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CFA Level 1 > Economics: Monetary and Fiscal Policy > Flashcards

Economics: Monetary and Fiscal Policy Flashcards

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CFA flashcards
1
Q

Action Lag

A

Delay from policy decisions to implementation

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2
Q

Automatic Stabilizer

A

A countercyclical factor that automatically comes into plays as the economy slows and unemployment rises

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3
Q

Balanced

A

With respect to a government budget, one which spending and revenues (taxes) are equal

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4
Q

Barter Economy

A

An economy where economic agents, households, corporations,

and governments “pay” for a good and service with another good or service

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5
Q

Base Rates

A

The reference rate on which a bank bases lending rates for all other customers

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6
Q

Bond Market Vigilantes

A

Bond market participants who may reduce demand for long-term bonds, lowering price and pushing up yield.

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7
Q

Broad Money

A

Encompasses narrow money plus the entire range of liquid assets that can be used to make purchases

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8
Q

Budget Surplus/Deficit

A

The difference between government revenue and expenditure over a fixed amount of time.

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9
Q

Capital Expenditure

A

Expenditure on physical capital (fixed assets)

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10
Q

Central Banks

A

The dominant bank in a country, usually with official or semi-official govt status

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11
Q

Contractionary

A

Tending to cause the real economy to contract

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12
Q

Contractionary Fiscal Policy

A

A fiscal policy that has the goal to make the real economy contract

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13
Q

Crowding Out

A

The thesis that government borrowing may divert private sector investment from taking place

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14
Q

Current Government Spending

A

Government Expenditures on a regular recurring basis such as

  • Defense
  • Health
  • Education
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15
Q

Deflation

A

Negative Inflation

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16
Q

Demand Shock

A

A typically unexpected disturbance in demand such as an unexpected interruption of trade

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17
Q

Direct Taxes

A

Taxes directly levied on income, wealth or corporate profits

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18
Q

Double coincidence if Wants

A

Prerequisite to barter trade, each person wants what other has.

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19
Q

Economic Stabilization

A

Reduction of magnitude of economic fluctuations

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20
Q

Expansionary

A

Tending to cause the real economy to grow

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21
Q

Expansionary Fiscal Policy

A

Fiscal policy with goal to cause real economy to grow

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22
Q

Expected Inflation

A

The level of inflation that economic agents are expecting in the future

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23
Q

Fed funds rate

A

The US interbank lending rate on overnight borrowings if reserves

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24
Q

Federal Funds Rate

A

The US interbank lank rate on overnight borrowings of reserves

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25
Q

Fiat Money

A

Money that is not convertible into any other commodity

26
Q

Fiscal Multiplier

A

1/(1-C(1-T))

The ratio of a change in national income to a change in government spending

27
Q

Fiscal Policy

A

The use of taxes and government spending to affect the aggregate level of expenditure

28
Q

Fisher Effect

A

thesis that real interest rates are stable over time ie changes in nominal interest rates are the result of changes in expected inflation

29
Q

Foreign Currency Reserves

A

Holding by the central bank of non-domestic currency deposits and non-domestic bonds

30
Q

Fractional Reserve Bank

A

Banking in which reserves constitute a fraction of deposits

31
Q

Gilts

A

Bonds issued by UK government

32
Q

Gold Standard

A

When a currency can be converted into a specified amount of gold

33
Q

Open Market Operation

A

Central bank buying and selling bonds as a means of monetary policy.

34
Q

Operational Independence

A

A banks ability to execute monetary policy and set interest rates in the way it thought would best meet the inflation target

35
Q

Payments System

A

The system for the transfer of money

36
Q

Policy Rate

A

An interest rate that a central bank sets and announces publicly; normally the rate at which it is willing to lend money to the commercial banks.

37
Q

Portfolio Demand for Money

A

the demand to hold speculative money balances based on the potential opportunities or risks that are inherent in other financial instruments

38
Q

Precautionary Money Balances

A

Money held to provide a buffer against unforeseen events that might require money.

39
Q

Price Stability

A

In economics, refers to an inflation rate that is low on average and not subject to wide fluctuation

40
Q

Promissory Note

A

A written promise to pay a certain amount of money on demand

41
Q

Quantitative easing

A

An expansionary monetary policy based on aggressive open market purchase operations

42
Q

Quantity equation of exchange

A

M x V is equal to P x Y

43
Q

Quantity theory of money

A

Asserts that total spending (in money terms) is proportional to the quantity of money

44
Q

Recognition Lag

A

The lag in government response to an economic problem resulting from the delay in confirming a change in the stars of the economy.

45
Q

Refinancing rate

A

A type of central bank policy rate

46
Q

Repurchase agreement

A

Collaterizes loan type

47
Q

Reserve requirement

A

The requirement for banks to hold reserves in proportion to the size of deposits

48
Q

Ricardian equivalence

A

An economic theory that implies government financing deficit by increasing taxes or issuing debt is inconsequential

49
Q

Risk premium

A

An extra return expected by investors for bearing some specified risk

50
Q

Speculative Demand for Money

A

The demand to hold speculative money balances for potential opportunities/risks

51
Q

Speculative Money Balances

A

Monies held in anticipation that other assets will decline in value

52
Q

Store of Value

A

The quality of tending to preserve value

53
Q

Store of wealth

A

Goods that depend on the fact that they do not perish physically over time, and on the belief that others would always value the good

54
Q

Structural (or cyclically adjusted) budget deficit

A

The deficit that would exist if the economy was at full employment (or full potential)

55
Q

Supply Shock

A

A typically unexpected disturbance to supply.

56
Q

Target Independent

A

A banks ability to determine the definition of inflation that they target, the rate of inflation that they target and the horizons over which the target is to be achieved.

57
Q

Transactions money balances

A

Money balances that are held to finance transactions

58
Q

Transfer Payments

A

Welfare payments made through the social security system that exist to provide a basic minimum level of income for low income households

59
Q

Two-week repo rate

A

Rate on 2 week repurchase agreement

60
Q

Unanticipated Inflation

A

The component of inflation that is a surprise

61
Q

Unexpected inflation

A

The component of inflation that is a surprise

CFA Level 1 (50 decks)

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