Learning Outcome 2 - 6 standard questions / Understand the macro-economic environment and its impact on asset classes

Question 1

Which is an indicator of consumer spending and retail sales; M0 or M4?

Answer 1

M0

Question 2

Which acts as an indicator of the economy; M0 or M4?

Answer 2

M4

Question 3

What does growth in M0 indicate?

Answer 3

Consumers are happily spending money

Question 4

What does contraction in M0 suggest?

Answer 4

Consumers are behaving more cautiously and not spending as much

Question 5

What does a contraction in M0 suggest?

Answer 5

Consumers are behaving more cautiously and not spending as much

Question 6

Rapid growth in money circulating in the economy is often interpreted as a build-up of what?

Answer 6

Inflationary pressures

Question 7

An increased demand for loans is reflected in a faster growth of M0 or M4?

Answer 7

M4

Question 8

What will happen to the value of money if the quantity of money supply is increased when consumers aren’t spending as much?

Answer 8

It’s value will fall

Question 9

Consumer demand over the supply of goods tends to force up the general
level of prices, causing inflation; true of false?

Answer 9

True

Question 10

The balance of payments measures receipts and payments. What does a receipt represent?

Answer 10

Payments into the UK

Question 11

The balance of payments measures receipts and payments. What does a payment represent?

Answer 11

Payments out of the UK

Question 12

The current account used for the countries balance of payments is split into which 4 categories?

Answer 12

Trades in goods
Trades in services
Investment income
Transfer payments

Question 13

What does a deficit in the current account mean?

Answer 13

More goods and services have been imported into the UK than sold abroad (basically the UK spent too much, similar to being in an overdraft on your current account)

Question 14

What creates a trade gap?

Answer 14

When the UK has imported more goods than it has exported

Question 15

What is the difference between the capital and current account for the country in terms of the types of transactions it contains?

Answer 15

Current account deals with imports and exports of trades and services
Capital account deals with foreign investments in the UK and abroad

Question 16

If overseas investors invest more money in the country than UK investors invest overseas, what would happen to the UK capital account?

Answer 16

It would be in a surplus

Question 17

Which measure of inflation is used against Government index-linked gilts?

Answer 17

RPI

Question 18

What has been the lead measure of inflation used by the ONS since 2017?

Answer 18

CPIH

Question 19

Disinflation is unlikely to occur during recession. True or false?

Answer 19

False

Question 20

An increase in inflation has been predicted, what may happen to the price of conventional gilts as a result?

Answer 20

Fall

Question 21

What does gross domestic product (GDP) measure?

Answer 21

The value of all goods and services produced domestically during the calendar year

Question 22

When the level of GDP falls compared with the previous quarter, the economy is said to be…

Answer 22

Contracting

Question 23

After two successive quarters of declining GDP, the economy is said to be in…

Answer 23

Recession

Question 24

When GDP rises compared with the previous quarter, the economy is….

Answer 24

Expanding

Question 25

If the growth in M0 is consistent but M4 shows a sharp decline, what does this mean about lending activity?

Answer 25

It has been reduced

Question 26

In a period when interest rates have fallen substantially, the nominal value of a conventional fixed-interest security at maturity will increase, decrease, or remain constant?

Answer 26

Remain constant

Question 27

Which type of industries are at a disadvantage due to globalisation?

Answer 27

Low-skilled, labour-intensive industries in the developed world

Question 28

What are the 4 main phases of a business cycle?

Answer 28

Recovery/acceleration, boom, slowdown and recession

Question 29

What happens to the yield and value of fixed-interest securities if interest rates rise?

Answer 29

Value = decrease
Yield = increase

Question 30

A Japanese company is looking to establish a new factory in the UK. Assessing this decision in isolation, what would be the likely change in the exchange rate between UK Sterling and Japanese Yen?

Answer 30

Sterling would appreciate and Yen would weaken

Question 31

What does is mean for inflation when a rapid growth in M4 is witnessed?

Answer 31

Inflationary pressures are building up

Question 32

If the M0 measure of money growth is consistent, but the M4 measure shows a sharp decline, what does this suggest about lending activities?

Answer 32

They have reduced

Question 33

What can a predicted increase in inflation mean for the price of conventional gilts?

Answer 33

They can fall

Question 34

Building inflationary pressures can be seen in the rapid growth of M0 or M4?

Answer 34

M4

Question 35

What is the public sector net cash
requirement (PSNCR)?

Answer 35

The difference between the governments expenditure and revenue

Question 36

When the economy is in recession, what is likely to happen to the PSNCR?

Answer 36

Grow

Question 37

When the economy is expanding, what is likely to happen to the PSNCR?

Answer 37

Become a deficit