned about changes in interest rates.
There would be an easing of the money supply if the discount rate is __________.
There would be an easing of the money supply if the discount rate is lowered.
The FRB will ______ securities to increase the money supply and ease credit.
The FRB will buy securities to increase the money supply and ease credit.
The FRB will ______ securities to decrease the money supply and tighten credit.
The FRB will sell securities to decrease the money supply and tighten credit.
What is the effect of lowering the minimum reserve requirement?
It increases the money supply and eases credit.
___________ is what occurs when there is “too much money chasing too few goods.”
Inflation is what occurs when there is “too much money chasing too few goods.”
The __________ rate is the only rate directly controlled by the FRB.
The discount rate is the only rate directly controlled by the FRB.
In proper order, list the four phases of the business cycle.
1) Expansion - 2) Peak - 3) Recession / Contraction - 4) Trough
__________________________ is the measure of goods and services produced by the U.S. worldwide.
Gross National Product (GNP) is the measure of goods and services produced by the U.S. worldwide.
What elements are influenced when implementing fiscal policy?
Taxes and expenditures
There would be a tightening of the money supply if the discount rate is __________.
There would be a tightening of the money supply if the discount rate is raised.
What is the transaction called when the FRB sells government securities and agrees to buy them back quickly?
A reverse repo
Deflationary periods are characterized by __________________ prices.
Deflationary periods are characterized by falling/decreasing prices.
If a member bank needs to borrow funds from the FRB, what rate will it be charged?
Discount rate
True or False: Government intervention is believed to assist in implementing monetary policy.
False. Fiscal (Keynesian) policy requires government intervention.
Are inflationary periods characterized by rising or falling interest rates?
Rising
______________ is the rate that banks charge their most creditworthy corporate clients.
Prime Rate is the rate that banks charge their most creditworthy corporate clients.
What is LIBOR?
London Interbank Offered Rate (LIBOR)
____________ occurs when the supply of goods exceeds the demand for goods.
Deflation occurs when the supply of goods exceeds the demand for goods.
Is the fed funds rate considered the least or most volatile rate?
Most volatile rate
What economic theory emphasizes controlling the money supply to manage the economy?
Monetary Economic Theory
What is the FOMC?
The FRB’s Federal Open Market Committee that will trade government securities with primary government dealers
A decline in GDP for two successive quarters is defined as a ____________.
A decline in GDP for two successive quarters is defined as a recession.
Stimulating the economy by reducing both taxes and the size of government is called _______________economic theory.
Stimulating the economy by reducing both taxes and the size of government is called supply-side economic theory.
_____________________ measures the goods & services produced within the U.S., disregarding the producer’s origin.
Gross Domestic Product (GDP) measures the goods & services produced within the U.S., disregarding the producer’s origin.
What is the least effective tool available to the FRB?
Margin requirements (Reg T)
What is the transaction called when the FRB buys government securities and agrees to sell them back quickly?
A repurchase agreement (repo)
The _______________________ is often considered the most important measure of inflation.
The Consumer Price Index (CPI) is often considered the most important measure of inflation.
What is the effect of raising the minimum reserve requirement?
It decreases the money supply and tightens credit.
________________ is a situation where clients withdraw funds from banks to seek higher yielding investments elsewhere.
Disintermediation is a situation where clients withdraw funds from banks to seek higher yielding investments elsewhere.
True or False: Inflation is a persistent rise in the general level of prices.
True
__________ requirements set the amount of funds that banks must hold in reserve against specified deposit liabilities.
Reserve requirements set the amount of funds that banks must hold in reserve against specified deposit liabilities.
The __________________ is the rate of interest banks charge each other on overnight loans.
The fed funds rate is the rate of interest banks charge each other on overnight loans.
If interest rates are higher in the U.S. than overseas, what should happen to the value of the U.S. dollar?
It should strengthen as more foreign money is being invested in the U.S.
